Push for Islamic finance in Asean to lure Gulf investors

There have been moves recently to strengthen Islamic finance in the Association of Southeast Asian Nations, or Asean, which were spearheaded by the country with the largest global market share in Shariah finance, Malaysia.

New Malaysian standards for Shariah-compliant equities that are expected to attract more Islamic investment funds from Gulf countries have been introduced last week by the Malaysian Securities Commission. A revised list of Malaysian equities that qualify for Islamic investment, compiled by the SC, took effect on November 29. It uses an improved screening methodology that encompasses quantitative filters such as benchmarks for financial ratios, moving closer to the approach generally used in the Gulf. The change is widely expected to help further internationalise Malaysia’s Islamic finance industry.

The methodology had previously included only qualitative screens; for example, it banned companies involved in sectors such as tobacco, alcohol, weapons and gambling. Islamic fund managers in Malaysia now have six months to drop securities that are excluded from the list, which currently has a total of 653 Shariah-compliant stocks out of 914 listed on the Bursa Malaysia.

In another move, the Philippine Stock Exchange has said that it will in December this year designate its first Shariah-compliant companies, in a bid to keep Muslims’ money in the country rather than see it being sent to Islamic markets abroad, and, on the other hand, attract foreign Islamic investors. Up to 50 companies out of about 300 listed on the exchange qualify for Shariah-compliance, and the list could eventually support the creation of a Shariah index on the exchange. Over the past few months, the Philippine central bank has been pushing several initiatives to develop the Islamic finance sector and encourage financial inclusion of the Muslim minority. The central bank has also asked congress to have its charter amended, a move that would allow it to provide Shariah-compliant instruments to Islamic banks, in particular interbank lending products.

Another strengthening player in the sector is Singapore. The city state has been following the ambition of becoming a new regional centre for Islamic finance, mainly in direct competition to Malaysia. The government has undertaken initiatives in areas such as taxation, capital markets, REITs, takaful insurance and Islamic equity indexes in order to improve Singapore’s attractiveness for Islamic finance. DBS Bank has already taken the lead and launched the Islamic Bank of Asia to focus on corporate capital markets and private banking services. Singapore can certainly capitalise on its proximity to Indonesia, where demand for Islamic finance is huge but options are few, and also benefit from the rising interest in Shariah banking from China – by utilising its new role as Asia’s yuan renminbi trade centre.

Our columnist Dr Arno Maierbrugger is Editor-in-Chief of www.investvine.com, a news portal owned by Inside Investor focusing on Southeast Asian economic topics as well as trade and investment relations between Asean and the GCC. The views expressed are his own.

(Gulf Times / 08 Dec 2013)

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IFSB revising guidelines for Islamic finance institutions around the world

SYDNEY: Kuala Lumpur-based Islamic Financial Services Board (IFSB) is revising guidelines on the supervision of Islamic finance institutions around the world, helping tighten regulatory oversight of industry practices.

Guidelines from the IFSB, one of the main standard-setting bodies for Islamic finance, are gaining prominence as the industry takes a greater share of the banking sector in several majority Muslim countries.

The latest update complemented stricter Basel rules, agreed globally to make banks safer after the 2007–09 credit crisis, IFSB secretary-general Jaseem Ahmed toldReuters.

This expands its original 2007 document, known as IFSB5, to include areas such as regulatory capital, corporate governance, stress testing, securitisation exposures, liquidity, concentration and counter-party risk.

“Overall, the revisions are significant, in particular the areas which were not envisaged in the IFSB5,” Ahmed said. “It is broadly analogous to Pillar 2 of the Basel accords.”

Founded in 2002, the IFSB’s initial efforts have focused on winning a wide membership base, leaving implementation and enforcement to national regulators to decide.

Now, however, the 187-member IFSB is issuing more detailed guidance in response to the global financial crisis, and a trend towards tightening regulation of conventional financial markets.

In the past year, the IFSB has issued separate guidelines on liquidity risk management and stress testing, while currently reviewing a draft on capital adequacy.

The revision provides more detailed guidance on areas such as Islamic windows, a practice which allows conventional banks to offer Islamic financial services provided that clients’ money is segregated from the rest of the bank.

Islamic windows are widely used in the industry but some regulators have struggled to cope with monitoring their risks and the complexity of financial reporting.

The IFSB plans a public hearing on the revised standard on Monday in Qatar, following a similar hearing in Kuala Lumpur last month.

(The Star Online / 07 Dec 2013)

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Malaysia has the best Islamic finance module says Standard Chartered Saadiq

MANAMA (Bahrain ): STANDARD Chartered Saadiq Malaysia (Saadiq Malaysia) believes that Malaysia's Islamic finance module is the closest to perfection and, as such, is utilising it to the betterment of its global operations. "There are best practices everywhere, but we believe that Malaysia right now has the best module, and that's why we are bringing in talent from all over the world to learn this," Wasim Saifi , Saadiq Malaysia's chief executive officer and global head of Islamic banking, told Business Times at the World Islamic Banking Conference (WIBC), here, yesterday. "Right now, we are in the process of bringing in talent from our global branches to Malaysia in order to allow them to work and learn the Malaysian module so that when they go back in three years or so, they will be able to emulate the module in their countries," he said. Wasim noted that as of now, Saadiq Malaysia has already brought in two talents from Dubai , two from Pakistan , and two more from Bangladesh and Indonesia , respectively, in early next year. "We're not even looking at the numbers when it comes to bringing in talent into the country," he said, when asked how much investment Saadiq Malaysia was putting into the exercise. "It's really not an issue because at the end of the day, we can have all the technology and the products, but there's no point if we don't have the talent and the expertise to manage them," Wasim said, adding that the exercise, which started this year, will continue till 2015. He also said that Saadiq Malaysia is looking to aggressively grow its small- to medium- sized enterprise (SME ) segment next year, while also looking to raise its product disbursement via 32 existing Standard Chartered branches. "SME is always an important segment not only to Saadiq, but also the group. So we do have plans to increase this next year, but I can't reveal how just yet," he said. Wasim earlier participated in the CEO and industry leaders' power debate in "New Strategic Approaches to Revitalise Global Growth" and was a panelist in the "Expanding the Global Reach and Depth of Islamic Finance" session. The conference is now in its 20th year and saw the participation of 1300 delegates from 50 countries.

(HispanicBusiness.Com / 05 Dec 2013)

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Hong Kong, Malaysia eye closer Islamic finance ties

Bankers in Hong Kong and Malaysia are strengthening ties to boost Islamic business by focusing on the issuance of Islamic bonds and mutual funds to target investors in both markets.

A private-sector forum hosted by regulators this week is part of growing efforts to boost cross-border business between the two Asian financial centres, as competition heats up for a slice of Islamic finance business.

Identifying potential sukuk issuers which can benefit from broadening their funding sources is one area of focus, said a joint statement from Malaysia's central bank and Hong Kong's Monetary Authority.

Those plans are being spurred by Hong Kong enacting a tax bill in July to facilitate sukuk issuance, while regulators aim to present a bill in the first quarter of next year to allow the government to issue sukuk of its own.

Islamic finance, centred in southeast Asia and the Middle East, follows religious guidelines such as a ban on interest and monetary speculation. Such transactions often need clarification on their tax status as they can face heavy taxation because they involve multiple transfers of the assets backing them.

Getting traction on Islamic funds is another priority, capitalizing on a mutual recognition agreement signed in 2009 between both regulators.

Malaysia is already encouraging funds to be marketed to the Gulf region through a similar agreement with the Dubai Financial Services Authority.

Malaysia has the largest base of Islamic mutual funds in the world, with 210 retail and wholesale funds that had 79.6 billion ringgit ($24.6 billion) in assets under management as of December 2012.

The forum was attended by eight commercial banks and three fund management companies, with a conference in Hong Kong now planned for the first half of next year to raise awareness of Islamic finance.

(Trade Arabia / 06 Dec 2013)
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Islamic Finance Market Hits $1.7 Trilion – Central Bank of Kuwait Governor

‘Number Of Islamic Institutions Exceed 600’

KUWAIT CITY, Dec 4, (KUNA): Volume of the global Islamic financial market has reached $1.7 trillion, revealed the Central Bank of Kuwait Governor, hoping the Shariaa-abiding services will grow further and turn much more competitive worldwide. Volume of the financial Islamic services market, measured by assets’ volume, has exceeded $1.7 trillion, making a record jump from only $150 billion in middle of the 90s, said Dr Mohammad Al-Hashel, in a statement he addressed to the opening session of the World Islamic Banking Conference (WIBC 2013) that opened in Manama, Bahrain, on Tuesday. Number of financial institutions has exceeded 600, operating in 75 states, said the CBK governor in his statement at the Manama-hosted conference, excerpts of which were released in a statement, issued by the CBK in Kuwait on Wednesday.

“Although such developments are encouraging, they remain short of what we aspire to with regard of the ambition to make more progress and growth in the Islamic financing industry and bolster this sector competitive status at the international level,” Dr Al-Hashel said. Dr Al-Hashel was a keynote speaker at the convention, themed “transformations to boost international Islamic financing competitiveness.” He was invited to the conference by his Bahraini counterpart, Rasheed Mohammed Al-Maraj, considering Kuwait as a pioneer in Islamic finance services.

In contrast to the positive figures reflecting growth of the Islamic financial markets, Dr Al-Hashel noted that Islamic funding has remained at the ebb, estimated at only one percent of the global financing. The number-one Kuwaiti banker presented several ideas to tackle the Islamic funding weakness, proposing special laws aimed at encouraging such services, boosting supervisory and regulatory systems, giving a role for academic and research institutions. Underlining pivotal role of the Shariaa supervisory authorities, Dr Al-Hashel called on the financial institutions to innovate and develop new services. Funding should be available to all consumers, regardless of religious beliefs, and such an approach would make the Islamic financing services competitive vis a vis the classic financing systems.

(Arab Times / 06 Dec 2013)

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UAE, five other nations control 80% of Islamic banking assets

Global Islamic banking assets with commercial banks are expected to reach $1.72 trillion in 2013, according to EY’s latest World Islamic Banking Competitiveness Report 2013-14, launched on Wednesday at the World Islamic Banking Conference in Manama, Bahrain. 

In 2012, global Islamic banking assets with commercial banks reached $1.54 trillion. The report revealed that six rapid-growth markets including Qatar, Indonesia, Saudi Arabia, Malaysia, UAE and Turkey (QISMUT) represented 78 per cent of the international Islamic banking assets with commercial banks, excluding Iran.

This includes both pure-play Islamic banks and windows of conventional banks. There is also increased demand on established and new reference centres including Bahrain and Malaysia to provide leadership for the next phase of industry’s development.

Gordon Bennie, Partner and MENA Financial Services Leader at EY, said: “We believe that the future success of Islamic banks will be measured less by the growth of assets and more by the quality of this growth. Impact made through responsible banking, inclusive growth and alignment with the broader halal asset class will be the defining features. Also, trade patterns are shifting decisively in favour of rapid growth markets and QISMUT will be the major beneficiaries. Banks with strong connectivity across key markets and sectors are set to gain.”

QISMUT is home to 17 of the top 20 Islamic banks and the global Islamic banking standard setting bodies. QISMUT holds the largest pool of financial and intellectual capital of the industry that will drive the next wave of development across existing and new markets.

Ashar Nazim, Partner, Global Islamic Banking Centre at EY, said: “Bahrain and the six rapid-growth markets are systemically important to the future globalisation of the Islamic banking industry. We expect Islamic banking to grow at a CAGR of 19.7 per cent across QISMUT to reach $1.6 trillion by 2018 compared to $567 billion in 2012.”

According to the report, Islamic banks today serve approximately 38 million customers globally, two third of whom reside in QISMUT. However, few Islamic banks are able to fully apply customer insights to innovate.  Going forward, emphasis on customer excellence will be the key differentiator that will separate successful Islamic banks from others.

“Islamic finance markets are far from being homogenous as each market is at a different stage of maturity and profitability varies significantly compared to conventional banking. For 2012, the average ROE of the 20 leading Islamic banks was 12.6 per cent compared to 15 per cent for its conventional peers,” added Ashar.

The report reveals that many banks are currently in the process of replacing or upgrading their core banking system. Capital planning in view of Basel 3 and IFSB guidelines is already influencing the preferred business mix and more Islamic banks believe that the collaborations between mobile providers and banks will further accelerate the adoption of mobile banking beyond payments to more complex savings and financing products.

The biggest challenges for Islamic banks are how to become a mainstream form of banking in their home markets, diversification to build regional brands, and taking a more socially responsible approach to differentiate themselves from conventional banks. 

The growth of the industry is expected to remain moderate going into 2014, as several leading Islamic banks contemplate large scale operational transformation. 

“Driving such a broad change programme - combining cost improvement with revenue growth - requires exceptional leadership capabilities and significant management capacity. Moving forward, customer and technology will be among the top transformation themes for the global Islamic banking industry,” said Ashar.

(Emirates / 05 Dec 2013)

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Malaysia gives support for Hong Kong Islamic financial market

More measures to encourage the development of the Hong Kong’s Islamic financial market, particularly the sukuk and the Islamic fund management industry were discussed during the first meeting of the Joint Finance Forum which was held in the special administrative region.

The forum was held yesterday following an agreement between the Hong Kong Monetary Authority (HKMA) and Bank Negara in August to strengthen collaboration between Hong Kong and Malaysia in the area of Islamic finance.

The forum participants agreed to identify potential sukuk issuers and encourage cross-border sukuk issuances between Hong Kong and Malaysia.

In particular, corporations located in the region could be one of the key sources of potential sukuk issuers.

“Hong Kong market players supported that sukuk should be offered as one of the possible options or solutions to their clients who have funding needs, as sukuk can be a means for potential issuers to expand their investor base.

“Participants also welcomed the initiative of the Hong Kong government to consider issuing sukuk, which will showcase Hong Kong’s Islamic financial platform to local and international issuers and investors,” said HKMA and Bank Negara in a joint statement.

The participants also agreed to consider launching Islamic funds and make use of the established mutual recognition framework for Islamic funds between Hong Kong and Malaysia to facilitate cross-border Islamic financial activities.

This will encourage a wider range of syariah-compliant fund offerings in Hong Kong and Malaysia.

The meeting also agreed to enhance the strategic financial linkages between Hong Kong and Malaysia aimed at facilitating cross-border investment flows and creating greater opportunities for investors from the region and other parts of the world, the statement said.

HKMA and BNM acted as facilitators, while the Financial Services and the Treasury Bureau of the Hong Kong Government, the Securities and Futures Commission and the Hong Kong Exchanges and Clearing Ltd also participated in the meeting.

(The Star Online / 04 Dec 2013)

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