iMAL Solution Delivers Competitive Edge To FEE Bank

FEE Bank and Path Solutions today announced that the newly established FEE Bank branch in Malaysia would implement iMAL Conventional and Islamic Banking Solution. Under the deal, Path Solutions will undertake to deliver an integrated banking solution encompassing front-end delivery channels, financing management, accounting, treasury and trade finance, including database and IT infrastructure. Path will also provide in-depth business consulting services to support the bank's growing ambitions.

"We have gone through a rigorous selection process which focused on finding a world-class banking software package to support the bank's crucial objectives on client-centricity, growth and time-to-market. We were also looking for a technology that would enable us to respond quickly and effectively to continually changing business dynamics" explained Dr. Ali Afzali, Chief Executive Officer of FEE Bank.

"We have evaluated several leading technology solutions and finally chose iMAL Enterprise Banking Solution as it offers a comprehensive solution addressing our both conventional and Islamic banking needs and proved to be functionally superior at every stage of the evaluation. Leveraging iMAL, the bank plans to create a differentiated customer experience through innovative products to support our aggressive growth plans. This contract marks a concrete step forward in the cooperation between FEE Bank and Path Solutions ", Dr. Afzali said.

Naji Moukadam, President of Path Solutions explained, "We are very pleased to be working with FEE Bank in setting up their IT infrastructure. FEE Bank has impressive growth plans. These include increasing its profitability by diversifying its product offerings as well as expanding its presence in other countries too. We look forward to helping FEE Bank achieve its strategic objectives of innovation and growth". Moukadam added: "This partnership highlights iMAL powerful capabilities in fostering innovation, increasing productivity and meeting the diverse customer needs. It has proved its dominance in multi-country deployment for major banks throughout the world. As for Path, it is a breakthrough to have an Iranian bank on Path Solutions ' user list. FEE Bank is part of Bank Mellat Group, one of the largest commercial banks in the Islamic Republic of Iran, ranking amongst the top 1000 banks in the world".

iMAL is the AAOIFI-certified core banking software from Path Solutions. Apart from its scalability and tremendous STP flexibility, iMAL provides the agility to respond to business needs. iMAL has been designed to operate on the widest selection of technology platforms possible. It uses standard open technologies and also provides tools and techniques for adapting it to local environments.

Kenya’s Islamic Investment Banker

The Capital Markets Authority has licensed FCB Capital Investment Bank as Kenya’s first Islamic investment bank.

A fully-owned subsidiary of First Community Bank, FCB Capital will be the first of its kind in Kenya and the region to offer Sharia compliant investment banking.

“We are extremely delighted. This is another first for us,” said First Community Bank CEO, Nathif Adam.

He added that the bank plans to get into huge investment opportunities, which are currently untapped.

“This new bank is fully capitalised in line with CMA requirements and is expected to make a big difference in the banking investment field.”

He said the bank’s products and services would cover a wide range of Sharia compliant investment activities.

“The activities we are planning include capital market activities like Islamic bonds (Sukuk) and Sharia compliant stocks, property investment funds, including Real Estate Investment Trusts (REITs),” Mr Adam said.

He added that FCB Capital will also engage in mutual funds, including equity funds, which will invest in Sharia compliant Kenyan and regional stocks, project finance schemes and public-private partnership projects.

From Daily Nation

Crisis Shows Importance Of Islamic Finance

The current economic climate has seen a growing interest in Islamic finance, an ethical approach to economic activity, worldwide.

Anouar Hassoune, Vice-President, Senior Credit Officer, Moody's Investors Service, France, says Islamic finance has been resilient to the crisis, even though it is not risk-immune per se.

He sees Islamic banking as an equivalent of conventional banking, with a robust model.

Hassoune spoke to Emirates Business about what made Islamic finance resilient to the current economic crisis and where lay the opportunities for its future growth.


Islamic finance is being viewed as relatively resilient to the economic crisis. Do you think it is a risk-free economic approach?

Islamic finance has been very resilient to the crisis but it is not risk-immune per se. It's been very resilient to this crisis for many reasons: The institutions could not carry toxic assets, because as per Shariah you cannot invest in speculative instruments; you cannot invest in the ribah-based (interest) instruments and typically the sub-prime asset classes that have been securitised in collateralised debt obligations etc.

So by definition an Islamic bank could not carry all this. Islamic finance institutions have their own set of risks; they face 'reputation' risk and liquidity risk.

It is very difficult to manage liquidity under Islamic finance rules as instruments are not available and cash has disappeared anyway from conventional banking and also from Islamic banking for a short period of time. Some of the Islamic banking institutions have been harmed, not so much as the commercial retail-based banks, but more like the specialised investment banks.

What pushed such institutions to that situation?

Some financial institutions, for instance, invest in private equity, venture capital and real estate and these asset classes are very cyclical, illiquid and extremely risky.

On the other side of the balance sheet, these banks were not using retail and stable visible deposits, they were using wholesale funding.

So when liquidity dries up, the values of the assets shrink and as you cannot liquefy your balance sheets, you default.

And when banks ask their money back what do you do?

You cannot liquefy your balance sheets. So you default, this is exactly what happened with these institutions. But are we alarmed by Shariah-compliant banking per se? Not really, it depends. If you are standalone, which means you are lonely, it is difficult, but if you are part of a wider group, it's not so tough.

You mean it has not been totally resilient?

The model has been resilient, some institutions have been hit not so much as they were Islamic, more because structure of balance sheet was designed in a way to outperform in good times and to underperform during bad times.

Generally, Islamic banks have been very strong. They are aware of the fact that liquidity management is difficult; which is why they have set aside, on an average, just before the crisis, 33 per cent liquidity ratio which means that Dh1 out of three captured from deposits was invested in cash. They knew liquidity was a challenge and they had to set aside a large liquidity buffer.

Second, they are highly capitalised; their average capital adequacy ratio was 18.4 per cent at the end of 2008; three points higher than conventional. It was not because they had not foreseen the recession more than others. Fortunately their balance sheets were designed to absorb the credit crisis better than the others and toxic assets were not there, which was good.

Given the robustness of the Islamic model, do you see a higher growth for Islamic banking? Which segments hold the most potential?

Our estimate of potential of financial market of Islamic finance globally is $5 trillion (Dh18.35trn); the current size of the market is $840 billion, next year it would reach $1trn.

Islamic banks are stronger on the retail segment; their market share is now close to 25 per cent in the GCC.

This share would grow. In the GCC, the market is divided into three set of customers – around 20 per cent are those who would go in for Islamic banks no matter what; then there are those who will bank with an Islamic finance institution if products are available, those products are of good quality and they are as cheap or expensive as conventional banks. Finally, there is a segment to which it does not matter whether a bank is conventional or Islamic, it's the brand that makes sense to them. These form almost 30 per cent, so there is room to grow.

The crisis has been a blessing for Islamic banking, not so much of growth or resilience; we saw some were not resilient but more the model – the conceptual model of avoiding speculation, excessive interest, profit and loss sharing. All stakeholders should share profits of good times and mutualise risk in bad times. It makes some sense.

Finally, as financial transactions are required to be backed by tangible, real, economic assets, it places Islamic banks closer to real economy compared to conventional banks that can structure products within an infinite sort of range that are mainly notional, virtual.

Islamic finance is forced by Shariah boards to get close to the real economy; you can securitise once not twice, in conventional whenever you want you can do it.

Would you say it is better than conventional banking?

The crisis has been a fantastic opportunity for Islamic finance to prove its resilience, its maturity, to prove the fact that Islamic finance is a possible alternative to excessive leverage, excessive securitisation, excessive financial innovation that is not closer to the economy. But it is no better, no worse.

Which category of banks are best positioned in the present situation to gain a market share?

Smaller banks are gaining market share.

There were many reasons: There was a perception in the market that these banks were not carrying toxic assets in their balance sheets. Smaller banks are eager to gain market share in times of stress, they position themselves to gain market share when large banks face stress.

In a crisis situation, large banks do not really have interest in gaining an incremental one or two per cent market share. There is no incentive for them to do so. They protect their liquidity and capital at the expense of profit. In the current scenario, you have to protect your liquidity.

How would the coming up of the $10bn Istikhlaf bank in Bahrain help the industry?

The Islamic finance industry now needs organising from inside, discovering new horizons geographically. For that they need capital. A $10bn bank would help spread Islamic finance beyond the borders of Islamic countries. There are many regions, which are in need of cash. Our economies need technology. What Istikhlaf is likely to do is to already use its sister company, Al Baraka Banking Group, it would have a platform of that group to bring retail deposits, geographical diversification and a business model that has proved its robustness. If it is designed as we expect it would be, it has a great future.

From Emirates Business 24|7

Islamic Finance Training Programme For Professionals Launched

The Islamic Banking Finance Centre UK (IBFC-UK) launched a new accredited and innovative Islamic Finance Training Programme for Professionals at Mansion House, the official residency of the Lord Mayor of the City of London on May 27.

The Lord Mayor, Alderman Ian Luder, whose principal role is to promote UK Financial Services on a global basis, pledged his support on the day and discussed with key financial figureheads from across Europe, including members of the House of Lords, Treasury, Chamber of Commerce and FSA, how the Islamic Financial Programme for Professionals will benefit the UK economy.

“Despite the current global financial crisis, Islamic Finance continues its growth as an increasingly viable alternative banking system for both Muslims and non-Muslims. It will be a vital component of the new global financial infrastructure,” said the Lord Mayor of the City of London.

The Islamic Finance Training Programme from IBFC-UK has come at a very appropriate time because it focuses on our core objectives of skills and professional development. By actively training professionals in the public and private sector with the necessary skills, knowledge and expertise in Islamic Finance, the IBFC-UK will enable the growth of this existing sector.

Established in partnership with Islamic Banking & Finance Institute in Malaysia (IBFIM), Cardiff Business School and Centre of Islam, IBFC-UK is recognised as one of the leading training centres in the UK, with an international reputation for delivering high quality training courses and research for the public and private organisations in Islamic Banking and Finance. Its clients include public and private banks, corporations, insurance companies and academic institutions.

The UK Programme has been launched in conjunction with International Business Wales (IBW), the Welsh Assembly Government’s trade and investment arm and will be rolled out in Wales initially before other areas of the UK and the rest of the world are targeted.

Founder and Chief Executive of IBFC-UK, Akmal Hanuk, said: “The day has been an enormous success. The Islamic Finance Sector is expanding at an exponential rate and is now estimated to be worth $1.2 trillion globally and growing faster than any of the conventional banks, between 15-20%. This is due to its strong financial principles and ethical values, which prohibits the charging or paying of interest and encourages mutual risk and profit sharing between parties.

“We are very pleased to be the one of the first organisations in Europe to address the growing demand of trained professionals in the Islamic Banking and Finance Sector, as we want to make sure that the UK is at the forefront as this sector develops and that it stays there. We are also pleased that this initiative is coming out of Wales, which will enhance its reputation as one of the leading centres of training, skills and development. It will not only offer a world class training platform for professionals in the financial services all across the UK and beyond, but will also actively encourage inward investment from the investments groups in the EMEA region.”

During the course of the event, the IBFC-UK discussed how it aims to assist financial organisations aspiring to offer Islamic Banking courses or products. The three key areas the Islamic Finance Training Programme for Professionals will be looking to cover, include: "Train the Trainer" Programme to train the trainers/teachers through an accredited programme for becoming qualified trainers, to help deliver training in the Islamic banking & finance sector.

"Executive Programme" - to address the training needs of the organisations, financial institutions and the professionals who are either, already in industry, or are aspiring to launch in this sector.

"Regulatory Framework Programme" - to address the training needs of the regulatory authorities and professional bodies like FSA and Securities and Exchange Comissions, Insurance etc.

Akmal Hanuk added: “Our global partnership with IBFIM has been further strengthened by our collaboration with Cardiff Business School at Cardiff University, who have the highest standards in education and training to deliver these courses. At IBFC-UK we are constantly looking to the future, as we continue to provide an excellent platform for our students to network and contribute to both policy and practice of Islamic Finance on a local, national and international level.”

Welsh Assembly Government’s Minister for Economy and Transport, Ieuan Wyn Jones, described the announcement as a particularly significant breakthrough for Wales in reaching out to new financial markets.

From The Muslim News

Banking On Sharia

Edward, an expatriate from Italy, wants to make sure his investment will not go to waste. Last year, he made a 30 per cent down payment on a commercial property at the Business Bay area in Dubai.

Considering the current economic climate, he thought that rather than paying out the balance himself, it would be better to get some financial help from a lender.

"There's no firm assurance that the developer will be there down the line, so I thought the best thing to do would be to get a mortgage," he says.

To keep his investment secure, the expatriate, who refers to himself as a Buddhist, signed up to a Sharia-compliant mortgage.

Sharia prohibits charging interest on loans. It denounces investing in businesses involved with gambling, alcohol, tobacco and pornography.

Given these restrictions, the Islamic bank buys the property and leases it out to the customer for a specified time. At the end of the lease period, the property is transferred to the customer's name. This way, the bank avoids charging the customer an interest on the loan.

"Charging interest on a loan is not allowed under Sharia. Instead, the way that some banks provide financing to satisfy the needs of customers, is by buying the asset which the customer needs and either selling or renting it to the customer. In this case, the property being purchased is rented to the customer for his use," explains Abdul Fattah Sharaf, chief executive officer of personal financial services at HSBC Middle East and North Africa.

But one of the things that appeal to Edward is the idea that Islamic mortgages are founded on religious beliefs, so he feels there is less risk involved.

"I'm comfortable because it's linked to religion. It's not a man or a machine that's there to make money from me. You get that sort of feeling that someone up there is helping you out - which is weird but there's less chance of being ripped off," he explains.

Besides, the Italian expat says, it also appeals to him that there are stunning parallels in how Christians and Muslims deal with the prohibition against usury, or charging interest on money.

He notes that when usury was banned by the Church in ancient times, the Medicis, the famous Italian family who made a fortune from banking, managed to get around it through acts of charity. They built and repaired churches, and made money by selling holographic bills of exchange.

Since, like many non-Muslims, Edward is not privy to the ins and outs of a Sharia mortgage, he sought some advice from several people before making his decision.

"I spoke to a lawyer about it. I was told that it doesn't really matter who you go to since the law is the same and the rates are pretty much the same," he recalls.

Just a few weeks ago, Edward went to Dubai Islamic Bank to apply for a Sharia mortgage. The bank happens to be the holder of the escrow account of Edward's developer. "This is also why I think it seems less risky. Besides, this particular developer is actually building [the property], so the payment plan is linked to the completion of the project," Edward explains.

Edward managed to get his application pre-approved by the bank in three to four days' time, but the paperwork that came along with it proved to be a challenge.

He had to sign several documents and issue a number of cheques to complete the financing process. "A pain is the back office operations. If a cheque is not perfect from their perspective, they send it back and ask for a new one. I had to go through three alterations," he says.

Prior to the pre-approval, he submitted six months' worth of bank statements and a letter from his employer, and paid a processing fee equivalent to 1.25 per cent of the finance amount. He also had to check if the property was registered with the Real Estate Regulatory Authority.

After the pre-approval, a valuation fee worth Dh2,500 was collected. He was required to submit copies of the property's sale and purchase agreement, floor plan, payment schedule, receipts for the amount paid to the developer and latest statement of account from the developer, stating the amount received. Edward was also made to open an account with the mortgage bank.

A few days later, the bank prepared a final offer letter which Edward signed, along with the mortgage registration document. Since Edward's property is still under construction, the deal he signed up to is called "forward Ijarah" or forward-dated lease.

Under this type of contract, the financier agrees to buy the property or take over the developer's payment schedule and lease it out to the customer at a future date. All payments will be made directly to the developer over the construction period.

Once the construction is complete, the deal works exactly like an Ijarah contract, whereby the property's ownership can be transferred to the customer at the end or maturity of the lease period.

From Gulf News

Islamic Loans Attractive To All

Islamic mortgages are becoming increasingly popular among non-Muslims. Although there is often no clear distinction whether they are a cheaper alternative to traditional property loans, customers choose it because of their ethics.

"We are seeing more and more non-Muslims taking a greater interest in [Islamic] products and services," Abdul Fatah Sharaf, CEO of personal financial services at HSBC Middle East and North Africa, says.

The key differentiator between an Islamic and conventional mortgage is the process which the financing is offered. Since the most distinctive element of Islamic finance is the prohibition of interest - whether nominal or excessive, simple or compound, fixed or floating - the lenders purchase the assets and either sell or rent them out to the customers.

In conventional mortgages, the property buyer borrows the money and pays it back with some interest charged on top. Banks calculate the interest due over the life of the loan. "Many charge interest on an outstanding balance basis, take payments each month and reassess the mortgage payments due once a year," observes Steve Gregory, director of technical services at Holborn Assets.

Ideally, all Sharia-compliant products have the element of transparency in terms of fees, charges and profit, and the rates imposed should not be excessive.

"In Sharia, the charging of interest is not allowed. However, charging of Ujrah or the rent that will be paid by the customer for the usage of the property is allowed," Sharaf says.

The most important feature in Islamic mortgages, Sharaf adds, is that if the customer wants to settle the mortgage early, the bank is not allowed to charge any closure fees as a percentage of the money lent.

"The main objective in the Islamic finance is to support the customer's financial needs through Sharia-compliant ways. So, if the customer wants to settle the outstanding finance amount, then the bank must not, in principle, charge extra fees or early settlement fees which can sometimes reach up to five per cent of the finance amount. However, the bank is allowed to charge minimal fixed fees to cover the operational cost," Sharaf explains.

As far as risks are concerned, Islamic mortgages seem to work in favour of the property buyer. "With traditional mortgages, the customer carries the risk as he owns the property from the outset, along with any losses the property may make," Gregory points out.

"Property values go down as well as up. If an Islamic bank owns the property and the value of the property falls, the bank carries that risk. One hopes the bank has taken due consideration of this and are still able to meet the requirements of regulators in terms of liquidity. Falling property values can harm the bank," he adds.

In terms of monthly payments, however, one cannot say a Sharia mortgage is cheaper than a traditional loan. "Monthly payout is quite similarly priced between HSBC's Islamic and conventional home finance offering," Sharaf explains.

"Monthly payouts tend to be the same as the two products [Islamic and conventional mortgage] are priced similarly. People take out Sharia mortgages because the products are structured according to Sharia laws and they appeal to the customers' beliefs," adds another industry source.

Europe Banks Eye IPO Brief For $10 Bln Islamic Bank

European banks are showing interest in investing in and providing initial public offering advice to a planned $10 billion Islamic bank, the chairman of the Union of Arab Banks told Reuters on Thursday.

Adnan Ahmed Yousif said the bank, which would be the first Islamic bank of its size and which is to be launched by year-end, is attracting foreign investors.
"The good thing is that in the past two months we have received a good interest level from European banks, they want to contribute both capital and do the IPO for us," he said.

He declined to name the interested European banks, and when asked about their nationalities, he said "German banks... and other European (banks) also." He said no French bank was involved.

The bank has been mulled over for years by Saudi billionaire Sheikh Saleh Kamel, who is chairman of Bahrain-based Al Baraka Banking, of which Yousif is chief executive.
The emerging Islamic finance industry has boomed over the past years, with its assets being estimated at between $700 million and $1 billion, but is yet to produce a bank large enough to compete with the Islamic subsidiaries of Western banks.

Most Islamic banks are also focussing on only one of the three regions, in which the industry has established itself, South East Asia, the Gulf Arab region and Europe.
Yousif earlier said some $3.5 billion have already been raised from Middle Eastern private and semi-governmental investors including Islamic Development Bank and Saudi Investment Bank, with a $3 billion IPO planned for the end of the year.

"The bank is not going to compete with other Islamic banks, it will combine investment, wholesale and retail," he said on Thursday.

Yousif said he will not take any role in the new bank. "I am just giving business advice, it is free and Sheikh Saleh is providing his expertise," he said. Islamic banks cater to investors who would like to avoid earning or paying interest, viewed as usury under Islamic law.

IDB To Issue $500m Sukuk

The Islamic Development Bank, or IDB, is to issue a $500 million sukuk, or Islamic bond, in a few weeks, according to its president Dr Ahmed Mohammed Ali.

Ali told a Press conference in the bank's headquarters here on Wednesday that it is the first issue in the $6 billion sukuks planned for a period of five years. The media meeting was also attended by chief economist Dr Izzat Ali.

Ali explained that the objective of the sukuk is to collect funds from the international market place to support member countries affected by the global financial crisis. The crisis not only poses a challenge but also throws up opportunities, which the bank is determined and competent to explore and offer to the member countries.

He said that the bank is well-placed, strong and stable to meet with success, and added that all ratings agencies — Fitch, Standard & Poor's and Moody's — have given an AAA rating to IDB.

The recently concluded 34th annual meeting of the IDB Group Board of Governors in Ashgabat, Turkmenistan had noted that the performance of the IDB Group to assist and mitigate the adverse impact of the global food and economic crisis on member countries has been commendable.

It urged the Group to scale up support to meet evolving requests of member countries for assistance in the development of Islamic financial services industry, which will provide "a critical anchor of stability to our domestic financial sector."

The Board welcomed the IDB-led initiative to establish a "Task Force on Islamic Finance and Global Financial Stability" in January, whose work is aimed at contributing to the reform process of the global financial system with a view to enhancing its resilience and preventing future recurrence. It urged the Central Banks and the national investment authorities to strongly support and participate in the resource mobilisation programmes of the IDB Group.

Ali said that Saudi Arabia, Turkey and Indonesia had played a significant role in setting out a comprehensive reform agenda for the global financial system during the G-20 Summit held on April 2.

He said that the Bank was promoting Islamic banking and finance not as a competitor to conventional banking or as a substitute to it but as a viable alternative in the present world financial turmoil.

According to him, Islamic banking has proved its worth and such countries as France are opening doors to Islamic banking.

He said that Muslim countries should place their funds in such productive and growing sectors as infrastructure, and agriculture.

About the Bank's programme to support poor Muslim countries hit by rising prices of essential commodities, Ali said that an amount of $1.5 billion has already been allocated for the purpose. "Our Bank will also support member countries to increase their agricultural production. We are ready to support any project aimed at development of member countries," he added.

He said that IDB?s deposits and assets had not been affected by the financial crisis. "Our funds are invested in secure Islamic portfolios, which are not affected by speculative business," he said.

According to Izzat, it was difficult to predict when the recovery will take place, but it will most likely be "L-shaped."

From Khaleej Times

AmIslamic Bank Targets 30% Contribution To Group's Profit

AmIslamic Bank, the Islamic banking subsidiary of AmBank Group, is targeting a contribution of 30 percent to the group's profit by 2012 from the current 25 percent.

Executive director, AmBank retail banking, Mahdi Murad, said to come up with the five percent increase, the bank would need to come up with more products for customers.

"We will be launching a new retail banking product next month. Besides that, we are also planning to launch new investment, unit trust, trade financing and structured products," Mahdi said.

"At AmBank we will either launch a core Islamic product which requires research and development or a Syariah-compliant product," he said.

In total, AmIslamic Bank has about 60 Syariah-compliant products.

The bank's general manager of organisation services, Jamaiyah Mohammed Nor, said in order to achieve the target, it would be looking in terms of the quality of assets.

"This means that we need to ensure our products are of good quality and we will be selective in our clientele," she told reporters after the bank's zakat contribution ceremony here Thursday.

This year, AmIslamic Bank contributed part of its zakat worth RM335,000 to 12 charity homes and organisations.

The presentation was made by AmBank Group's chairman Tan Sri Azman Hashim.

From Bernama

Islamic Finance To Reduce Fiscal Deficit In India

At a time when economic recovery needs more stimuli by the Government of India (GoI), there is also an urgent need to safeguard the economy from the debt trap because the GDP growth rate fell to 6.7% in 2008-09 against 9% in 2007-08; the debt servicing reached to 58.83% of the total expenditure for the year 2008-09. It means maximum receipts are now spent for debt servicing which accounted to 15.87% of the Gross Domestic Product (GDP), while the debt receipts were 9.78% of the GDP in 2008-09. Even the interest payments were 21.39% of the total expenditures by GoI and 5.77% of the GDP in 2008-09. Notably the revenue deficit in 2008-09 is already 30% due to high debt serving ratio to total revenue expenditure.

In an attempt to find the actual reasons behind high fiscal deficit, it is observed that the increased debt receipts by GoI to finance revenue expenditures (especially high debt servicing); increased subsidies on food, fuel and fertilizer; and rural development through schemes like NREGS, farmer’s loan waiving scheme and Sarva Shiksha Abhiyan are the three most important factor of high fiscal deficit. Since there is need of more stimuli to counter recession in the economy, it is expected that the plan expenditures may further increase whereas due to recession, the revenue receipts may decline. This decrease in revenue receipts and increase in plan expenditure may increase the fiscal deficit to an unwanted level high. Working upon different options to reduce the fiscal deficit, it is found that Islamic finance can reduce the fiscal deficit even though if revenue receipts declines and plan expenditures increases.

Islamic financial products has a great role to play in reducing the fiscal deficit in emerging economies by replacing the debt based investments for infrastructure with funds mobilized through equity based Government Securities for infrastructure projects. Let’s see how Islamic finance may help us reduce our present fiscal deficit.

Banks Extend Their Reach to Ethnic Markets

The success of Islam-compliant lending is sparking innovation in mortgage products.

Islam-compliant lending will continue to be a bright spot on the banking landscape. Religious rules forbid charging interest on loans, so firms specializing in such financing escaped the widespread and severe problems that brought down many rival institutions recently.

The average delinquency rate at Virginia based Guidance Residential, which operates in 23 states, is 3.5%, compared with 7.8%, the nationwide industry average at the end of 2008. Chicago based Devon Bank, another institution that engages in Islam compliant, or Sharia lending, has been making these kinds of loans for six years without any losses.

“This piece of our business has grown nicely,” says David Loundy, general counsel at Devon, a bank with $300 million in assets. “We don’t talk about raw numbers, but it has become the bulk of our mortgage business, and we are offering availability in 38 states.”

Executives at Devon and Guidance say success is due to knowing their customers well and working closely with them if restructuring is needed. For instance, Guidance caps late fees at $50 and takes a loss if the sale price of the home falls below the mortgage balance.

In part because of the simplicity of the products, Sharia lending is catching the interest of non-Muslim borrowers. The home mortgage product at Guidance, structured as a co-ownership agreement with monthly fixed payments, has old-fashioned appeal. The product at Devon is structured differently.

A genuine relationship between the lender and the borrower is needed for the product to work. And the nonprincipal portion of the payments is even tax deductible.

“This year our goal is to position ourselves so we can expand our customer base and reach out to customers at large,” says Guidance President and CEO Khaled Elsayed. “When we started, this was a niche market, but now it’s expanded beyond that group.”

Look for mainstream banks to make a run at ethnic markets beyond the Muslim community as they seek new sources of revenue growth to replace securitized lending profits in coming years.

Historically, financial institutions have left the business of serving immigrants’ needs to others. Payday lenders have cashed checks, while Western Union and MoneyGram have been popular for those sending money back to their home countries. Coinstar, Green Dot and Wal-Mart have the reins on the prepaid debit card market.

“In this market, banks would be crazy not to pursue every customer niche everywhere you can,” says Mike Menzies, CEO of Easton Bank in Maryland.

From Kiplinger Business Resource Center

Ban On Securitised Debt Trade Curbs Sharia Finance Rise

By Simon Archer
The vast majority of sharia experts view the sale of debt as non-permissible, as it can be used as a way of paying or charging interest (riba).

In Malaysia, the sale of debt has been deemed permissible in some circumstances, e.g. mortgage-backed securities where the mortgage is based on a credit sale contract. But I believe that this structure is not used much now as such mortgage-backed securities are not considered as tradeable internationally.

The above would apply to any sale of debt. Debt may be transferred at face value.
The inability to trade securitised debt assets or to have a secondary market in bank debt does constrain the development of Islamic finance, but also prevents abuses such as those arising from "originate-to-distribute" structures.

Securitisations need to be based on ijara lease or lease-to-buy contracts or on partnership structures (musharaka or mudaraba). The former have some fixed-income characteristics as the rental income is fairly predictable, but origination requires a supply of leasable assets.

The latter may have income streams more similar to equity instruments and may be more difficult to market; hence income smoothing techniques may be used, some of which are not considered by respected authorities to be sharia compliant as they involve transactions which infringe sharia prohibitions (such as interest-free loans used to pay returns to security-holders that are in excess of the income earned in order that the payout meets some benchmark, which are repaid when income exceeds the amount needing to be paid according to the benchmark).

On the other hand, we have seen how sale of debt may lead to moral hazard (passing the risk of originated assets to third parties in a non-transparent way) and unstable structures.
With regard to sharia compliance, while there is consensus between sharia experts on issues of principle and on the majority of issues of practice, differences remain on certain issues of practice.

Given the rapid development of Islamic finance and the absence of any overall sharia authority, such differences are inevitable.

One may expect, however, that over time there will be a growing consensus, and one can already see the beginning of consensus against some of the more egregious practices (such as the income-smoothing techniques in securitisations mentioned above and the use of synthetic sale-based structures to create leverage).

From Guardian

Lessons From Islamic Banking

If Western banks had been operating on a similar system to Islamic Banks, would the global recession have been avoided? Would an Islamic Insurance system have been more robust and less prone to the issues that led to the collapse of the world major insurance companies? In short, are there lessons for western banks from Islamic Banks?

From its beginnings as a collapse in the sub-prime housing market to a major global crisis, the impact of the current calamity is clear, but developing new practices which can address the issues that led the world to the brink of collapse are a vital part of recovery.

In order to address this fundamental question how do we stop it from happening again?, The University of Leicesters School of Management is hosting a conference to consider potential lessons from the Islamic Banking and Finance sector.

Professor Martin Parker, Director of Research for the Management School commented, It is important for everyone future that we study the current crisis in order that more sustainable financial practices can be developed. This conference is a contribution to that project.

The conference, to be held on 2nd and 3rd July, will consider topics such as:

Is the current form of Islamic banks, which has been developing its own practices over recent decades, more resilient than current Western practices?

With the underlying principle in Islamic banking that the transaction be free from the interest of element and backed up by a tangible asset make it more robust?

Would globalisation make the Islamic system vulnerable?

Does the obligation of Islamic Financial Institutions on transparency make it less vulnerable ?

Conference coordinator, Dr Ibrahim Umar, said this is an opportunity for economists, business practitioners, Islamic scholars, and private industries such as banking and insurance to come together to consider whether we can learn lessons from the Islamic system and, if so, what benefits might be achieved. It also gives us the opportunity to consider what potential situations or factors may have a detrimental effect in the future. The conference is open to both academics and practitioners. I hope that anyone who has something to add to the debate will attend.

These and a variety of other topics will be covered during the two day conference. To reserve a place at this event, please email Ann Byrom ulsmtemp1@leicester.ac.uk for further details.

Russell Launches Sharia Indexes

U.S. fund manager Russell Investments has launched its first range of Islamic compliant indexes with Saudi investment services group Jadwa, responding to growing demand in the Middle East.

The Russell-Jadwa Sharia index range includes a suite of 10 indexes involving companies all over the world which comply with Islamic finance requirements.

Islamic finance avoids interest, excessive leverage and regards sectors such as mainstream finance, alcohol and weapons production as forbidden. Mainstream financial companies are also excluded, a choice which has partially protected Islamic funds from the heavy market downturn.

A group of Islamic scholars screen the compliant companies in the indexes every quarter.

Jadwa Investments, which provides investment banking, fund management and corporate advisory, and Russell already co-operated in 2007 when they launched two Sharia compliant equity funds.

The Saudi-Arabian group will use the indexes launched on Tuesday for its products, said Chief Executive Ahmed Al-Khateeb at a news conference. The group has about $2 billion in assets under management.

Pascal Duval, the managing director of London-based partnerships at Russell said the indexes had attracted investors' interest. He said "soft commitments" of around $1 billion had been given, but declined to give further details.

He also said the ethical principles of Islamic finance's appealed beyond Muslim investors to include Western investors keen on socially responsible investments.

Islamic finance has grown significantly in the last five years, partly on the back of the oil price increase.

Earlier this year consulting firm Oliver Wyman estimated that by 2012 Islamic assets will reach $1.6 trillion.

From Reuters

EDC launches the ‘Islamic Financial Services Mission’

Dubai Export Development Corporation (EDC), in association with the Australian Trade Commission (Austrade), has started the ‘Islamic Financial Services Mission’, a government initiative of introducing Islamic financial products and services from the UAE to Australia in line with the current changes and trends happening in the financial systems across various countries worldwide.

Islamic banking, one of the recent segments in global financial services with the first bank being established in 1975, has grown remarkably fast and today accounts for over US$700 billion assets provided by more than 300 financial institutions across 75 countries. The growing importance of this sector has brought a number of countries considering of changing their regulatory system to incorporate Islamic financial institutions treating them at par with conventional financial firms.

“The Australian government has proactively sought to implement the necessary changes where some states have already modified their regulatory systems to incorporate Islamic products. The State of Victoria has started to implement taxation changes to incorporate Islamic products. This is the main reason why we chose Australia to be the first trade mission of the Islamic Financial Services from the UAE, with Dubai as the leading and pioneering in the world of shariah compliant products and services.

“The Islamic Financial Services Mission is a perfect platform to not only influence the changes in Australia’s regulatory, tax and accounting system but also to create awareness about Dubai as a world-class financial centre with over 50 banks and two industry clusters in the sector,” said Engineer Saed Al Awadi, Chief Executive Officer, EDC.

Other objectives of the Islamic Financial Services Mission in Australia are to assist the participating firms to export their financial products and services to the growing market segment through networking and matchmaking events as well as help them identify entry strategies such as resellers for their products, joint venture partners and opening of representative offices. The initiative also hopes to educate the participants of the changing legislation thereby allowing them to develop appropriate exports plans.

The fact finding mission includes Islamic financial firms across the whole spectrum from banking takaful, asset and investment management and boutique services. Some of the participants in the mission include Ebrahim Fayez Al Shamsi, Chief Executive Officer, Emirates Islamic Bank; David Rutledge, Chief Executive Officer, Dubai Multi Commodities Centre (DMCC); and Abdul Ghaffar, Executive Director, Al Bogari Islamic Gold, a company that has wide ranging investments in Islamic banking, insurance and asset management.

“Our aim was to take one from each field to become a representative and help us educate others in this sector. The interest in the Islamic Finance was overwhelming that we exceed our initial expectations as far as the numbers of companies are concerned. We plan to take a much larger delegation later in the year.

“We are optimistic that this Islamic Financial Services Fact Finding Mission in Australia will open avenues for UAE-based companies to export Islamic products and services. EDC is constantly monitoring global markets on behalf of companies in the Emirates, and currently, we have already identified similar mission in the area of Islamic finance in Germany,” concluded Al Awadi.

EDC and Austrade will commence the first leg of the Islamic Financial Services Mission to Australia from 22 to 26 June.

The Islamic Financial Services Mission in Australia will begin in the State of Victoria meeting with government agencies such as the Australian Prudential Regulation Authority, Australian Securities and Investment Commission, New South Wales Government; industry associations such as the Australian Financial Markets Association, Investment and Financial services Association and Insurance Council of Australia and other industry participants, which include the country’s major financial institutions and advisers such as accountants and lawyers. The delegation will also visit Canberra to meet with The Treasury and the UAE Embassy. The mission will continue in Sydney – New South Wales and will discuss with the Victorian Government and other industry participants and the Muslim Community Cooperative Australia.

Doctors Of Law Needed To Take Islamic Finance Forward

With the global financial crisis exposing the limitations of traditional banking systems, there is now a big push in the banking sector worldwide to incorporate Islamic banking, the total assets of which are expected to reach $2 trillion (Dh7.34trn) in 2015, according to experts.

However, Islamic banking is not without its challenges, the most prominent of which is to find adequately qualified Islamic scholars for the Shariah governance boards of Islamic banks and financial institutions.

Two experts that Emirates Business spoke to said a PhD in Shariah law should be a mandatory requirement for any member of a governing board of an Islamic bank. They also proposed a system of issuing operating licences for the scholars after testing them to ensure they met all the required criteria.

Dr Mabid Al Jarhi, President of the International Association for Islamic Economics, Financial Expert and Head of Training at Emirates Islamic Bank, said Islamic banking faces a number of challenges that need to be closely considered to help increase reliability and authenticity. One of the most serious challenges is represented in the need for set standards and criteria for the governance of Shariah boards at Islamic banks, said Dr Al Jarhi.

The market demands the development of new innovative Shariah-compliant financial products. However, currently there seems to be a lack of adequate qualified practitioners to do so. "The market requires professionals who not only have excellent financial knowledge, but also a good understanding of Islamic law," Dr Al Jarhi said.

"Many members of governing Shariah boards are not qualified enough to study and generate Shariah-compliant products and this reduces the reliability of Islamic banking and finance," he said.

Central banks should intervene to issue a set of eligibility criteria for joining governance boards to help produce genuine Shariah-compliant products that have positive impacts, Dr Al Jarhi said. At the same time, there should be control over products that are listed as Shariah compliant but are not – such as "Tawarroq" – and products based on debt and risk trading. There is an urgent need for the members of Shariah governing boards to be holders of PhDs from recognised universities, such as Al Azhar of Egypt, University of Islamic Shariah in Syria and Umm Al Qura University in Saudi Arabia.

"Unfortunately, some Islamic banks appoint Muslim scholars who are not even holders of high degrees in Islamic Shariah," Dr Al Jarhi said. "The market is unable at this point to meet the demand for innovative financial products to meet all types of investment requirements." Economic advisors of these boards, too, should be holders of PhDs from recognised universities and the Shariah board should comprise an odd number to ensure a majority in voting.

The economic expert would explain the economic side of a proposed product and its short- and long-term consequences, while the scholars should study them from a Shariah perspective, Dr Al Jarhi said. There should also be a central authority that controls Islamic Shariah financing and banking.

Anther challenge is represented in the sudden and vast expansion that resulted in a shortage – scarcity even – of specialised and trained human resources, he said. To meet expansion demands, it is vital that more executives have adequate understanding and knowledge of Shariah-compliant products.

The situation has pushed Islamic banks to recruit people who have experience in conventional banking. However, these staff should be offered adequate training in Islamic banking to help avoid bad management and consequent failures. "There is an urgent need to set up training institutions specialised in this field," Dr Al Jarhi said.

Islamic banking and finance is relatively new to the global financial system and most consumers are not aware of procedures and products, he said.

There are some banks that offer various Shariah-compliant products, while others are limited to just a few. Clients should educate themselves about the types of Shariah-compliant product and which suits their objectives.

Banking procedures are not standardised, Dr Al Jarhi said. Client clarity becomes critical, especially for non-Muslim customers who need extra motivation apart from it just being an ethical product to be attracted to Islamic financial services. Also, clients should check the reliability of the board of governance prior to making any transactions, said Dr Al Jarhi.

Agreeing with him was Dr Abdulazeem Jalal Abozaid, Professor of Islamic Law of Transactions at Damascus University's Faculty of Shariah, who also said members of Shariah boards should be holders of PhDs in Islamic law, or "fiqh", of transactions. This is because there are different divisions of Islamic law and a "fatwa" in the field of transactions cannot be made by just any scholar.

"Not all members of a Shariah board are specialised in this field and this has resulted in products that can be described as un-Islamic," he said.

Analysing the current situation, Dr Abozaid said a few Shariah scholars were monopolising Shariah boards. This is due to various reasons, but primarily because newly-opened institutions usually ask existing ones to recommend scholars for their Shariah governance boards – a practice that ends up with the same scholars working for a number of institutions.

Another reason is that many banks have become interested in offering products that have been somehow labelled Islamic, regardless of whether they are genuinely in compliance with Islamic Shariah.

"In the end banks are institutions that are out to make profits. So they appoint scholars who are known for their 'lenient' approach towards Islamic principles. Scholars who have a reputation for not being too rigid, and who promote themselves as such, have become controllers of governance at most Shariah boards," he said.

Dr Abozaid, who has been a Shariah consultant and trainer for some Islamic financial institutions since 2004, said in the early days of Islamic banking there was a shortage of qualified scholars, but now there aare highly qualified graduates of recognised Shariah universities. However, as governance boards were already monopolised by "lenient" scholars, there was no way for the induction of these new graduates.

Apart from those who are qualified to issue fatwas and check for complicity with Islamic principles and teachings, Dr Abozaid, listed three other types of Shariah board members: the academically unqualified; those that are qualified but use their qualifications only as a calling card to secure their places and sources of earning; and those who believe they serve Islam and Islamic banking best by approving as many products as possible without checking their Shariah compliancy.

The situation begs for central banks to intervene and stipulate a set of rules and regulations for joining Shariah boards to help maintain the public's confidence in Islamic banking and ensure global growth, he said.

Malaysia's central bank is one that has adopted such rules and is regulating Islamic banking and finance in the country. However, there are still highly controversial products offered in the country, such as "Einah" which is even worse than "Tawarroq". Both are similar to interest-based lending in conventional banking, Dr Abozaid said.

"These two products are wrongly given an 'Islamic compliancy' clearance. Under them loans are offered against bogus operations of selling and buying back a specific commodity, ensuring that a specified amount of profit accrues to the bank," he said, adding that "Einah" is widely offered in Indonesia, Brunei and Singapore, as well.

"Central banks should have a special division for the governance of Shariah boards and should examine the qualifications of board members in banks that offer, or are planning to offer, Islamic banking and finance. The proposed products should also be subject to the approval of the central bank," he said, and added that such centralisation would not prevent competition but rather encourage innovation in generating new products and increase public confidence in Islamic banking.

Dr Abozaid also called for issuing licences to Shariah scholars engaged in Islamic banking, similar to the ones given to engineers or doctors before they are allowed to start their practice. An independent body should be set up to licence scholars for the membership of Shariah boards, he said. It should be made mandatory for scholars to clear a test in the Islamic law of transactions and the basics of Islamic finance in order to obtain the licence. A possible licencing body could the Bahrain-based General Council for Islamic Banks & Financial Institutions, he suggested.

"This is the core necessity for correcting the current anomalies in the Islamic banking and finance sphere," said Dr Abozaid.

In addition, scholars would also be required to have sufficient knowledge of the English language, as all contracts were in English, he said, and added that a non-profitable institution for training scholars should be set up to help increase their expertise.

It is also unprecedented in Islam that a scholar is paid by the party that seeks his opinion on Shariah laws, Dr Abozaid said.

"Currently, the scholar who is assigned to give an Islamic Shariah opinion, or 'fatwa', is paid by the bank – the party that seeks this legal opinion. This opens the door for violating and manipulating Islamic principles to favour the bank," he said.

In addition, it falls under the duties and responsibilities of the Shariah boards to arbitrate any dispute between the Islamic bank and its clients. It is unprecedented in the Shariah that an arbitrator or a judge takes his fees from one of the parties involved in a dispute. Such a practice is prohibited under Shariah, as it may open the door to malpractices that favour the party paying the fees.

To ensure that Islamic principles and teachings are implemented in banking transactions with honesty and integrity, scholars should not be paid by a party that needs a "fatwa" but rather by a third party, which could be the central banks, Dr Abozaid said. Central banks, in turn, may collect an amount from the allowances payable by Islamic banks to the Shariah boards members.

Speaking about the current state of the Shariah finance market, Dr Al Jarhi said GCC countries are expected to lead a future charge into Islamic finance and banking with about $900 billion in assets by 2015.

He told Emirates Business that Shariah-compliant assets in the GCC had already reached about $250bn by the end of 2008 and this region constitutes about 50 per cent of Islamic banking worldwide. The growth of the Islamic finance industry so far has been more concentrated in the Middle East. The growth rate in the GCC regions between years 2000-2008 was reported at 30 per cent.

The current financial crisis, however, has also impacted the growth of Islamic banking – albeit less – and now the sector is not expected to repeat the growth it enjoyed in previous years. But it is projected to recover with the global economy and continue growing to reach beyond its previous levels, Dr Al Jarhi said.

Even before the current crisis started, a number of non-Muslim countries adopted principles of Islamic finance and banking systems, he added. The UK was the first among the non-Muslim countries that thought of adopting this system, followed by Singapore.

Dr Al Jarhi said the UK started considering offering Islamic finance as a business tool back in the year 2000, following a global boom in the practice. It wanted to compete with Bahrain and Malaysia and become a hub for Islamic finance but the first worry was providing Shariah-compliant mechanisms for the settlement of disputes arising out of Islamic banking transactions. Currently, however, the UK applies Shariah principles in financial and commercial contractual relations in Islamic banking.

Singapore has followed the UK and carried out serious Shariah consultations. Kazakhstan has also adopted the necessary laws and regulations, including civil, commercial, banking and financial market laws.

The irony is, with regard to commercial contractual disputes, countries such as the UK and Kazakhstan recognise Islamic Shariah principles whereas many Muslim countries do not. The situation urges the need for adopting commercial laws that recognise Islamic Shariah principles to maintain the rights and obligations of parties involved in Shariah contractual relationships, Al Jarhi urged.

He said the economic crisis has exposed conventional banking and finance for two reasons: involvement in loans and risk trading. Trading with loans was the cause behind the spread of the crisis. And risk trading is bluntly a sort of gamble, especially with the prices of bonds reaching unrealistic levels.

"The value of bond deals worldwide reached up to $1trn a day and banks' derivatives trading reached $600trn at a time when the global GDP was not more than $33trn. This situation obviously led to a crunch. All this capital did not support economies but were used only in speculation," said Dr Al Jarhi.

Due to recent demand, Syria, which has a Muslim majority population, is currently building institutions to offer Islamic banking products. Earlier, it did not have Shariah complaint banking – which prompted the public who wanted to invest in Islamic products to seek indiviual businessmen, he said.

Islamic Finance Expo In Bangladesh

With an objective to promote and popularize fast-growing Islamic financial schemes in the country, the Islamic Finance Expo-2009, an exposition of banking & non-banking financial institutions (NBFIs) having Islamic products and services, is going to be held in the city in August.

Event management firm EventPro in association with Communicare Dot Events, for the first time in the country, will organize the three-day exposition at the Bangladesh-China Friendship Conference Center.

Islamic Finance Award-09 will also be announced in line with the exposition to recognise the top performers among the banks, insurance and leasing companies dealing with Islamic or Shariah-based financial products or services.

Banks and NBFIs having Islamic schemes will be showcasing their Shariah-based products and services in 40 stalls and pavilions to highlight excellence in Islamic financial practices.

Open discussion on different topics related to Islamic finance will take place during the exposition.

From The New Nation

Islamic Banking As A Solution To The Global Financial Crisis

Islamic Finance has emerged in recent decades as one of the most important trends in the financial world. There has always been a demand among Muslims for financial products and services that conform to the Shariah (Islamic law). With the development of viable Islamic alternatives to conventional finance, Muslims are beginning to find Shariah compliant solutions to their financial needs.

Published by John Wiley & Sons (Asia) Pte Ltd, Islamic Money & Banking: Integrating Money in Capital Theory (ISBN: 978-0-470-82319-4) seeks to prove that Islamic economics, in general, and Islamic banking, in particular – with their premises of cooperation among individuals, and ultimate goal of justice – are the answers to restoring positive synergy to the ailing capitalist system. The concept is lauded an effective solution to check greed and remove the conflict between equity and efficiency.

Islamic Money & Banking presents many new and original ideas that hail the Islamic Banking system as the path to full employment, stable prices, equitable wealth and income distribution, and sustained growth, and finally counter-cyclical apparatus built in the system. It also investigates the nature and functions of money in an interest-less banking system and then for the first time, integrates money in capital theory.

This authoritative study is a maverick amongst the existing literature in Islamic Finance and a must-read for anyone who is interested in this field or in search of an ideal economic system.

Dr. Iraj Toutounchian is a Professor of Economics at Az-Zahra University, Tehran, Iran, where he was the Head, Department of Economics and Social Sciences. He is the author of three books and dozens of papers, all of which are on Islamic banking and finance. His last book, Comparative Money and Banking in Capitalistic and Islamic Systems, was named Economic Book of the Year in Iran.

He was appointed as Chief of Academic Affairs, Bank of Industry and Mine, Tehran, Iran, responsible for implementing Islamic banking. Dr. Toutounchian was formerly the Deputy-Minister for Economics and International Affairs, Ministry of Economic Affairs and Finance and he has also served as a member of the Money and Credit Council, Central Bank of Iran.

Toutounchian earned his doctorate at Texas A&M University. Prof. Arthur S. DeVany, his Ph.D. dissertation adviser, described him as "a superior economic theorist". His dissertation clearly exhibits his ability to do original theory and to bring economic theory to bear upon such complex socio-economic phenomena.

Professor Toutounchian proves once again, in this book, his ability to produce fascinating and original work.

Dubai's Islamic Financial Institutions Meet the Australian Regulator

Dubai Export Development Corporation, headed by its Chief Executive Officer, Engineer Saed Al Awadi, is currently leading the first Islamic Financial Services Mission to Australia accompanied by senior industry representatives from Dubai.

The Trade Mission seeks to explore opportunities for Islamic Financial Services in Australia and to play a pivotal role in the current changes that are taking place within the Australian regulatory framework. These changes when completed will allow for the provision of Shariah-compliant products and services.

The Australian financial services sector is well established with a vast array of firms in all areas of the sector such as banking, insurance, investment, fund management among others. The importance of this sector is evident by the fact that it contributes to over 8% of the country's GDP (i.e. A$82billion). However, the sector is deficient in the provision of Islamic products and financial services, where only one of the 56 banks in the country, of which 44 are foreign, offers any kind of Islamic products, to the country's 450,000 or so affluent Muslim residents. This market segment is growing at 20% per annum largely due to the migration and the demands for Islamic products and services are becoming more apparent.

Chris Bowen, the Australian Minister for Financial Services, Superannuation and Corporate Law commented that, "I think there are great opportunities in Islamic finance. The majority of the world's Islamic population lives in Asia and I think Australia can play a role in providing Islamic financial products."

Shariah compliant finance has experienced considerable growth and is now valued in excess of US$700 billion. Today Islamic products have moved beyond lending, insurance and investment funds to include sukuks, exchange traded funds, currency and gold trading and hedge funds. Equally important is the fact that the appeal of Shariah compliant products is not limited purely to the Muslim population. A recent survey carried out by a UAE Islamic financial institution showed that its customers were driven by the Shariah products indicating the widespread popularity of said products. Moreover, a number of governments worldwide are seeking to incorporate Islamic financial products into the mainstream of their financial services sector.

The delegation met with senior officials from the Australian Prudential Regulation Authority (APRA), which is the prudential regulator within the Australian financial services sector. APRA's principal role is to oversee the activities of banks, credit unions, building societies, insurance and reinsurance companies and certain aspects of the superannuation industry.

"The principles based prudential approach used by the banking and insurance regulator created no real regulatory obstacles in establishing an Islamic bank in the country provided some adjustments are made to accommodate Islamic banking products," said Ebrahim Fayez Al Shamsi, Chief Executive Officer of Emirates Islamic Bank and representing the banking stream in the Trade Mission.

The delegation also discussed the issues relating to Islamic finance with senior officials from the Australian Financial Markets Association (AFMA), the body representing wholesale banking and financial markets on regulatory issues. The delegation was encouraged to learn that AFMA has formed the Islamic Finance Committee and has regular dialogue with the Treasury regarding taxation matters which are important to Islamic finance due to the nature of its contracts. AFMA is also part of the Financial Centre Forum which advises the government on the financial services sector including Islamic finance.

The delegation also met with the Investment and Financial Services Association (IFSA), representing the retail and wholesale superannuation, funds management, life assurance and financial advisory network industries. Officials from IFSA stated that a number of their members were keen to develop Shariah compliant products. In order to facilitate this, the Dubai's Islamic financial institutions could assist the process through knowledge sharing forums.

"The Islamic financial institutions in the mission have offered to share their experience as well as carry out an educational programme with regulators and industry associations in Australia," Al Awadi concluded.

Project To Pilot Islamic Finance In Ningxia

China's Banking Regulatory Commission had given approval to Bank of Ningxia to undertake an Islamic financial services project. A source familiar with the matter said according to suggestions from regulatory bodies, the bank would likely set up a special department or create special service windows in its branches capable of providing Islamic financial services.

Lu Suping, the bank's chairman, tsaid that establishing a special branch for Islamic finance was the bank's idea. A special branch would also be built and designed in an Islamic style and they would recruit a Muslim branch manager.

BAB To Promote Islamic Banks

The Bahrain Association of Banks (BAB) is to have a national pavilion for the first time at this year's World Islamic Banking Conference (WIBC) in the kingdom.

The pavilion, supported by the Economic Development Board, will host a selection of member banks, showcasing the strength and depth of Islamic financial institutions in Bahrain.

"As a major event in the kingdom's financial calendar, we are keen that our member banks have the largest participation possible in a cost effective manner at the 16th World Islamic Banking Conference," said BAB chief executive Robert Ainey.

"The aim is to allow greater participation by smaller organisations who may not have had the resources to have a standalone presence at past events."

The BAB represents and advocates the interests of all the various licensed financial institutions in Bahrain and works closely with the Central Bank of Bahrain and other government authorities at the highest levels on issues of banking policy and regulation, as well as actively promoting Bahrain as an international financial centre.

"Islamic finance continues to enlarge its geographic spread - notwithstanding the effects of the global economic slowdown," said World Islamic Banking Conference managing director David McLean.

"The Bahrain Pavilion and the other international pavilions that will be represented at this year's WIBC reflect this growth and also underscore the importance of WIBC in the global Islamic finance arena.

"BAB and EDB are our valued partners and their role at WIBC this year enables Bahrain to further showcase its world-class capabilities and to support the continued growth of the Islamic banking industry globally."

More than 1,200 industry leaders are expected to attend the conference which will be held from December 6 to 8.

From Gulf Daily News

Call For Intellectual Works To Boost Islamic Finances

There is an urgent need for intellectual works to boost Islamic financial products, Dr. Ahmad Mohammad Ali, President of the Islamic Development Bank (IDB) said here on Saturday.

Addressing a forum to attract support of institutions for Executive Islamic Financial Management (XIFM) Program at Effat University here on Saturday, Dr. Ali said it was important to make the students aware of Islamic banking tracks, such as, Islamic financial and development challenges, Islamic banking opportunities and the financial crisis and partnership opportunities between universities and Islamic banking.
“Some researchers have estimated the average annual growth of the Islamic finance since the beginning of the new century to about 32 percent with assets worth $700 billion over the end of the year 2007,” said Dr. Ali.

The (XIFM) program is in collaboration with Ecole Supérieure des Affaires (ESA) in Beruit, and the Rotterdam School of Management(RSM) at Erasmus University. The Islamic Development Bank (IDB) is supporting the program in this forum.
A number of businessmen, faculty members of the university and IDB representatives attended the forum aimed at making the XIFM program as a headquarter and home for all researchers and students by mixing between the Islamic financial material and traditional finance and to exchange the experiences with the Effat’s faculty members and students in Islamic financial field.

“There is a lack of qualified managers in the Islamic financial sectors based on Islamic Shariah. The Islamic financial institutions are planning carefully to overcome this and to take advantages of banking opportunities available to our students,” said Dr. Haifa Jamal Al-Laial, Dean of Effat University.

Dr. Ali said money cannot alone solve the global crisis. It can be tackled by supporting the intellectual work to redraw the development strategies, and to double the amount of funding and investment within the limits of financial caution.

Furthermore, Dr. Iman Mohammad, chief of the extension programs department said that XIFM program will provide nine scholarships for male and female students. Two of them will be given as a complete scholarship covering all costs of the program amounting to SR135,000.

Three grants will cover about 50 percent, and other four grants will cover 25 percent.

Australian Muslim Body Welcomes Government Support for Islamic Finance

The Islamic Council of Victoria has today welcomed support from the Federal and State Governments for the upcoming Islamic Banking and Finance Symposium.

Senator the Hon Nick Sherry Federal Assistant Treasurer has confirmed he will officially open the largest ever Islamic Banking and Finance symposium in Australia on July 6th. Business Victoria is also sponsoring the event.

"It is very positive to see our government engaging with the Islamic Banking and Finance sector as other Western countries are doing. There is great potential for Australia's economy to benefit significantly by tapping into the excess liquidity in the Middle East" said executive committee member Nazeem Hussain. "By and large the Islamic financial system remained unscathed by the Global Financial Crisis because it did not engage with the practice of investing in high risk products such as complex derivatives"

He continued "Given that Islamic finance is the fastest growing division of world banking, it is important that the Federal and State governments are seeking to understand this sector."

The event is co-hosted by La Trobe University, National Australia Bank, and the Muslim Community Co-operative of Australia (MCCA).

Local and international leaders in this sector will present at the symposium, including the Head of Islamic Finance at Pricewaterhouse Coopers (UK), the Head of International Weath Management at Dubai Islamic Bank (UAE) as well as the Global Head of Distribution at National Australia Bank.

La Trobe University will also launch Australia's first master's degree in Islamic Banking and Finance at the symposium.

"Islamic Banking and Finance are based on principles of equity and fairness. These standards can only be of value to all Australians" said Council President Ramzi Elsayed.

Islamic bank To Be Set Up In Turkey

The prospects of setting up a joint venture Islamic bank in Turkey with the involvement of some prominent Qatari investors were discussed at a high-level meeting held in Ankara.

The proposal is to have Qatari and Syrian investors in the proposed Islamic bank in Turkey. The discussions are at the initial stage. Prominent Qatari investor, Dr Sheikh Khalid bin Abdullah bin Thani al-Thani was in Ankara for talks on establishing the Islamic bank. He was welcomed in Ankara by Tevfik Bilgin, chairman of the Turkish Banking Regulation and Supervision Agency.

The high-level meeting discussed the potential of establishing a full-fledged Islamic bank in Turkey. The prospects for Islamic banking in Turkey came up for discussions.
The possibility of involving prominent Qatari and Syrian investors, with expertise and skills in Islamic banking, in the proposed project figured at the meeting. It was mutually agreed upon to continue with follow up meetings on setting up the proposed Islamic bank.

Bilgin assured Dr Sheikh Khalid of all possible co-operation and support in establishing a joint venture Islamic bank in Turkey, which is one of the fastest growing economies in Europe. He also provided an overview of the investment opportunities available in Turkey and the country’s competitiveness as an ‘investment-friendly’ destination.

From Gulf Times

Scholars Call For Shariah Board Under Central Bank

A central Shariah board under the Central Bank should be created to replace the current practice of each Islamic financial institution having its own board, to oversee Islamic finance and banking activity in the country, Islamic scholars said.

Until such time a central board is created, measures must be undertaken to ensure that the salaries of Shariah board members do not come from their individual retaining banks, but from a central pool. This would ensure neutrality, transparency and above-board decision-making, experts pointed out.

They called on central banks to intervene to help standardise, streamline and control all Islamic transactions.

"It is unprecedented that a scholar is paid by the party seeking a Fatwa. It is also against Islamic principles that the arbitrator is paid by one of disputed parties," said Dr Abdulazeem Jalal Abozaid, Professor of Islamic Law of Transactions at Damascus Univer-sity, Faculty of Shariah, and Shariah Consultant and trainer for Islamic financial institutions in the UAE.

Dr Abozaid pointed out that there is currently a lack of a centralised control on Islamic banking products. Some products that are cleared as "Islamic" are sometimes controversial.

"The situation begs for central banks to intervene and stipulate a set of rules and regulations for joining Shariah boards to help maintain the public's confidence in Islamic banking and ensure global growth," said Dr Mabid Al Jarhi, President of International Assoc-iation for Islamic Economics and head of training and financial expert at Emirates Islamic Bank.

He said Shariah board members should be holders of PhDs from recognised and accredited universities. Dr Abozaid said that central banks should have a special division for Shariah governance.

The Shariah board should consist of an odd number of members to ensure there is a majority whenever voting takes place, added
Dr Al Jarhi.

From Emirates Business

Islamic Financial System Has Opportunity To Grow

The Islamic financial system has opportunity to grow and expand while the global community is faced with challenges from the upheavals in the conventional financial system.

Minister in the Prime Minister's Department Datuk Jamil Khir Baharom said to meet that target three aspects had to be given attention.

Firstly, developing an Islamic financial industry that was truly sound, strong and established to face any crisis and challenge.

"Second, to encourage growth of the Islamic financial landscape based on instruments that can compete, were creative and innovative, and thirdly solidify monitoring and legal aspects to face the global financial environment that is getting more challenging," he said while officiating the 5th Muzakarah of Members of the Council of Syariah Advisors to Financial Institutions in Malaysia here Thursday.

He said the Islamic financial industry had begun to get a place and attention from the non-Islamic community when countries whose majorities were not Muslim like Singapore, Hong Kong, the United Kingdom, France and Japan showed interest in promoting Islamic finance.

"These developed countries were active in recruting expertise in Islamic finance to become global financial hubs," he said.

Jamil Khir said based on current data issued by Universiti Islam Antarabangsa Malaysia the Islam global financial industry needed up to two million skilled workers in the field compared to 92,000 in 2007.

He said this showed each year there was demand for 135,000 workers on average to support the industry.

"In this era of slowdown, we see many losing jobs in various sectors but the opposite scenario is happening in Islamic finance," he said.

He also said the time had come for Muslims to give serious consideration to the use of the gold dinar that is having currency backed by gold.

Jamil Khir said the collapse of a conventional financial system based on fiat money or currency not backed by assets represented the source of credit collapse that had an impact on the global economic slump.

He said study on the gold dinar as replacement to fiat money had to be done urgently.

From Bernama

Godly But Ambitious

Most practitioners of Islamic finance pride themselves on their modesty. But not Adnan Yousif, the chairman of the Union of Arab Banks, a regional club for financial firms. He has recently struck a tone more reminiscent of greed-is-good Wall Street, with a grand plan to build the biggest Islamic bank yet seen, spanning the world and providing Muslim countries with new financial services their people have barely heard of. “People never thought big here, never thought globally,” he says.

Mr Yousif’s ambitions date to the founding of modern Islamic finance. During the 1970s oil boom the Gulf’s Muslim elite needed to put their new-found wealth somewhere, and American government bonds seemed the safest option. Yet Islam prohibits the charging of interest. So some sheikhs bought bonds but let their Western banks keep the interest, in the casual manner of a customer leaving change on a restaurant table. To Mr Yousif, then a young banker at American Express in his native Bahrain, this made no sense. At a time when Muslim countries had imposed an oil embargo over America’s support for Israel why, he wondered, refuse the Americans oil but give them billions of dollars?

The embargo faltered and ever more money flowed to the Gulf, prompting Muslim scholars to seek ways to cleanse finance of interest payments. Practical men like Mr Yousif paid attention. In 1980 he moved to Arab Banking Corporation, a Bahraini bank, and set up an Islamic-finance division. It was little more than a few desks in a bare room where white-robed bankers created investments that generated profits in forms other than interest. The bank’s bosses thought it would be, at best, a niche business with little chance of competing against Western-style finance.

But over the next two decades Islamic banking prospered, driven by a revival of faith following the Iranian revolution in 1979. By the turn of the century there were more than 200 Islamic banks and Mr Yousif was leading from the front. He turned his bank’s Islamic-finance division into a stand-alone institution, then became chief executive of Bahrain Islamic Bank in 2002. Two years later, now head of the Al Baraka Group, another Bahraini bank, he oversaw its initial public offering (IPO), the largest thus far by an Islamic bank. Along the way, interest-avoidance schemes became ever more sophisticated. Today $700 billion of global assets are said to comply with sharia law. Even so, traditional finance houses rather than Islamic institutions continue to handle most Gulf oil money and other Muslim wealth.

In private, some Gulf bankers speak of the need for an “Islamic Goldman Sachs”. That is what Mr Yousif is now attempting to create—a sharia-compliant investment bank with global reach and ready access to capital. It will be called Istikhlaf, Arabic for “doing God’s work”. Others in the industry have welcomed the move. “Islamic banking cannot be taken seriously until we have some global Islamic banks,” says Simon Eedle, managing director of Islamic banking at Calyon, a French investment bank. “They don’t have to be present everywhere in the world, but they need to be in the top 100.”

Mr Yousif says he has raised $3.5 billion from Gulf investors and is seeking the same again by the end of the year. In addition he plans a $3 billion IPO in Dubai and Bahrain. The oil price is down from last year’s peak, but there is plenty of cash in the region looking for a home. So far, though, most of what Mr Yousif has collected comes from other banks rather than private investors. He and his backers, including Sheikh Saleh Kamel, the force behind the Al Baraka Group, delayed the launch of Istikhlaf last year after turbulence in the financial markets. They also dropped talk of raising up to $100 billion—at least for now.

Even with a more modest capital base of $10 billion, Istikhlaf will stand a reasonable chance of picking up lucrative finance deals. The region’s ubiquitous infrastructure projects need beefy backers. Most Islamic banks have so far been absent from this field because of their small size. Deals instead went to sharia-compliant units of multinationals like Deutsche Bank, HSBC and Citigroup. These will now face stronger local competition.

Mr Yousif’s ambitions do not end there. He plans to create a team of venture-capital researchers to sift through innovators’ ideas and provide the good ones with a cradle-to-IPO service. Many people do this successfully in Silicon Valley, but potential investors in his bank may wonder how easy it will be to transplant that sort of high-technology entrepreneurship to the Gulf.

You say sukuk, I say heresy
More worrying still, the rules for Islamic finance are not uniform around the world. A Kuwaiti Muslim cannot buy a Malaysian sukuk (sharia-compliant bond) because of differing definitions of what constitutes usury. Indeed, a respected Islamic jurist recently denounced most sukuk as godless. Nor are banking licences granted easily in most Muslim countries. That is why big Islamic banks are so weak. Often they are little more than loose collections of subsidiaries. They also lack home-grown talent: most senior staff are poached from multinationals.

There are worries, too, about Istikhlaf’s lack of a Saudi presence or partner. There have been rumours of a merger with Saudi Investment Bank, although Mr Yousif has denied this. Such a deal would be a big help. Saudi Arabia is one of the main growth areas for Islamic banking. It has the largest oil reserves and the most valuable project-finance deals. It is no coincidence therefore that the biggest Islamic bank to date, Al Rajhi, is Saudi. But if anyone can snatch the lead from the Saudis it is Mr Yousif. Never afraid of breaking the mould, he confesses to admiring Alan Greenspan, a man (of Jewish origins) better known as a disciple of Ayn Rand, the prophet of rugged capitalism, than as a scholar of holy scripture. Mr Yousif has read the former Fed chairman’s memoirs “three or four times”, he says. With luck he will heed Mr Greenspan’s warnings about irrational exuberance.

The Economist

Standard Chartered Push For Islamic Asset-Backed Financing

Standard Chartered Bank Malaysia Bhd is pushing for more Islamic asset-backed financing in Malaysia as an alternative for clients to raise funds, especially in difficult markets.

Managing director, origination and client coverage, Nirukt Sapru, said the concept was to drive companies in getting the benefit of the asset value that they have on their balance sheet rather than purely looking at cash flow.

"We are trying to get our clients to increasingly look at asset-based finance as a way of helping them raise financing in difficult markets," Sapru said.

"We could be doing almost across any industry. I would say individual asset size should be in the range of US$25 million to US$30 million per asset," he told reporters after a signing ceremony on Islamic financing between the bank and Tanjung Kapal Services Sdn Bhd here Thursday.

Tanjung Kapal Services, a wholly-owned subsidiary of Tanjung Offshore Bhd, signed a RM162 million bilateral 10-year Islamic finance lease facility for the construction and commissioning of four new anchor handling tug and supply vessels.

Sapru said various banks were looking at lending in the Malaysian market but pure asset-based financing was "quite new" and Standard Chartered was looking at tapping at the new opportunities.

"It (the facility) is based on a combination of cash flow and asset valuation so I would say, it is something different and something new. The potential will be across multiple sectors, right through from oil and gas to construction and contracting," he said.

Sapru said the bank was in the midst of undertaking more similar financing in the coming months.

"Strong pipeline to come in the next six months," he said.

LSE Welcomes First Sukuk Of 2009

The London Stock Exchange today welcomed a US $750 million sukuk issued by CBB International Sukuk Company (No.2) (SPC) on behalf of the Government of Bahrain. This is the first sukuk to be listed in Europe this year and highlights London’s standing as a key global venue for Islamic finance.
The London Stock Exchange’s sukuk market is the largest of any exchange in Europe. This new listing brings the total number of sukuk admitted to the Exchange’s markets to 19 and the total money raised through sukuk issuance to $11 billion. The lead managers on the issue were Calyon, Deutsche Bank and HSBC, and they were advised by Lovells LLP.

Raffaele Jerusalmi, Director of Capital Markets at London Stock Exchange Group, said:

“Today’s successful issue demonstrates the London market’s continued appetite for Shariah-compliant investments, including sukuk. We look forward to working with issuers and advisers to help this important market to continue to grow.”

In addition to its leading sukuk offering, the Exchange’s market in Exchange Traded Funds (ETFs) offers seven Shariah-compliant ETFs based on Islamic indices, which attracted £81.4 million worth of trading during 2008, while AIM-quoted Family Shariah Fund is a muti-asset class investment fund offering exposure to a wide variety of Shariah-compliant investments.

AIM is also home to a number of Islamic financial institutions; the European Islamic Investment Bank, which was the first Shariah-compliant wholesale bank in Europe; Shariah Capital, which provides Islamic financial products and services, and helped to create the first Shariah-compliant hedge fund; and the Islamic Bank of Britain, which was the first Islamic retail bank in Europe.

Banking: Looking to Islam

The UK media is awash with news on the changing face of financial regulation in the UK and in the US as policy makers seek to ensure the financial failures witnesses in 2008 never happen again.

With this a background the University of Leicester has announced a conference that will ask whether Islamic banking systems could provide guidance to western bank governance.

If Western banks had been operating on a similar system to Islamic Banks, would the global recession have been avoided?

Would an Islamic Insurance system have been more robust and less prone to the issues that led to the collapse of the world major insurance companies? In short, are there lessons for western banks from Islamic Banks?

From its beginnings as a collapse in the sub-prime housing market to a major global crisis, the impact of the current calamity is clear, but developing new practices which can address the issues that led the world to the brink of collapse are a vital part of recovery.

In order to address this fundamental question “how do we stop it from happening again?, The University of Leicester’s School of Management is hosting a conference to consider potential lessons from the Islamic Banking and Finance sector.

Professor Martin Parker, Director of Research for the Management School commented, “It is important for everyone’s future that we study the current crisis in order that more sustainable financial practices can be developed. This conference is a contribution to that project.”

The conference, will consider topics such as:

• Is the current form of Islamic banks, which has been developing its own practices over recent decades, more resilient than current Western practices?
• With the underlying principle in Islamic banking that the transaction be free from the interest of element and backed up by a tangible asset make it more robust?
• Would globalisation make the Islamic system vulnerable?
• Does the obligation of Islamic Financial Institutions on transparency make it less vulnerable ?

Conference coordinator, Dr Ibrahim Umar, said “This is an opportunity for economists, business practitioners, Islamic scholars, and private industries such as banking and insurance to come together to consider whether we can learn lessons from the Islamic system and, if so, what benefits might be achieved. It also gives us the opportunity to consider what potential situations or factors may have a detrimental effect in the future. The conference is open to both academics and practitioners. I hope that anyone who has something to add to the debate will attend.”