Saradiba's Islamic Finance Update

Dubai Islamic Bank introduces American students to principles of Islamic Finance

2009-08-09T20:09:00.000-07:00

Dubai Islamic Bank recently conducted two workshops on the principles and foundations of Islamic finance for 44 senior finance professionals and Executive MBA students from Stetson University and Jacksonville University in Florida, United States of America (USA).

The DIB Academy in cooperation with Dar Al Sharia (DAS) Legal & Financial Consultancy, a subsidiary of DIB, conducted these sessions at their purpose-built premises, which were created specifically to enhance the learning and development function at the Bank.

Sohail Zubairi, CEO of DAS, presented sessions on Islamic finance principles to Executive MBA candidates that included C-level executives such as Chief Financial Officers, Chief Executive Officers, Managing Directors, Chief Operating Officers and other senior executives from a cross section of commercial and financial institutions.

Zubairi highlighted the basic difference between conventional and Islamic banking; Sharia perspective on current global financial crisis; economic philosophies of Islam; impact of interest/usury in the economic models; differences between risk capital and loan capital; reasons for Islamic banking's prohibition of trading in debt and risk guarantees; and the reasons why Islamic finance has remained relatively less affected by the global financial crisis.

'We are pleased to introduce candidates from prestigious universities in the USA to principles of Islamic Finance. Islamic finance has remained relatively less affected in these times of global economic crisis, greatly enhancing its attractiveness among customers worldwide. It is not surprising then to see such great interest among global management students for Islamic finance. As the pioneer of Islamic banking, DIB is committed to raising awareness and enhance understanding of Islamic Finance.' said Obaid Al Shamsi, Head of Human Resources, DIB.

The presentation by Sohail Zubairi also touched upon the pre-requisites of forming a contract in Sharia and he explained the investment contracts (Mudaraba, Musharaka and Wakala) and sale contracts (Bai Mutlaq, Bai Muajjal, Murabaha, Istisna, Ijara and Salam) in Sharia.

New Shariah Index Follows Letter Of Law

2009-08-09T20:08:00.000-07:00

Standard & Poor's introduced a Shariah-compliant TSX index on Wednesday, looking to tap into the rapidly growing Islamic investor community in Canada and abroad.

The S&P/TSX 60 Shariah Index recategorizes equities on the S&P/TSX 60 and excludes all those that do not comply with Islamic law, which is based on the Qur'an. These include companies involved with alcohol, entertainment, pork- related products, tobacco and financial services. As well, companies with certain ratios of cash, leverage, and involvement in non-compliant business activities do not qualify.

Banks are excluded because investors are not allowed to profit from interest, which is considered an unequal distribution of risk.

Alka Banerjee, vice-president of global equities at Standard and Poor's, said there has been plenty of interest from asset managers already for the new index.

"It's still very young, maybe walking but not yet running," she said. "We'll find out over time what feedback is but we've gotten solid queries."

There are 25 companies on the new index with a combined market capitalization of $328.7 billion, or roughly 73 per cent of total Canadian equity market cap.

Commodities dominate the index, which is very closely tied to its parent. Top 10 holdings include EnCana Corp., Potash Corp. of Saskatchewan and Suncor Energy. BlackBerry maker Research in Motion is also represented.

Other excluded sectors are telecommunications, industrials and utilities.

The companies on the index are evaluated once a month by outside agency Rating Intelligence Partners, and then passed on to a panel of four Shariah scholars with financial backgrounds, all based in the Middle East.

The index maker uses the same logistics for its entire Shariah family, leading to economies of scale and the ability to create indices for any market, Banerjee said.

Standard and Poor's has 10 other Shariah indices covering 52 markets and 11, 000 securities around the world. There are specific indices for Japan, Europe and Asia. It also has 13 global benchmark and sector-specific Shariah indices.

The S&P 500 Shariah Index, measuring the U.S. equity market, was the company's first foray into such instruments and debuted with two others in December, 2006.

"Shariah indices have been around for a long time, but interest has only picked up in the last three or four years," Banerjee said. "We were very surprised at the strong response so we speeded up service."

While Standard and Poor's' other Shariah indices are already available, the retail market here remains "fragmented" and the company derives most of its sharia interest from the Middle East and South East Asia.

"The question is whether the demand for Canadian equities is in Canada or from outside Canada," Banerjee said.

Standard and Poor's also faces stiff competition from other index makers, such as Dow Jones and FTSE Group, which announced its own new Shariah index on the Stock Exchange of Thailand on Tuesday.

"Dow Jones was first . . . All major index providers have Shariah offerings but we have the deepest," she said.

Shariah indices are one of the newest categories of socially responsible investments. These are usually funds or portfolios built on companies that match up with an investor's social, ethical and political beliefs.

Banerjee does not consider the index a straight SRI because it is directed at investors of a specific religion.

While a common complaint of SRIs is that they may limit growth potential, both the S&P 500 and Europe 350 Shariah indices have actually outperformed their secular counterparts over a five-year period from 2003 to 2008.

"We're not necessarily looking at outperformance. It's a strategy for better governance and religious beliefs."

This profit is likely because Shariah investors have avoided steep losses from financials, but even if the situation were reversed the Muslim faith prepares them for that risk. And that is the greater purpose of the index.

"A Shariah investor can be comforted to know what they're buying is compliant today and ongoing," she said.

From Canwest News Service

Plugging The Gap In Islamic Finance Carry Risks

2009-08-09T20:06:00.000-07:00

The Islamic finance world is huge and growing hugely," says Chris Oulton, chief executive of Prime Rate Capital.

As yet, this upbeat description does not apply to money market funds, largely because the traditional short-dated instruments used in such funds are outlawed due to Islam's prohibition on interest.

But Prime Rate is endeavouring to help plug this gap by launching a Sharia-compliant money market fund, using Sharia commodity investments to mimic the characteristics of a Western money market fund.

The fact that Prime Rate's product will be just the second Sharia liquidity fund available in Europe, after last month's launch from the Bank of London and the Middle East, is testament to how slowly the Islamic asset management industry, as opposed to general Islamic finance, is developing.

Rushdi Siddiqi, global head of Islamic finance at Thomson Reuters, has a measured take on the situation. "This particular industry is young and there are growing pains." Questions of demand, performance and liquidity must all be resolved before Islamic asset management can be considered mature, he says.

An obvious question to ask is what Islamic asset management is, but finding an answer is not easy. While there is consensus on how to build a Sharia-compliant equity fund, extending that to other asset classes is not straightforward. For an equity fund, the manager simply needs to use a screen to exclude companies involved in activities deemed unacceptable such as alcohol consumption, gambling or pornography. Conventional financial stocks are excluded because of the prohibition on interest-bearing debt, which further precludes companies with too high a level of debt.

All of this is sufficiently well established that nearly $16 billion (Dh59 billion) was held in Islamic equity funds at the beginning of this year. "The key issue in terms of building out to other asset classes is going to be screening," says Siddiqi. "Equity screens don't work, so each vertical silo [asset class] requires its own screening proposition."

Sukuk, the Islamic equivalent of fixed income, for example, was rocked last year when a scholar on the Sharia committee of the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (Aaoifi) was reported as saying 80 per cent of current sukuk structures were not Islamic.

This is a striking example of what Siddiqi calls "Sharia risk," the danger that a product thought to be acceptable will be rejected by influential authorities.

"It comes down to whether you know the scholar," says Tim Harvey, head of sales in Europe, the Middle East and Africa at ETF Securities, which has six products that are officially Sharia compliant.

In this context, "officially Sharia compliant" means a board of Sharia scholars has decided the products are acceptable, and Harvey can show statements or fatwas from the Sharia boards of HSBC Amanah and Al Qalam, a UK-based Islamic bank, to that effect. Any Islamic institution using the products however, would have to submit them to its own Sharia board for approval, although the names authorising the fatwa may be authoritative enough to be fast tracked.

Although there is no central authority, the scholars on Aaoifi's board carry great weight. Largely as a result of the uncertainty surrounding sukuk's Sharia status, issuance in 2008 was less than a third that of a year before. While this year may see a return to the levels of 2006 - about $27 billion, according to Ernst & Young's annual Islamic Funds and Investment Report - this is still a far cry from the $47 billion of 2007.

Another challenge is that sukuk are not immune to the problems of the global financial environment. Two Middle Eastern issuers and one US-based issuer of Islamic bonds have recently been unable to meet their obligations. In Western terms, they defaulted, but since the concept of sukuk is relatively new, there are no established ways to work out what to do in the circumstances.

Siddiqui is optimistic: "That's the industry growing up." Once the restructurings are worked through, he predicts, there will be better pricing because the downside is clearer to issuer and buyer.

On the positive side, he says, due to the uncertainty some investors are selling off their sukuk holdings at a discount, thereby creating a buying opportunity for new sukuk funds, such as that of HSBC Amanah.

Asset managers wishing to offer sukuk funds to investors also face a lack of effective secondary market. Most sukuk are bought on issuance and held until maturity, leading to difficulty in finding assets to buy and in pricing assets held.

Such sukuk funds are open-ended despite the difficulty of managing a fund that investors can redeem at any time, yet for which there is no market for the underlying assets. To manage this issue, many of these funds have high minimum investments to restrict them to the institutional or private wealth market, as well as swingeing redemption fees.

Not all Sharia investment requires religio-financial engineering: ETF Securities' Sharia products are exchange traded commodities, investing in physical metals, not designed with the Islamic market in mind.

"We knew many Muslim asset managers who work in global capital markets who said to us 'these products are Sharia compliant'," says Harvey. "Eventually we thought we should do something with that."

The company asked Al Qalam to check the suggestion a couple of years ago, and last year HSBC Amanah issued a fatwa saying the products passed muster. Now, Harvey is fielding an increasing number of enquiries from investors in the Gulf.
From Gulf News

AAOIFI To Screen Products

2009-08-09T20:05:00.000-07:00

A key Islamic finance body which proposes industry rules to Islamic lenders said on Sunday it plans to monitor Islamic finance products in the absence of a sector watchdog.

The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) "will screen products and services offered by the industry for sharia compliance", it said in a statement.

The move is aimed to "homogenise the market", Mohamad Nedal Alchaar, secretary general of AAOIFI, told Reuters.

The fledgling Islamic finance industry relies for guidance on a patchwork of standard-setting bodies such as AAOIFI, opinions of Islamic scholars and national regulation.

"Although AAOIFI is not taking on a permanent role of industry watchdog, there exists a current huge gap in the market relating to credible sharia compliance screening of products and services," AAOIFI said.

AAOIFI describes itself as an autonomous corporate body that prepares accounting, auditing, governance, ethics and sharia standards for Islamic financial institutions and the industry.

But it provides product and auditing standards, which are mandatory in seven countries mostly in the Middle East.

Alchaar said AAOIFI would screen products of all Islamic financial institutions, including those which are not members of AAOIFI and in countries where its standards are not mandatory.

"It will be market-wide, regardless of the geographic distribution of products," he said, adding that AAOIFI plans to submit a proposal on its initiative to its board of trustees by the end of the year.

"We are not pretending we are going to be the industry's watchdog, it will be a temporary role because we see the need for screening," he said.

AAOIFI said it would highlight products it sees non-sharia compliant to providers and help them meet necessary requirements.

Alchaar said he expected banks to be open for AAOIFI advising them on products it finds not to be sharia-compliant as bankers were also interested in greater standardisation of products.

Varied interpretations of sharia, or Islamic law, has so far blocked the standardisation of rules across regions dominated by different schools of Islam.

Derivatives and short-selling are two areas that have divided Islamic financial markets.

The lack of standardisation is seen as a growth constraint as bankers need to design products for different markets and investors are reluctant to invest in products unless they are satisfied about it compliance with Islam.

The Islamic finance industry is catering to investors who would like to avoid paying or earning interest, which Islam describes as usury.

From Reuters

Bank Islam Makes Moves In Indonesia

2009-08-09T20:02:00.000-07:00

Bank Islam Malaysia is seeking a controlling equity stake in Indonesia's PT Bank Muamalat, sources say

Bank Islam Malaysia Bhd is pursuing a stake in Indonesia's PT Bank Muamalat to expand into the world's most populous Muslim nation, sources said.

The oldest Islamic bank in Malaysia is ultimately seeking a controlling equity stake and the sources said it was already engaged in talks with several shareholders of the Indonesian Islamic bank.

It is believed to be close to cementing a deal with at least one of the shareholders.

PT Bank Muamalat is Indonesia's largest bank by branch network. It has some 230 branches nationwide and is represented by another 3,800-odd outlets through its collaboration with Indonesian post offices. The bank, which began operations in 1992, is Indonesia's first Islamic bank.

Its biggest shareholders as at end-2008, according to its website, are the Jeddah-based Islamic Development Bank with a 28 per cent stake; Boubyan Bank Kuwait (21.28 per cent); Atwill Holdings Ltd (15.32 per cent); and individuals Abdul Rohim (6.7 per cent) and Rizal Ismael (5.49 per cent).

Analysts contacted by Business Times were positive about a potential marriage between the oldest Islamic banks in both countries.

PT Bank Muamalat, besides being well run, has a strong capital base with a capital adequacy ratio of 10.83 per cent as at end-2008. It made a net profit of about 207 billion rupiah (RM73 million) last year and had a high return on equity of about 33 per cent.

It is one of the leaders in the Islamic banking industry, with total assets of about 13 trillion rupiah (RM4.6 billion) as at the end of last year.

“It’s a good platform for Bank Islam to tap the biggest Muslim population in the world,” said Vincent Khoo, head of research at UOB-KayHian in Kuala Lumpur.

For Bank Islam to grow, it needs to explore mergers and acquisitions, its managing director Datuk Zukri Samat said last week.

The bank operates primarily in Malaysia, where competition is set to become more intense as more foreign banks are allowed in under Malaysia’s financial sector liberalisation.

He said the bank was “actively” looking for a potential merger partner to expand in the region, but declined to say in which markets it was looking.

"If we think we can do it locally, we’d like to … but our focus and priority is always South-East Asia,” he had said. Bank Islam is 51 per cent owned by BIMB Holdings Bhd and 40 per cent owned by Dubai Investment Group.

It recently moved to raise RM540 million from the sale of preference shares to strengthen its capital. Earlier this year, Bank Islam was reported to have been studying a merger with Maybank Islamic Bank but the plan was said to have been put on hold as the two needed to focus on strengthening their respective capital base.

From Busines Times

Sukuk Defaults Expose Islamic Finance Soft Spot

2009-07-16T19:54:00.002-07:00

First defaults of sukuk are set to expose the vulnerabilities of Islamic finance, with most investors expected to have no better legal redress than conventional bondholders as underlying assets have not been truly transferred to them.

The current financial and economic crisis is a first for the US$1 trillion (RM3.5 trillion) Islamic finance industry, which over the past few years has been spoilt by cheap oil money, and legal provisions and protection clauses in sukuk worth billions of dollars are being tested for the first time.

Islamic bonds, or sukuk, are structured as profit-sharing or rental agreements and their returns are derived from underlying assets. Islamic finance caters to investors who would like to avoid paying or earning interest, prohibited by Islamic law.

Kuwait’s Investment Dar said in May it had defaulted on a US$100 million sukuk registered in Bahrain and in the United States a court case is ongoing on the East Cameron Partners Sukuk by bankrupt Texas-based East Cameron Gas Company.

Despite its earlier billing as a safer alternative to traditional banking due to its requirement for assets to underpin deals, Islamic bondholders may not have any more legal safeguards than conventional counterparts in case of default.

With rare exceptions, sukuk issuers have created special purpose vehicles (SPV) to pool assets underlying the issue, but they have not been securitized for a true sale to investors.

“Secular, non-Sharia courts upholding those structures are more likely to consider sukuk holders to have contractual rights as opposed to proprietary rights and as a result rank them as creditors rather than equity holders,” said Muneer Khan, partner and head of Islamic finance at law firm Simmons and Simmons.

A US$650 million sukuk issued by troubled Saudi group Saad, which is undergoing debt restructuring, for example is seen as an asset-based, rather than an asset-backed, sukuk. Yields of the sukuk jumped to above 70 per cent in mid-June, as investors feared a default of the issue.

Most sukuk are structured as asset-based instruments, rather than asset-backed securitisation where “you always have a claim for that particular asset that has been sold to you as the investor”, said Megat Hizaini Hassan, an Islamic banking lawyer in Kuala Lumpur.

CHASING ASSETS

“Everybody is chasing the same assets if they have not been transferred to the name of the sukuk holders,” said Samer Amro, senior associate at law firm Dewey LeBoef.

Other uncertainties are likely to arise from sukuk defaults, including a debate about how courts will interpret repurchase clauses which are structured to follow a controversial ruling by prominent jurist Sheikh Muhammad Taqi Usmani in late 2007.

Taqi had ruled that repurchase guarantees found in most sukuk contradict Islamic laws, as they violate the principle of sharing risks and returns.

“If you’re looking at the newer structures where the repurchase obligations are left to be determined at the time of repurchase, there may be some issues there,” said Megat Hizaini.

“You don’t really know how the courts will treat it in the situation,” he said.

Islamic finance is governed by scholars’ rulings, national regulators and its own standard-settings bodies such as Bahrain-based AAOIFI, the Accounting and Auditing Organisation for Islamic Financial Institutions.

“In the Middle East, it’s going to put to the test many of the legal protections that were originally built into the sukuk,” said Mohammad Faiz Azmi, global Islamic finance leader at PriceWaterhouseCoopers, adding that countries in the region typically do not have bankruptcy laws as sophisticated as in Europe.

“When these sukuk start to default, it would be very apparent which jurisdiction has a more robust system than others,” he said.

HURDLES TO TRUE SUKUK
Corporates with perceived higher risks that are facing high borrowing costs and a sluggish regional IPO market could use true sukuk sales with full ownership transfers as an avenue to the capital markets.

“It adds some credit-enhancement, it adds credit-worthiness,” said Rizwan Khan, a senior associate at law firm Norton Rose.

But the paperwork involved in registering ownership transfers in the Gulf Arab region and restrictions on foreign ownership of land make true sukuk sales difficult.

Issuers have to register the SPVs, to which asset ownership would have to be transferred, in Bahrain or the Cayman Islands, as regulatory frameworks in other Gulf countries like Saudi Arabia and Kuwait do not fully cover sukuk structures.

This turns the SPV into a foreign buyer, limiting the pool of assets.

“This is not going to change unless laws are enacted, in particular on the ownership issues,” Khan said.

From Reuters

Financial Partnerships

2009-07-16T19:54:00.001-07:00

In theory, Islamic banking is based upon the concept of making financial profit by taking risks through financial speculation, financial partnerships and other financial transactions that are permissible under Islamic law whilst at the same time avoiding incurring debt that represents a high risk both to the individual and to the market in general.

Such debts leads to wealth being amassed by the privileged few who are capable of offering sufficient guarantees of financial solvency whereas the overwhelming majority of middle class professionals and small and medium enterprises cannot afford to incur such debts and are therefore unable to finance their own projects and achieve the desired growth and development. This type of debt would in any case suffocate the majority of small and medium businesses and ultimately lead to serious financial loss.

Small and medium businesses account for around 90 percent of companies worldwide, as well as providing between a reported 40 and 80 percent of employment. According to a study published by the Arab Orient Centre for Strategic and Civilization Studies, small and medium businesses account for around 85 percent of Britain's gross domestic product [GDP] and around 51 percent of America's GDP. In addition to this, between 1979 and 1995 around 75 percent of employment in the US was in the small and medium business sector.

Financing designs and products by continuously incurring debt will also ultimately kill off the spirit of creativity and inventions [by doing away with the concept of competition and financial solvency]. Financing is the umbilical cord that nurtures this, and since [much] financing is now obtained by taking out loans and thereby incurring debt, money inevitably end up with the privileged few when this umbilical cord is severed.

This manner of financing is warned against in the Holy Quran, "What Allah has bestowed on His Messenger (and taken away) from the people of the townships - belongs to Allah- to His Messenger and to kindred and orphans, the needy and the wayfarer; In order that it may not (merely) make a circuit between the wealthy among you. So take what the Messenger assigns to you, and deny yourselves that which he withholds from you. And fear Allah; for Allah is strict in Punishment." [Chapter Al-Hashr; Verse 7].

However the practical application of Islamic Banking has violated this, changing from a financial system founded on partnership to one based on debt. In some Islamic Banks, assets from Murabaha constitute as much as 92 percent of the overall financial portfolio. The Islamic banking system has also switched from operating via [Shariaa-compliant] rates of profit and has adopted interest rates, something that brings the Islamic Banking system closer to the conventional banking system. Islamic banking tools are also now used in risk management and credit policies; this makes the system vulnerable to the economic defects that are inherent in such practices in precisely the same manner as the conventional banking system.

Islamic banking has therefore ceased to be a safe haven for investors. It has become exposed to the risk of bad debts as the system is set up only to offer loans to a small number of individuals with substantial financial solvency as well as large corporations who are able to provide financial guarantees. These loans are provided without really examining the feasibility of the projects being funded or even knowing whether this financing is granted via Tawarruq or Murabaha. These kinds of financial practices do not occur when financing is provided via partnership or speculation.

Sukuk have also become vulnerable as a result of failures in meeting their financial obligations as a result of the legislative chaos that the Sukuk market is currently encountering and also because in many cases the assets being transferred to Sukuk-bearers are not genuine. In addition to this, Sukuk companies are now also including a contract where in the case of financial default the customer is obliged to immediately pay the value of the Sukuk in full. This only serves to increase the rate of default on Sukuk, and has therefore raised the risk that Sukuk bonds are exposed to. Islamic Banking has also become more liable to risk from individual bankruptcy as a result of the expansion seen in granting consumer credit based upon Tawarruq.

Islamic Banking has moved away from the values and principles that it was originally based on, and the Muslim community is no longer reliant upon this financial system to contribute to its progress and development. The damage caused by debt on the Islamic Banking system is therefore clear for all to see. Islamic Banking is no longer a system built upon partnership in profit and loss coming from actual financial activity that creates job opportunities and genuine products. Unfortunately, Islamic Banking is no longer a financial system that can make a difference to the world. Islamic Banking has crossed the line.

Maybank Singapore To Launch First Islamic Term Deposit For Retail Clients

2009-07-16T19:53:00.001-07:00

Maybank Singapore will launch the first Islamic Term Deposit (Term Deposit-i) targeted at retail clients tomorrow, making it the first bank here to offer the Islamic banking product to that market segment.

As the first mover in the market, Term Deposit-i will pay profits upfront, the bank announced today, bucking the local trend of Islamic term deposits for high networth customers.

A similar product, Profit Now Account-i was launched by Maybank Islamic Bhd in Malaysia last May and it was well-received with more than RM1.3 billion total deposits to date.

In a statement here Thursday, the bank said Islamic banking products were sought after by local customers who were scouting for alternative investment avenues with the current change in investment landscape.

The bank is offering for a limited period, promotional rates of 0.6 percent, one percent and 1.4 percent for a tenure of three, six and 12 months respectively.

The minimum placement is S$10,000 (S$1=RM2.42) for a 12-month tenure or a minimum of S$25,000 for a three- and six-month tenure.

This deviates from the current available Islamic term deposit products in the market.

Some products require a minimum placement of US$500,000, catering only to the high networth segment.

The bank said Term Deposit-i was based on the commodity Murabaha principle, which was on a cost plus profit sale concept.

Under this concept, a specific syariah-compliant commodity will be identified and used as the underlying asset for the sale and purchase transaction between the customer and the bank.

Maybank Singapore currently offers other innovative Islamic banking products such as iSAVvy Savings account-i, a syariah-compliant online savings account.

The bank said since the introduction of the Islamic deposit products in 2005, it had seen an average year-on-year increase of over 40 percent in Islamic deposits.

This increase aligned with the global expected growth of over 40 percent to US$1 trillion by 2012, Maybank said.

Maybank Singapore Islamic banking head, Mohd Ismail Hussein, said the current market presented an opportune time to take on a back-to-basic approach.

"Consumers are on the lookout for an alternative to conventional products and this term deposit, being syariah-compliant may well match their needs," he said.

Mohd Ismail said Islamic banking was a fairly new concept in Singapore but was gaining momentum including from among the bank's non-Muslim Islamic banking customers.

"With Maybank being the market leader in Islamic banking in Malaysia, the operations in Singapore is in good stead to 'break the ice' between Islamic banking and the local retail market," he said.

Ambank's New Islamic Fund Aims To Perform In Bull Marts

2009-07-16T19:52:00.001-07:00

AmIslamic Bank's second Islamic structured deposit, AmMomentum Select Islamic Negotiable Instrument of Deposit (NID-i), aims to perform in bull markets and protect investors against bear markets.

AmBank retail banking executive director, Mahdi Murad, said the NID-i was a highly innovative rule-based asset allocation strategy that used momentum to decide how to invest in a portfolio of multiple assets.

"It automatically avoids underperforming asset classes and takes advantage of bull markets," he said at the launch of the fund here Wednesday.

The NID-i is a four-year syariah-compliant principal protected structure that provides diversified exposure in 100 syariah-compliant stocks in 44 countries and in four indices namely, equity, energy, agriculture and metal.

It is essentially a deposit with a fixed tenure and returns are linked to the performance of syariah-compliant underlying assets, which may be equities, bonds, commodities, foreign exchange, indices or any combination of these assets.

Mahdi said the fund was suitable for investors who wanted to ride on the economic recovery but were uncertain about which asset classes to invest in and when was the best time to invest.

Meanwhile, the bank's structured products senior manager in treasury and markets, Hoe Cheah Kit, said investors could expect a two percent return for the first year.

"Upon completion of the four-year tenure, they can expect the principal and the two percent return if it was not drawn out before," he said.

On the expected average return for the fund, he said: "Going into the next four years, it depends on how fast the market recovers from here onwards."

Hoe said in the last seven years, where the bull run was in 2007 and early 2008, the average return was eight percent.

For the bank's first Islamic structure deposit launched last September, it gave a 1.5 percent return for the first six months, he said.

He said although the net asset value of the first fund was now lower then when it was first launched, it was now on a recovery trend.

"We went through a hard time in the second half of 2008. But even then we raised RM45 million (for the first fund) and saw momentum picked up over the last few months," he said.

The NID-i targeted a fund size of RM75 million during its 30-day offer period, he said.

Hoe said the bank aimed to launch another conventional structured product by year-end.

Economic Environment Will Improve

2009-07-16T19:51:00.000-07:00

Malaysia believes that with further collaboration with the Gulf states it can share knowledge and expertise in Islamic finance to help improve the current economic environment.

As such, Prime Minister Datuk Seri Najib Tun Razak has called for closer cooperation between the Gulf states and Malaysia to promote the Islamic financial system for a more holistic approach to long-term economic development.

"The states, with their financial resources, and Malaysia, with the knowledge and expertise in Islamic finance, provide a natural match and synergy for closer cooperation.

"We must use the opportunities available to us, even in these difficult times, to strengthen our economies and emerge stronger when the global economic environment improves.

"I am very confident that it will surely improve, just as the sun will rise again tomorrow," he said in his article on "Playing Our Part in Building a Safer, Prosperous World" published by the Egyptian Gazette newspaper Wednesday.

The prime minister is here to attend the 15th Non-Aligned Movement (NAM) summit which was officially opened by Egyptian President Hosni Mubarak Wednesday.

Najib, who is also finance minister, said that in the wake of the current crisis and the failure of the conventional banking system, there was increased interest in Islamic finance.

He said Malaysia, a leader in this area with some 60 per cent of the world's issuance of 'sukuk' (Islamic bonds) originating from Malaysia last year, was prepared to share its expertise for the greater and common good of the Muslim world.

He said the Securities Commission (SC) and the Dubai Financial Services Authority (DFSA) had agreed to allow cross-border distribution and marketing of Islamic funds between Malaysia and the Dubai International Financial Centre (DIFC).

Najib said it could be strengthened with the establishment of an economic council between the Gulf states and Malaysia.

He said it would offer far-reaching benefits to members as well as other countries in the two regions -- Southeast Asia and the Gulf region -- and between Asean and the Gulf Cooperation Council.

"One of the most important lessons to be learned from the ongoing economic crisis is that we must never be boxed in by orthodoxy in economic matters, but focus more on what works, what is needed and what will best serve the long-term needs of our people," he said.

He said that in Malaysia, there have been criticisms from those who wanted to defend the status quo or ignore the different times we lived in.

"But without these policies, Malaysia would be left behind, ill-equipped to compete in the high-value economic sectors of the future that will propel Malaysia into the higher income group," he said.

On NAM, he said that though the organisation was set up under a very different political and economic environment, the challenges it faced today were no less important.

"The Cold War may be over but we are confronted with the most severe economic crisis in decades, new international security threats that strain relationships and questions about shifts in economic power across regions and between peoples," he said.

HSBC Shows Resilience Amid Crisis

2009-07-16T19:50:00.000-07:00

HSBC clinched a series of major industry awards in the Asia-Pacific region in the first half of 2009, reflecting its resilience in difficult economic conditions.

The awards, organised by leading financial publications, include regional, country and territory awards as well as recognition for outstanding performance in various business areas.

Euromoney, in its 2009 Awards for Excellence programme, named HSBC Best Bank and Best Debt House in Hong Kong. In the publication's Foreign Exchange Poll 2009, HSBC was ranked number one in the "Best for Currencies - Hong Kong Dollar" category.

Earlier in the year, HSBC Amanah won Best Sukuk House, Best Fund Manager and Best Takaful House in Euromoney's Islamic Finance Awards.

In FinanceAsia's Country Awards for Achievement 2009, HSBC was recognised for its outstanding strength in its operations in Hong Kong and some emerging markets in Asia. HSBC in Hong Kong, in addition to winning the Best Bank title, also won Best Bond House, Best Cash Management Bank, Best Trade Finance Bank and Best Foreign Exchange Bank titles. HSBC was also named top Foreign Commercial Bank in mainland China, Malaysia and Vietnam.

HSBC in Malaysia also fared well in Islamic finance and transaction banking. In the Asset's Triple A Islamic Finance Awards 2009, the bank won Best Islamic Debt House award as well as the Best Islamic Project Finance Deal in the country and the Most Innovative Islamic Finance Deals. In the Asset's Triple A Transaction Banking Awards 2009, HSBC in Malaysia was named Best Trade Finance Bank, Best Transaction Bank, Best Sub-custodian Bank and Best Domestic Custodian. In the same awards programme, HSBC in Vietnam also won Best Trade Finance and Best Sub-custodian awards.

In The Asian Banker's Excellence in Retail Financial Services Awards 2009, HSBC won Best Regional Retail Business in Asia. In the same programme, HSBC in mainland China topped other foreign banks in retail banking while HSBC in Hong Kong won the Excellence in SME Banking award.

UAE's Islamic Financial Firms To Bring Changes In Canberra's Financial Services Sector

2009-07-14T19:14:00.000-07:00

The first Islamic financial Services Mission of the UAE to Australia ended successfully and the Dubai Export Development Corporation is expecting new business opportunities for the Islamic Finance sector as a result of the trade mission.

UAE's Islamic financial firms, part of the delegation to Australia, have met with the Treasury officials in Canberra to discuss the current rules governing its financial services and incorporate Islamic financial products.

Jointly organised by EDC and the Australian Trade Commission (Austrade), the Trade Mission delegates are seeking to encourage changes in Australia's federal taxation which will allow Islamic financial products to be treated at par with conventional financial products. The Australian financial system, like most in other parts of the world, is based on the principle of payment and receipt of interest that disadvantages Shariah compliant financial products.

'One of the important aims of this mission is to initiate a dialogue between UAE's Islamic Financial firms and the Australian authorities so as to discuss changes that will allow Islamic Firms to be established in the country and to be treated on an equal footing with conventional financial firms,'
said Engineer Saed Al Awadi, Chief Executive Officer, EDC.

'Australia, with a Muslim population of about 400,000 people and growing at 20% per year, is an attractive market for UAE's Islamic Financial Firms. It is estimated that the annual household purchasing power of Australian Muslims is in excess of $3.3bn. Of course, Islamic Finance is not only limited to Muslims but is also popular to non-Muslims such as in the case of Dubai,' he added.

With a federation of six states and two territories, Australia levies state and federal taxes hence, Islamic financial firms have to overcome both of them. This means that for Shariah compliant products such as Murabaha mortgages tend to pay stamp duty, the most important tax at the state level, twice ie at the time of purchase and then when the loan is paid off. This adds to the borrower's burden and makes Shariah financial products uncompetitive.

However, some states in Australia such as Victoria have approved the State Taxation Act (Amendment) Act 2004, through the State Legislative Assembly and Legislative Council, which abolished double stamp duty on Islamic home finance. Other states are also considering making similar changes to their state taxation in order to accommodate Shariah compliant home finance.

Another example of double taxation is the Islamic trading of commodities requires a physical holding of the asset, which is very different from conventional commodity trading whereby the asset need not exist. Similarly, Shariah compliant deposits pay a profit rather than interest and this should not disadvantage the investor.

Al Awadi explained that, 'These challenges are being faced in most countries abroad. In 2005 and 2006, the UK government headed by the then Chancellor Gordon Brown introduced a legislation to incorporate Shariah compliant products into the UK financial services framework. Although, the UK does not mention Islamic finance it nevertheless used such contracts to base the changes in taxation. For example, the Finance Act 2005 under section 47 defines a purchase and resale contract which happens to correspond to a traditional murabaha contract. In a similar manner, a shariah compliant deposit is treated as a profit share return or in an Islamic context a Mudarabah contract.

'As a direct result of these changes, the UK now boasts two Islamic banks and a number of banks with Islamic windows. We hope to achieve similar modifications within the Australian financial system through our recent trade mission, eventually introducing Islamic financial products down under,' he concluded.

Kym Hewett, Austrade Senior Trade Commissioner in Dubai, commented, 'I am keen to see the positive experience the delegates on the initial mission translate into a great level of understanding on Islamic Financial products and deeper level of engagement between financial institutions in Australia and the UAE. Austrade's relationship with EDC continues to evolve since our Tradelink Partnership signing in 2008.'

From AME Info

KFH Wins 'Innovative Islamic Bank' Award

2009-07-14T19:13:00.001-07:00

Kuwait Finance House (KFH), one of the largest and pioneering Islamic banks, has been named as the 'Most Innovative Islamic Bank' at this year's London Sukuk Summit.

"The 2009 London Sukuk Summit Islamic Finance Awards" were given recently at a gala dinner in Radisson Hotel, London.

The awards were in recognition of the achievements, progress and effort by individuals and institutions in the Islamic finance space. This year there were 24 award categories.

The KFH won another award when Ali Al-Ghannam, head of International Real Estate at KFH, clinched the 'Most Innovative Islamic Real Estate Financing Transaction' for the $1bn investment in the Multi-Million Dollar Iskandar City Development Project in Johor in Malaysia through its long-term Al-Nibras II Fund.

KFH is one of the few banks that weathered the worse effects of the global financial crisis and subsequent credit crunch especially in Kuwait and the GCC countries.

The bank, earlier this year, reported total profits of KD379.35 million ($1.3 billion) for 2008 with assets increasing to KD10.54 billion and deposits to KD 6.612 billion. The KFH Board had also recommended a 40 per cent cash dividend, and a 12 per cent stock dividend to shareholders for 2008.

KFH in recent months has also been spearheading a global expansion drive which is yet another sign that the Islamic finance market is bouncing back albeit a bit more cautious and selective.

In other awards category, this year's 'Islamic Banker of the Year Award' went to Ayman Sejiny, CEO of Unicorn Bank in Saudi Arabia.

Sejiny is recognized for his role in helping to structure and launch the three Sukuk issued by Dar Al-Arkan Real Estate Development Company (DAAR) to date and in helping to establish Unicorn Investment Bank in Bahrain. DAAR is a major shareholder in Unicorn Investment Bank.-

From Trade Arabia News

Integration Of Islamic Finance Should Be Facilitated Across Jurisdictions

2009-07-13T01:41:00.000-07:00

The international integration of Islamic finance should be facilitated by the mutual recognition of financial standards and products across jurisdictions, said Bank Negara Governor, Tan Sri Dr Zeti Akhtar Aziz on Wednesday.

"It is one of the most important factors in sustaining the internationalisation of that sector," she said in her address at the Malaysia-United Kingdom (UK) Islamic Finance Forum held here.

She said that there had already been the progressive convergence of Shariah views and rulings, and the mutual recognition of financial standards and products across jurisdictions.

"As this continues to occur, it would be a major driver towards greater international financial integration," she added.

"This convergence and harmonisation is taking place with greater engagement among the regulators, practitioners and scholars in Islamic finance across jurisdictions," she highlighted.

The Lord Mayor of the City of London, Alderman Ian Luder also attended the one-day forum, organised in collaboration with the Commonwealth Business Council.

Luder was leading a business delegation representing UK-based financial and professional services firms to Malaysia, for three days from Tuesday.

According to Zeti, the UK and Malaysia had one of the oldest relationships which has been dynamic while evolving in the rapidly changing international environment.

"The bilateral trade in goods between both Malaysia and the UK only accounts for 1.4 percent of our total trade. But Malaysia's bilateral trade in services with Britain accounted for 6.3 percent of our trade in services in 2008.

"While the balance of trade is in our favour, the balance in the services account is in favour of the UK, amounting to RM2.3 billion," Zeti said.

Meanwhile, Zeti said Islamic financial assets comprised 17 percent of the total assets of the banking system in Malaysia and the daily average volume transacted in the Islamic money market was RM6 billion.

The sukuk market, which has been expanding at an average annual rate of 22 percent, now accounts for more than 50 percent of the Malaysian bond market, she stated.

From Bernama

Islamic Economic System Only Way Out

2009-07-13T01:40:00.000-07:00

The recent global economic crisis was not caused just by sub-prime loans and credit derivative swaps but the more fundamental drawback of the system was behind the meltdown.

C.H. Abdul Raheem, a senior chartered accountant, prominent scholar in Islamic Economics and general manger Finance and Business Planning with Tasnee Company- Jubail, expressed these views at a lecture on “Global Economic Crisis- an Alternate View”.

The event was recently organized by Thanima- a socio-cultural organization of Indian expatriates in the Kingdom. Raheem, is also the founder of Alternative Investment Credit Limited (AICL) a non – banking financial institution, which is run by Islamic banking concepts, implemented in Kerala state in year 2001 with the approval of the Reserve Bank of India.

“Any economic system has to take care of different behavioral aspects of human beings, and moral part is very important, and systems based on material gains alone will not work in the long run,” Raheem said.

The economist said that Islamic economic system, which advocated a balanced combination of individual freedom and social responsibility backed by a strong moral base, was the only viable alternative.
“Islam has structural and compulsory wealth re-distribution mechanism such as Sadaqa, Zakat, Will, Waqf, law of inheritance etc. There were period in human history when these principles were successfully practiced and prominent economist lived in those time and wrote valuable books on Islamic economics and practice”, he said.

Raheem said that the two important symbol and icons of capitalist system – the interest-based banking and the speculative stock exchange system - had miserably failed.
“Capitalism, especially interest-based economy, has brought in huge disparities between the rich and the poor. The capitalist system is practically dead as the western governments has nationalized most of the banks and other industrial corporations, which is a big anti-thesis of capitalism,” he said, adding that implementing a non-interest banking and investment system, which is divine and an ethical procedure is the only practical solution to solve to cover up the present situation.

From Saudi Gazette

SLIBF Conference To Explore More Opportunities

2009-07-13T01:38:00.002-07:00

The 1st Sri Lanka Islamic Banking and Finance (SLIBF)Conference, due to be held on July 20 and 21 2009, will see the key stakeholders in the IBF industry convening at a single forum for the very first time.
Aptly titled "Entering a New Era", the Conference will explore the opportunities that this very dynamic and fast growing industry offers.

The end of a three decade old conflict in Sri Lanka is expected to offer incumbents as well those poised to enter the industry opportunities that would extend beyond the shores of Sri Lanka. India, which is only just beginning to open its doors to an industry that is expected to touch the USD 1 Trillion mark worldwide by the year 2010 and growing at a phenomenal pace of between 15-20%, would be of special interest to players that are seeking to leverage off the knowledge and experience that we have gained over the past decade or so. This is a special area of interest that would be dealt with intensively during the two-day event.

The Conference will also seek to discuss the challenges faced by the industry, including Regulatory constraints. Participants will be able to hear very eminent speakers and experts from the legal, auditing and regulatory field discussing this area at some length. The recent granting of a Provisional license for an Islamic bank is indicative of the proactive stance that the regulators have taken in dealing with this very exciting industry.

A panel of speakers that is expected to exceed 25 will not be limited to Sri Lanka either. Speakers from as far away as Mauritius, South Africa, the USA and the United Kingdom, just to name a few, will share their experiences of the growth of IBF in their respective countries. Developments in the Gulf region, which has largely been responsible for the interest shown by nations that straddle the globe, will also be discussed by experts from the region.

This will not be limited to particular sectors either with experts in Marketing, Consulting and Fund Management discussing their particular facets of IBF in great detail.

The programme is expected to demystify what many in the financial sector are still coming to terms with. An industry which does not discriminate on religion or race but still perceived by some as being the exclusive domain of "Muslims" will be dissected by the delegates in the fervent hope that such notions will not linger in the minds of the public at large. Islamic bankers will also be joined by their counterparts in conventional banking so as to ensure that the delegates are also given different perspectives of Islamic banking.

At the end of the event, the delegates should have a much greater understanding of the intricacies of an industry that still remains an enigma to some. More details could be obtained from the conference organisers, UTO EduConsult Pvt. Ltd. on 0773 501246 or rozana@utoeduconsult.com.

The Sunday Times

Memorandum Signed On Training Programmes In Islamic Finance

2009-07-13T01:38:00.001-07:00

MENATSA Training & Development has announced the signing of a memorandum of understanding (MoU) with First Global Knowledge Center (FGKC) to offer a range of specialised training programmes in Islamic finance to institutions and individuals in the GCC.

The MoU was signed by managing director of MENATSA T&D, Damian Brown, and strategy adviser to First Global Group, MHM Faizer.
A spokesperson explained that the Islamic Finance Qualification (IFQ) that participants will earn is of an internationally recognised standard awarded by the Securities and Investment Institute.

Brown said: “Over the past several years, MENATSA T&D has successfully developed leaders in various industry disciplines. We feel honored to offer professional education to Qatar-based institutions and their employees through this memorandum, which reflects our commitment to forge strategic alliances with top global performers.”

“We believe FGKC’s programs will enable professionals with differing backgrounds and working in various departments to partake in one of the fastest growing sectors in the global financial industry,” he added.

We've Lost Icelandic banks, Now Lets Try The Islamic Banks

2009-07-13T01:36:00.000-07:00

GK Partners is pleased to announce the first conference as part of its Access to Islamic Finance (A2IF) programme, which focuses on extending and enhancing the size and accessibility of Islamic finance in the United Kingdom.

The first conference of the series, which takes place at the British Library on Monday 13 July 2009, focuses on how Islamic finance investment in British businesses can be improved and will feature presentations from industry experts and chief executives of major public and private sector bodies.

“In the past year, the world has witnessed cataclysmic turmoil in global finance, with severe impacts on the fortunes of countries, companies, charities and individuals. The reckless financial speculation and excessive risk-taking that led to the unsustainable accumulation of phenomenal volumes of toxic assets are against the basic principles and practices of Islamic finance. The unfortunate reality of the credit crunch, sub-prime mortgages and economic recession, has created renewed interest in ethical and socially responsible financial practices.” says Gibril Faal, Director of GK Partners and Convenor of the conference.

The conference has received a ringing endorsement from the government. Speaking on 6 July 2009, Rt. Hon. Lord Mandelson, First Secretary of State, Lord President of the Council
Secretary of State for Business, Innovation & Skills said “I welcome this conference. In particular, the aim of increasing and optimising access to Islamic financial products through the strengthening of partnerships between the financial, business and enterprise (including social enterprise) and voluntary & charitable sectors. It will be useful in furthering understanding of the contribution Islamic finance can make to our economic and social communities at all levels.”

To attain the untapped financial and socio-economic benefits of Islamic finance, a new proactive approach is required. Apart from further facilitative regulatory reform, there is a need for focused promotion and awareness-raising amongst the diverse potential clients, especially from non-Muslim communities and unengaged corporate, SME and social economy sectors.

“Islamic finance is available to Muslims and non-Muslims.The ‘Access to Islamic Finance’ conference will help advisers, practitioners and policymakers understand the technicalities, accessibility and benefits of Islamic finance.” says Faal.

The Access to Islamic Finance (A2IF) programme is a comprehensive and inclusive approach,
based on new forms of synergistic cross-sectoral partnerships. The practical business benefits and ethical virtues of Islamic finance are relevant and consistent with the values and financing needs of commercial and social enterprises from a wide range of sectors.

Through the A2IF programme, we seek to increase and optimise actual access to Islamic financial products and services by creating and strengthening purposeful partnerships with, amongst others: corporate and SME clients and their trade associations; public sector asset developers and managers; ethical and social enterprise clients and their trade associations; regeneration and community investment companies and agencies; charity investment and trust fund managers; financial policy and regulatory bodies; social integration and community cohesion agencies.

From Global Arab Network

Britain Seeks Malaysian Expertise

2009-07-12T22:59:00.000-07:00

Britain welcomes the liberalisation of Malaysia’s financial services sector, in particular, the areas concerning Islamic finance.

The Lord Mayor of London Alderman Ian Luder said Britain and Malaysia had long established links in the field of Islamic finance.

“We are particularly keen to follow this up by working with Malaysia in areas such as professional exchanges between Islamic finance staff, experts and student and joint education programmes,” he said in his speech at the Malaysia-UK Islamic Finance Forum here on Wednesday.

The liberalisation measures include the issuance of five new legal licences for international law firms in Islamic finance.

Bank Negara has also raised foreign ownership limits of local Islamic banks, investment banks and insurance companies to 70% from 49%.

“We also believe we should work together on policy exchanges and mutual recognition of standards, and we are very keen to work with your expertise in developing the market,” Luder said.

He said syariah-compliant finance was a global growth area, with Muslims making up a fifth of the world population.

“Indeed, Britian has become the leading Western country for syariah-compliant by assets and London has been providing syariah-compliant financial services for 30 years,” he said.

He added that Malaysia had an “even longer” history in syariah-compliant finance.

Sharia Index For Thai Stock Market

2009-07-12T22:58:00.002-07:00

Global index provider FTSE International and the Stock Exchange of Thailand (SET) have teamed up to create the FTSE SET Sharia Index (FSTSH) as a basis for index-linked products.

The FSTSH, which made its official debut on the SET on May 25, opens up the Thai capital market to investors looking for Islamic investment products. The index includes a wide range of products including exchange traded funds, funds and other index-linked products.

The FSTSH is the seventh index in the FTSE SET Index series, which is designed to measure the performance of the Thai capital market and serves as a basis for index-linked products. The first six indexes in the series are segmented by market capitalisation.

The launch of the FSTSH addresses the expanding sharia investment market.

Moody's says Islamic finance has been growing at an impressive rate of 15 per cent per year for the past three years. This is a result of the economic strength of Islamic countries and the promotion of Islamic finance products in many countries such as Indonesia, Malaysia and Singapore. In Thailand, four Islamic funds have been established to date.

Securities to be included in FSTSH must pass two Islamic finance screenings. In a business-activities screening, the issuers of the securities must be consistent with sharia law. This means they must not be involved in conventional finance (non-Islamic banking, finance and insurance), alcohol, pork-related products and non-halal food production, packaging and processing or any other activities related to pork and non-halal food, entertainment (casinos, gambling, cinema, music, pornography and hotels), tobacco or weapons, arms and defence manufacturing.

In a financial-ratios screening, issuers of securities must have debts amounting to less than 33 per cent of total assets; cash and interest-bearing items must represent less than 33 per cent of total assets; accounts receivables and cash must represent less than 50 per cent of total assets; and total income from interest and non sharia-compliant activities must not exceed 5 per cent of total revenue.

The strict enforcement of the above screenings assures investors of the stability of the issuers, thus enhancing investor confidence in the FSTSH. While catering to domestic and international investors looking to invest in a transparent and sharia-compliant manner, the FSTSH is aimed at encouraging issuers to create structured investment products tailored to the global Islamic market.

Sukuk Defaults Seen Rising As Global Slowdown Weighs

2009-07-12T22:58:00.001-07:00

A default on Islamic bonds by Kuwaiti firm Investment Dar is just the tip of the iceberg, with more failures expected as the weak global economy hits issuers, industry experts warned on Wednesday.

Unlike traditional banking, the $1 trillion Islamic finance industry has just begun to feel the chill of the global downturn, with practitioners and analysts trying to assess the extent of the fallout on the sector.

Investment Dar said in May it had defaulted on a $100 million Islamic bond, the first such default for a major, public Islamic instrument in the Gulf.

Troubled Saudi conglomerates Saad Group and Ahmad Hamad Algosaibi & Bros, are restructuring their debt, triggering concerns of a spillover effect on the Islamic finance industry.

Neale Downes, a Bahrain-based lawyer at Trowers & Hamlins, estimated that 5-8 percent of Islamic bonds, or sukuk, in the market are susceptible to default as many were raised for real estate projects which have been hurt by the slowdown.

"A lot of the issuers are ultimately really sovereign or quasi sovereign so they will probably be able to draw on government support either directly or behind the scenes," Downes said on the sidelines of an Islamic banking conference in Kuala Lumpur.

The value of sukuk issued in 2008 dropped by more than 56 percent compared with 2007 to $14.9 billion, due mainly to the global credit crunch, according to Standard & Poor's. It expects the market to recover in the second half of 2009 or early 2010.

"The longer the global recession goes, the higher the likelihood of default," said Mohammad Faiz Azmi, global Islamic finance leader at PricewaterhouseCoopers.

"People are now using reserves or savings to try to keep themselves going. How long can that last? So far what we've seen is the tip of the iceberg."

From Reuters

Scholars Juggle Faith, Commerce As Sharia Finance Grows

2009-07-12T22:56:00.000-07:00

Religion may be the bedrock of Islamic finance but influential sharia adviser Mohd Daud Bakar says the bottom line drives the industry.

"Commercial gains are very important," said Daud, who is listed by consultants Funds@Work as among the world's most active scholars, sitting on 22 sharia boards.

"We are not a charitable organisation. Shareholders are looking for ROE (return on equity) at the end of the day."

As Islamic banking tries to reach wider markets, sharia scholars such as Daud are weighing more than just Islamic tenets when they rule on the validity of financial instruments, reflecting commerce's growing role in the $1 trillion industry.

The desire to win market share, the level of expertise of individual scholars and the scarcity of scholars may all shape Islamic financial rulings and the future of the sector.

Some sharia advisers say it is not always easy to balance religion and business as they grapple with modern funding techniques that sometimes challenge Islam's basic beliefs.

Once at odds with the sharia's ban on gambling and excessive speculation, contentious conventional practices such as hedge funds, short-selling and derivatives are slowly finding a place in Islamic finance.

Tasked with applying Islamic law and global financial practices, sharia scholars are powerful gatekeepers, whose approvals are necessary before a product can be marketed as an Islamic instrument.

There are no official figures but some practitioners say there are around 200 sharia scholars worldwide.

Some sharia advisers say the drive to grow the industry influences their decisions on whether certain products meet the sharia's standards.

Ahmad Hidayat Buang, who advises Islamic insurer Takaful Ikhlas, says Malaysian scholars try to meet companies' business needs, reflecting a popular view that the Southeast Asian country is more liberal in its sharia interpretation than the Gulf.

"We see what happens, then we try to adopt the more flexible view of sharia in order that our product could be introduced," said Hidayat.

"It's not necessarily a question of sharia. When you decide on the matter many aspects have to be taken into consideration."

STAR ENDORSEMENTS?

Sharia scholars are not formally accredited by a single authority so their qualifications can vary vastly, raising questions about the ability of some to understand complex financial structures, especially if they are pressed for time.

With newer financial firms, "they know that the sharia board can be very powerful so they bring in very junior scholars and give them very little information or not enough information within a very limited period of time," said Megat Hizaini Hassan, a Kuala Lumpur-based Islamic banking lawyer.

"So these scholars may be under pressure to give approvals or certifications."

A select group of sharia scholars are highly sought after as the bigger a scholar's name, the greater the drawing power of the product he approves. The industry's most influential figures can make or break markets with their decrees.

Bankers say Islamic bond issuance fell sharply last year after Sheikh Muhammad Taqi Usmani, chairman of the board of scholars at influential industry body AAOIFI, declared about 85 percent of sukuk were un-Islamic.

Among the most active scholars are Bahrain's Sheikh Nizam Mohammad Saleh Yacouby, who sits on 46 advisory boards, and Syria's Abdul Sattar Kareem Abu Ghuddah, who is on 45 boards, according to Funds@Work.

This has raised concerns about whether some scholars have enough time to thoroughly vet contracts, some of which consist of reams of documents detailing complex financial instruments.

There are also concerns about the possibility of Islamic financial rulings being affected by conflicts of interest where a scholar sits on various boards.

"Sharia board conflicts of interest are part of the practice of modern economic institutions," said Mousa Isa, a sharia adviser in Saudi Arabia. "There should be transparency."

Other contentious issues include giving scholars incentive-based payments linked to the success of products they approve. This echoes complaints about the hefty bonuses of some Wall Street bankers which analysts say fuelled excessive speculation and helped trigger the recent credit crisis.

Ayashi Faddad, sharia adviser at Islamic Development Bank, said scholars' fees should be approved directly by shareholders, not management, to reduce potential for conflicts of interest.

But scholars say some lines cannot be crossed. In cases where there is no room for Islam to accommodate a structure or product, Daud said "the commercial must adjust to the sharia".

From Reuters

Turkey Should Think About Islamic banking

2009-07-12T21:39:00.002-07:00

While the global financial system still has not found a departure point for itself, alternative financial structures seem here to stay, says a renowned expert on Islamic banking.

Lord Mohamed Iltaf Sheikh, the founder of the Conservative Muslim Forum who visited Sunday's Zaman, said that the Islamic banking system, which is based on religious ethics, continues to generate business in many countries, particularly in the Middle East.

Lord Sheikh has set up an advisory and consultancy company to advise interested parties on Islamic banking and Islamic insurance. Sheikh observes that Muslim communities in Europe already constitute a significant economic realm not only by dint of their population but also because of their cultural assets. For this reason, he gives great importance to establishing Islamic banks in Europe based on principles such as transparency and neutrality. He states that in the United Kingdom the Islamic way of doing business has been bolstered as a government policy. The UK is the eighth largest country in the number of Islamic finance and insurance companies it hosts. The British government has already adopted several concessions meant to encourage Islamic banking not only for Muslims but also for the general public. Lord Sheikh pointed out that anybody who acquires a property using Islamic banking principles is exempted from the stamp tax while signing over the property. Lord Sheikh's vision of Islamic banking is not only about elimination of “riba,” or usury, but also about cooperating and investing in socially and environmentally responsible projects.

Though Islamic banking is the fastest growing financial market in the world, with 30 percent annual growth in banking and 20 percent in the insurance sector, Sheikh believes that Islamic banking will not become a substitute for the conventional banking system. “It is due to the lack of capacity,” he says. “Islamic banks cannot afford to handle huge transactions, for the time being.” But this could change in the near future, given the massive growth in the sector. Sheikh noted the fact that the Vatican has praised the Islamic banking system as an alternative to the conventional understanding of the financial markets. Sheikh thinks that with its population of 70 million Turkey should encourage and invest in Islamic banking, more so than any other country in the region.

Lord Sheikh is not only lobbying for Islamic banking within the capitalist West, but also among Muslim communities themselves. In the realm of insurance, Muslim communities are fairly reluctant to purchase a life or health insurance policy because of a religious belief in destiny. Sheikh has been trying to educate Muslim communities about the kind of input human will should provide for divine destiny to take care of human beings' needs. He says that their professional advice and expertise in Muslim countries is important for spreading the idea of insurance in those countries.

Thanks to the development of Islamic economies throughout the world, the term “Islamic banking” has gained significant meaning in today's financial system. Islamic banking activity connotes a typical financial system that operates in harmony with Islamic principles and modes of life. For example, the payment of fees for the renting of money, or “riba,” is strictly prohibited according to Islamic principles. Despite many commonalities shared with conventional banking system, Islamic finance is based on equal sharing of profits and alternatives to riba.

Islamic banks have grown recently in the Muslim world but remain a very small share of the global banking system. Micro-lending institutions founded by Muslims, notably the Grameen Bank, use conventional lending practices and are popular in some Muslim nations, especially Bangladesh, but some do not consider them true Islamic banking. However, Muhammad Yunus, the founder of Grameen Bank and microfinance banking, and other supporters of microfinance, argue that the lack of collateral and lack of excessive interest in micro-lending is consistent with the Islamic prohibition of riba.

Lord Sheikh, chairman of the Conservative Ethnic Diversity Council, started his career by joining Sun Alliance Insurance Company in London. Sheikh has been the president of the Insurance Institute of Croydon and a member of the National Council of the Chartered Insurance Institute. He was regional chairman of the British Insurance Brokers Association.

From Sunday's Zaman

Islamic Bank Expands Lending In South

2009-07-12T21:39:00.001-07:00

The state-owned Islamic Bank (IBank) has set target to expand its lending portfolio by another 20 billion baht in deep South this year, bank president Theerasak Suwannayos said.

The loan expansion is inline with the government’s policy to rehabilitate the economy and to curb the unrest in the five southern border provinces of Satun, Songkhla, Yala, Pattani and Narathiwat, Mr Theerasak said.

However, the bank president admitted that his bank currently has only four billion baht liquidity in hands and he had discussed with Finance Minister Korn Chatikavanij to ask for an approval for the bank’s plan to raise capital by six billion baht.

After the capital raising, the bank will have capacity to grant as many as 60 billion baht in new loans.

Islamic Finance Eases Scots' Home Crisis

2009-07-12T21:38:00.000-07:00

"I would be happy to sit down and talk to them about their ideas," says Minister Neil.
The government in Scotland is contemplating an innovative scheme on using Shari`ah-compliant investments to address the housing dilemmas Scots are facing in the ongoing severe recession.

"I would be happy to sit down and talk to them about their ideas," Housing Minister Alex Neil told the Sunday Times on July 12.

Officials from the Islamic Finance Council (IFC), a Scotland-based body representing Islamic financial interests worldwide, will discuss with Neil how Islamic finance could be used to help plug the funding gap for new social housing in the European country.

Under an IFC plan, Shari`ah-compliant finance can fund new shared-ownership homes with backing from the government.

But unlike those with conventional mortgages, householders would be largely insulated from negative equity.

If the occupier had a 10% stake in a property worth £200,000 that later fell in value to £150,000 and wanted to sell, the financier with a 90% stake would not be able to recover the £180,000 they had put in initially.

Instead, they would have to settle for 90% of the sale price, recovering only £135,000, and the householder would avoid having to cover the £45,000 shortfall.

As for Islamic financiers, if and when property prices rise, they could qualify for a higher share of the profits when homes are sold, gaining not only 90% of the final value but an extra bonus from the proceeds.

Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.

Investors have a right to know how their funds are being used, and the sector is overseen by dedicated supervisory boards as well as the usual national regulatory authorities.

Islam forbids Muslims from usury, receiving or paying interest on loans.

Transactions by Islamic banks must be backed by real assets -- not shady repackaged subprime mortgages.

Attractive

IFC officials believe the scheme would be the answer to housing problems in Scotland as it would lead to a rise in the availability of affordable homes.

"The ability to avoid negative equity is a very powerful message that would resonate for many in the middle classes who can’t afford to be stuck in such an awkward situation," Omar Shaikh, of the IFC, told The Times.

Islamic finance partnership would also save the Scottish government millions of pounds at a time when its budget is under unprecedented pressure because of the recession.

Shaikh affirms that Islamic finance products provide a wide range of investment opportunities that would prove attractive to ethical investors.

"It could also be a very attractive product in the current climate for people of all faiths and none."

He asserted that the Islamic finance industry, globally, has become "very energetic" recently as it keeps growing at a rapid pace.

"There is absolutely an appetite for this."

Islamic finance is one of the fastest growing sectors in the global financial industry.

Starting almost three decades ago, the Islamic banking industry has made substantial growth and attracted the attention of investors and bankers across the world.

A long list of international institutions, including Citigroup, HSBC and Deutsche Bank, are going into the Islamic banking business.

Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2013.

Launch of Yasaar Human Capital

2009-07-12T21:35:00.002-07:00

The launch of Yasaar Human Capital, based in the Dubai International Financial Centre, is further evidence that the UAE economy is back on a path to growth. Yasaar Human Capital is a specialist executive search and human resources firm working within the Islamic finance sphere and has been established to capitalise on the growth and strength of the industry.

The team behind Yasaar Human Capital focuses on executive search, talent management, advisory, and leadership within the Islamic finance domain both within mature and immature markets. Being headquartered in Dubai is a testament to the leadership role that the emirate is taking in the development of the Islamic finance industry.

Managing director of Yasaar Human Capital, Fuwad Beg, said, 'The Islamic finance industry has reached a level of maturity and sophistication which means that it requires leaders with specialist skills and knowledge. The goal of Yasaar Human Capital is to foster and nurture that talent and ensure that the future growth of the industry is both focused and strong. We do that by placing the best people within the best roles'.

Chief executive of Yasaar Limited, Majid Dawood, said, 'The launch of Yasaar Human Capital is the next step in strengthening and building the Yasaar brand as a leader in Islamic finance. Yasaar Limited is already a leading Shariah consultancy and Yasaar Media is on its way to becoming a leader in the Islamic finance media space. Yasaar Human Capital will be a great help in lifting the quality of talent in the industry'.

This year marks a critical turning point in the history of the Yasaar Group as the company branches out into different areas of the Islamic finance arena through offering a variety of market-leading products and services.

Yasaar Human Capital is headquartered in the Dubai International Financial Centre and provides functional expertise in executive search, human resource advisory, talent management and leadership development to multi-national, mid-cap and start-up companies within the Middle East, Asia, and Europe.

Islamic Bonds: Easy Way To Raise Cash

2009-07-12T21:35:00.001-07:00

Its newest “social and ethical” banking product: the “Sukuk”--Islamic bonds--proposes an alternative for Government of issuing new debt on potentially cheaper and less risky terms.

“The scope for Government issuing the Sukuk, known as Sovereign Sukuk, is clearly enormous. It provides the State with the possibility of issuing new debt on potentially cheaper and less risky terms than those applying to conventional bonds,” says Dr Muniruddeen Lallmahamood, Certified Sharia Advisor and Auditor.

“Sukuk is a funding alternative that can enable Government and private entrepreneurs to raise cash when tax collection is no longer an option or that traditional investors get scarce,” he says.

Sukuk, it seems, has emerged as the latest investment trend around the world. According to Mckinsey's data, Sukuk issuances were estimated to have generated some US $ 60 billion at October 2008 from a mere US$0.3 billion in 2000.

Dr Lallmahamood says numerous advantages will emerge from the issue of such Islamic bonds in Mauritius. He says it will allow a diversifying of our traditional investment base attracting investors from the gulf and the Middle East and at the same time offering an alternative investment instrument both for domestic and international investors seeking sharia compliant instruments and social investments.

“It is a fact that those who buy and sell conventional bonds are rarely interested in what is actually being financed through the bond issue. With the Sukuk, the buyer can monitor the purpose for which he buys or sells the bonds, and may refrain from doing so if the bond issue involves the production or sale of alcohol, pornography or tobacco, all against
the Sharia,” he says.

He adds: “It will also allow the widening of the sharia based financial products in Mauritius, while diversifying financing sources in order to increase the flexibility of the government's long term funding strategy, allowing the state to be less dependent on institutions such as the International Monetary Fund, the World Bank or the African Development Bank.”

There presently exist 14 classes of Sukuk according to the Accounting and Auditing for Organizations of Islamic Finance Institutions (AAOIFI). Sukuk could be used for various economic and trading purposes, including raising funds for land cultivation or even irrigation of land. However the most common is the Sukuk ljara concerned with real estate assets.

Issuing Sukuk outside an islamic jurisdiction will raise a variety of legal and practical issues, says Dr Lallmahamood. “A review of the current regulatory framework will be essential in order to make the financial legislation sharia compliant. We need to review laws regarding bankcrupcy, tax, trust, corporations, securities regulations, real property.

Such amendments will allow Mauritius to leverage on its competitive financial sectors. Another hurdle for the moment is the absence of a supervisory sharia board. Moreover, projects that are typically local currency generators for utilities, toll roads and dams works have difficulties in attracting long term foreign capital because of the inherent currency risk of depreciation. However a solution to this problem could be to issue Sukuk in stable currencies such as the dollar or the euro,” Dr Lallmahamood says.

At a time where builders, developers and manufacturers as well as Government are looking for investments, Dr Lallmahamood says the Sukuk could be an interesting and useful alternative to classic bonds and investment sources.

CIMB To Manage Islamic Infrastructure Fund

2009-07-12T21:34:00.000-07:00

CIMB Standard, Asian private equity and infrastructure fund specialists, have been appointed manager and advisor to a new $500 million Islamic Infrastructure Fund, jointly sponsored by the Asian Development Bank (ADB) and the Islamic Development Bank (IDB).

A Statement issued by the firm noted that, the Islamic Infrastructure Fund (IIF), Asia's first major multi-country Islamic infrastructure fund, will make Shariah-compliant equity investments in emerging countries in Asia with significant infrastructure opportunities to meet their developmental needs.

Amongst such countries are Azerbaijan, Bangladesh, Indonesia, Kazakhstan, Malaysia, Pakistan and other member countries common to both ADB and IDB. The IIF will receive an initial commitment of $250 million from the joint Sponsors - ADB and IDB. The IIF will also help bridge the gap between Islamic investors who require Shariah-compliant products and project sponsors who need capital to build crucial infrastructure. The IIF will adopt a unique investment strategy and seeks to achieve a superior risk-return proposition for investors.

"As Asia seeks to claim a greater share of the world economic pie, heavy emphasis will be placed on its infrastructure development to facilitate sustainable economic growth. With demand for such investments estimated to exceed $8 trillion in the coming decade, we are very confident about the appetite for this new fund" said CIMB Group Chief Executive, Dato' Sri Nazir Razak at the launch of the fund. He added "The majority of private equity funds are focused on large markets such as China and India creating a gap which we intend to fulfil by leveraging on our expertise as a focused regional player."

Nicholas Hamilton, Standard Bank's Chief Executive of the Asia Pacific region said "Today's launch of the IIF marks a significant milestone in our partnership with CIMB Group, which began in 2006, and is now a leading investor in Malaysia and Southeast Asia. As a recognised specialist emerging market bank, we are able to leverage on our global network to ensure long-term sustainability. Together with CIMB Group's vast network and experience in Islamic banking, we firmly believe in the success of our joint venture."

ADB's Private Sector Operations Department, Director of Capital Markets & Financial Sector Division, Robert van Zweiten, said, "Infrastructure in many of the countries that are members of both ADB and IDB is less developed than the Asian average. We expect the fund to help channel investments into critical infrastructure projects in the region which will, in turn, improve the prospects for economic growth and poverty reduction."

Meanwhile, IDB's Director of Country Operations Department (Asia) Dr. Walid Abdelwahab, said that IDB expects the IIF to attract capital from the Islamic world, notably the Middle East. "There is still a substantial amount of wealth in that region and investors there are increasingly interested in putting their money to work in a way that complies with their faith," he said.

Al-Amanah To Study Islamic Finance

2009-07-12T20:16:00.000-07:00

AL-AMANAH Islamic Investment Bank of the Philippines will be sending some of its employees for training in Malaysia in its bid to acquire the best practices in Islamic finance and to turn around its finances.

"We are sending a group of 15 employees to Malaysia next week to study Islamic banking because we want the bank to give special focus on this kind of banking system," Armando O. Samia, newly elected interim chairman and chief executive officer of Al-Amanah, said in a statement.

He also said the bank is currently exploring possible tie-ups with other Islamic banks that would allow it to learn the best practices in Islamic finance.

Malaysia is the world’s largest Islamic finance market. It is the largest issuer of Islamic bonds called sukuk and has built up expertise in Islamic fund management and insurance.

According to auditing firm PriceWaterhouseCoopers, Malaysia’s Islamic financial system is regarded as one of the most progressive in the world.

UAE Residents Become Saving-Savvy

2009-07-12T20:15:00.000-07:00

The global financial meltdown has triggered enormous repercussions in all industries as companies struggle to break even and individuals are left neck-deep in debt.

Investors flocked to the UAE, plunging money into various assets and investment schemes designed to pay out high returns.

However, this is all changing. Jacques Bernard, Chief Investment Officer, National Bonds, talked to Gulf News about the increase of savings rates and why it's time for the transparency issue to stop casting its shadow over the Gulf.

Gulf News: What about future investment plans for National Bonds? Do you think you might move away from say, real estate and move into other sectors that you perhaps haven't considered before?

Jacques Bernard:Yes, so far the sectors we've considered and invested in are education, retail - retail being food - Islamic insurance and we'll continue to look at opportunities in healthcare because I think those are critical.

The bulk of our investments are in the UAE and we have a mission to give back to the community, basically to develop the UAE and where we feel there's a need.

We'll try to fill the gap if the numbers actually do come together. And also it makes a lot of economic sense if there's a need, it's usually a very profitable kind of venture.

Dubai has admitted that the quality of healthcare facilities in the UAE is quite low compared with other regions, so it seems the potential market for healthcare is huge.

Yes, there's a huge market but there are so many sectors and sub-sectors in healthcare that you need to take a look at what your investment entails. Some are very speciality-driven, some are very primary healthcare which is more what we are looking at.

Primary healthcare is the mother taking her child...so the basic needs. And I think as well, which is interesting now, healthcare is more decentralised, especially in Dubai. You have this Healthcare City which is more of a speciality-driven centre as opposed to a primary healthcare being closer to their residents.

And you're even starting to see hospitals in Dubai such as a Saudi-German hospital which is a good thing, as it has the emergency units and so forth.

And so healthcare is something we're looking at but again we'll need to see the numbers and see if the numbers are valid.

Is it possible to put a figure on the future investments that you're starting?

Not really. The thing is the most predictable investments that we have are short-term investments.

Basically we invest bulk in Saudi deposits, Sharia instruments, murabaha, that's kind of predictable but private equity, it could come about or it could not come about.

You see a lot of private equity firms raising a lot of money and then actually having trouble investing it because there's a lot of possibilities and few winners so I wouldn't be able to give any number as to our investment in healthcare. It could be significant or it could be nothing.

Whereas now you are very focused on the UAE, do you have plans to go abroad?

In terms of investment, not really. We are UAE-based, a lot of opportunities still exist in the UAE especially, I would call it the yield and the income side of the business, which is sukuk which is also the money market returns. Money market returns in the UAE are much higher than those of the US.

We don't rule out going abroad but not in the immediate future.

Considering the financial situation, do you think people will be more likely to invest in more secure assets like bonds or even gold as opposed to other assets, such as real estate which they can lose out on?

Yes, definitely. I think we distinguish between investments and savings and I think people are coming about in terms of understanding the difference now.

It's not an investment if you actually are using the house and living in it, that could almost be considered a saving scheme because obviously should the market shrink, you increase your capital and avoid basically paying rent.

And it's not just in the UAE that saving schemes are popular.

There is a worldwide soaring of saving rates and what's interesting is the countries that were most affected by the crisis are those where the savings rates are shooting through the roof.

To name two, one is Spain where the savings rate is going to be reaching 30 per cent in 2010 because of the real estate crisis. Of all the European countries, they were, with the UK, the ones that suffered the most.

And if you actually take a look at the US they went from a savings rate of zero and they're predicted to actually obtain five. Now five is still low but five is fivefold. So I think the savings is something that is on the rise, it's global and we see it in the UAE.

So how does the UAE rate then in terms of saving? Do people generally save here or is it something that will grow?

Well it's very obvious that in the past, everything was geared at spending and investing. And now we've reversed that culture.

But there's no numbers published on savings rates for the UAE. But what we're witnessing clearly is that the trend is towards savings and hopefully that will continue.

Will people move away from real estate and into say, gold and savings?

Well I would still consider gold not as a savings. It's an investment that is so bearish that by definition if things do recover you might actually see a big drop in gold price so I don't consider savings in gold to be equal.

It's been predicted that there's going to be an exodus of expats from the country this summer. Do you believe this and will it affect business?

Well our business is different. We do of course have expat clients but our Emirati clients is overwhelming in terms of proportion. Now it's hard to comment on expat flow as we don't know, people are coming in, people are going out, people coming in with visas.

We're in a different situation than most institutions because you have to bear in mind we're a savings institution. We're not a bank with credit cards, liabilities. So I can't say so far we'll be affected if the event has occurred.
Fact file

hat is National bonds? A private joint stock shareholding company, National Bonds Corporation was launched in March 2006.

The Government of Dubai holds a 50 per cent ownership in the company with each of its shareholders, comprising Dubai Bank, Dubai Holding and Emaar Properties, holding 16.6 per cent ownership respectively.

National Bonds Corporation is Sharia compliant, with a dedicated Sharia Board to oversee all financial aspects, including product-related operations and investments.

In December 2006, National Bonds Corporation launched property development projects - "Skycourts," the elegant and affordable freehold residential community in the heart of Dubailand, and Flamingo Creek in the Lagoons.

In 2007, National Bonds Corporation launched National Properties, a wholly-owned, full-service real estate subsidiary that offers distinctive homes and lifestyle options to the multinational UAE community.

National Bonds Corporation has invested in Taaleem PJSC, an initiative aimed at raising quality standards in the region's education sector.

It is the new brand for Beacon Education that aims to inspire young minds, and help them identify and develop their passions and talents.

National Bonds Corporation has also invested in BCS, a Strata Management company specialising in property management, Souk Extra the retail community shopping chain, and in M'sharie, the private equity arm of Dubai Investments.

National Bonds is the National Saving Scheme of the UAE that provides UAE nationals, residents and non-residents over the age of 16 with a credible, safe and Sharia-compliant savings opportunity.

Minors can also own National Bonds, provided the bonds are purchased by the parent/guardian. Each bond costs Dh10, with a minimum purchase of Dh100; National Bonds can be purchased from nearly 500 outlets across the UAE, including exchange houses and banks.

These include Emirates Islamic Bank, Dubai Islamic Bank, Sharjah Islamic Bank, Dubai Bank , Al Hilal bank and exchange houses: Al Ansari, Al Fardan, Al Ghurair, Redha Al Ansari, Al Rostamani International, UAE, Wall Street, Lari, Orient, Al Razouki International, Sharaf and Habib Exchange Company.

National Bonds can also be purchased online at www.nationalbonds.ae or call toll free 800-BONDS (26637). National Bonds awards 101 prizes every week, of amounts ranging between Dh1 million, Dh10,000, Dh5,000, Dh1,000 and Dh500.

This amounts to an impressive Dh1,155,000 in total prize money awarded each week. The programme is based on the Islamic principle of Mudaraba, whereby at the end of the financial year 20 per cent of the profits made by the National Bonds Corporation will be distributed among bondholders.

From Gulf News

National Bonds Answers Your Questions

2009-07-12T20:14:00.001-07:00

So I did a post a while back about National Bonds, the UAE's savings-slash-raffle scheme, moving to weekly drawings (they had previously done monthly draws). A lot of readers had questions, so I posed them, along with a few of my own, to the folks who run the place. Here is what they had to say:

One reader of the blog asked the following question: "I am considering investing in National Bonds as are other members of my family. Is it a wise choice considering Dar's $100M sukuk default? How will this affect certificate holders? Will the yearly interest rate also be affected?"

National Bonds Corporation PJSC provides a safe, transparent and a Sharia compliant savings opportunity that is preferred by many people across the UAE Nationals and Expatriates alike - with over 500,000 bondholders across 91 nationalities now saving with us and by giving them a chance to win 101 weekly prizes, the top prize being AED 1 million and the remaining prizes from AED 500 to AED 10,000.

While National Bonds cannot comment directly on the particular situation involving Investment Dar we can disclose that we have no ties or investments with Investment Dar. We can assure you that our investments are sufficiently diverse, such that no single event or company will significantly affect the profit rate we return to our bondholders. Our investment strategy is designed to mitigate risk. While sukuk is part of this, we also invest in a broad range of other short-term Sharia-compliant assets. Our bondholders' money is also invested in longer-term infrastructure and income related projects.

Because National Bonds manages people's savings, we are very cautious with our investments. To ensure we invest safe and sound, we have a dedicated, qualified investment team headed by a highly qualified Chief Investment Officer with 25-years international experience in the industry with leading financial institutions. He reports regularly to NBC's investment committee, which monitors the investments portfolio reporting itself to NBC's Board of Directors.

National Bonds posted a handsome profit rate last year: over 7 per cent. At this juncture in the middle of the year, how are things going? Are you anticipating that you'll be able to match or exceed the profit rate of last year?

This is true - National Bonds returned an impressive profit rate of over 7 percent last year and over 6 percent in 2007 vs. comparable savings schemes. Although it's is not possible to determine in advance this year's profit rate, the first half has been positive for National Bonds and we foresee to remain as competitive in 2009 as we have been in the past.

What kind of investments or what sectors is National Bonds investing in this year? Are you changing your investment focus now that it appears the UAE's economy might be on a rebound? Are you looking to take a mostly aggressive or conservative stance?

This year we are adding to our already diverse investment portfolio and concentrating on lower-risk investments. We continue to invest the bulk of our assets in a mix of short-term assets including sukuks and other Shariah-compliant products.

Because we are dealing with people's savings, we need to be very prudent about how we invest. Our investment choices do tend to be more conservative and we focus on assets that are aligned with our commitment to provide a safe, secure and Sharia-compliant way for our bondholders to save.

So far it appears that National Bonds has invested mainly in the UAE - Souq Extra, BCS and other National Bonds initiatives are all based here. How important are investments outside of the UAE, either in the GCC or elsewhere, to your overall portfolio?

National Bonds Corporation PSJC firmly believes that investing back in the UAE with a community driven approach by making a difference in people's everyday lives.

Our investments are diverse from property development projects, to educational like Taaleem PJSC, which is an initiative aimed at raising quality standards in the region's education sector, BCS - providing strata management services, Souq Extra - Retail Community Shopping Chain and in private equity firms like M'sharie, the private equity arm of Dubai Investments.

We will always look at opportunities to expand National Bonds Corporation (PJSC) to reach more countries within the GCC and further abroad with our objective of serving the bondholder's best interest regardless of location.

You announced recently that you have moved to weekly draws (the draws had been monthly before). Why did you decide to do this, and have you seen sales jump as a result?

National Bonds Corporation PJSC aims to position itself as "everyone's favorite place to save & invest". As such, the draw format change is aimed to encourage more people to save and get rewarded on their savings. National Bonds hopes to fulfil the aspirations of many more bondholders and see even more "Millionaires" in the National Bonds family. This year, we are committed to increase the number of savers and hope the existing bondholders increase their bond value through numerous initiatives like the new draw format, further expansion of the distribution network and introduction of innovative products and services. We have seen an encouraging trend in sales in the first half and are expecting a 100% growth by end 2009.

From The National

Be Positive in Dealing With Decision To Establish Sukuk Market

2009-07-12T18:59:00.001-07:00

No two people can disagree over the importance of the step taken by the [Saudi Arabian] Capital Market Authority [CMA] to launch a secondary Sukuk market which will stimulate the public and private financial sector in the issuance of Sukuk bonds. The establishment of this secondary market will transform Saudi Arabia into a major player in this promising market that studies expect will witness unprecedented growth in the near future. The International Monetary Fund [IMF] expects that that by 2010 Sukuk revenue will amount to US $200 billion. The public and private sector will be able to benefit from this revenue rather than seeking investment opportunities outside of Saudi Arabia. According to the McKinsey Competitive Report [issued by the World Islamic Banking Conference], Saudi Arabia is ranked second behind Iran with regards to assets from the Islamic banking industry.

The existence of a secondary Sukuk market is one of the important steps that will enable Riyadh to become one of the most important financial centres of the Islamic banking industry. This is a status that is long overdue and one that Riyadh fully deserves but has failed to achieve due to the previous lack of conviction in the Islamic banking industry on the part of some involved in the Saudi financial sector. This opened the door to some of the capital cities of the neighbouring countries, and even Western and Asian cities, to take over this role. The competition between Riyadh and these capital cities has become more complex, especially since these capital cities have preceded Riyadh in gaining a foothold in this sector. However despite this, Saudi Arabia's task is not impossible so long as efforts are combined and strategies are developed and plans are implemented to help achieve this objective.

Therefore I believe that the step taken by the CMA to launch a secondary Sukuk market must be supported by all parties interested in putting Riyadh on the map of the Islamic banking industry. If anybody has objections to or observations on this decision – whether these are juristic or technical – they should be brought to the attention of the CMA in a calm and rational manner. There should not be any loss of control or media incitement, as this will only result in the severance of dialogue and the CMA maintaining its decision, something which was proven in previous experiences with governmental bodies. These emotional methods [of objecting to a decision] have not led to any changes, and in fact the opposite has occurred with the governmental upholding its position and refusing to make any of the proposed changes.

For this reason, I urge the religious figures who are concerned with this decision [with regards to a secondary Sukuk market] to sit down with the CMA and discuss the details surrounding this, and whether it would be possible to modify or neutralize this. However only Sharia-compliant Sukuk bonds will be traded in this secondary market, and these Sukuk bonds could not have been issued except without the blessing of God and the CMA efforts that facilitated their issuance. The CMA is also the first Saudi Arabian financial regulatory body that specifically mentions Islamic banking in its charter, specifically in the chapters dealing with Islamic investment.

I believe that the timing of the launch of the secondary Sukuk market will encourage public and private institutes to issue Sukuk bonds which will help push this market forward, especially since trading in this market is limited to initial public offering [IPO], which we well know is within the provision of Islamic Sharia law. We know this because the majority of Saudi Arabian investors refuse to utilize any investment tool that is not compatible with Islamic Sharia law.

My words should not be misunderstood as a call to not distinguish between what is Halal [religiously permissible] and Haram [religiously forbidden] with regards to what is taking place in this market. Rather, I am requesting that the discussions that occur on this issue take place in a calm and rational manner away from slander and rebuke, which is something that has been advocated in the Holy Quran. ‘Invite [all] to the way of thy Lord with wisdom and beautiful preaching; and argue with them in ways that are best and most gracious: for thy Lord knoweth best, who have strayed from His Path, and who receive guidance,’ [Surat an-Nahl: 125]. This was also advocated by the Prophet Mohammed (PBUH) in the Sahih Muslim collection of Hadith [Prophetic traditions]. On the authority of Abu Massoud al-Ansari “A person came to the Messenger of Allah (PBUH) and said ‘I keep away from the morning prayers on account of such and such [a man] because he keeps us so long.’ I never saw the Messenger of God [PBUH] more angry when giving an exhortation than he was that day. He said ‘When any one of you leads the people in prayer, he should be brief for among them are the young and the aged, the weak and the sick.’ It was Prophet Mohammed’s nature to act in this manner [i.e. to speak in a calm, generous, and rational way], and this is something that we should emulate.

From asharq alawsat

Debt Management With A Conscience

2009-07-12T18:58:00.001-07:00

THE world experienced two major financial crises within a decade: the currency and stock market crises of 1997-98, and now a crippling recession that began with the US subprime debacle caused by excessive lending to borrowers unable to make repayment.
Both originated in "asset bubbles" and unlimited creation of fiat money that loaded the market with the sale of debts, or bay' al-dayn, as it is known in the jargon of syariah law. Dealing in debts that lacked any asset base overwhelmed the financial system.

Transactions in derivatives and contra trading in stocks proceed largely over debts that are bought and sold through mere exchange of promises by speculators and hedge funds that take risks far in excess of their available assets.

It is different in Islamic finance, which is structurally averse to indulgence in debt-based transactions.

The capitalist banking and financial institutions, moreover, make profits but have no mechanism to share possible losses. A different scenario exists in Islamic finance, which favours equity financing, in which the parties involved share the prospects both of profit and loss.
Islamic finance transactions also proceed over underlying assets, trades and services that hold real market value. Pure unsecured debt plays a minimal role, essentially confined to an act of goodwill or qard hassan, without a commercial prospect.

The half-a-dozen or so contracts in use in the Islamic system proceed over trades and services, as in the case of musharakah and mudarabah, which consist of participation finance, profit and loss sharing. Banks and financial institutions that enter these contracts effectively become partners in a project and hold a stake in both its failure and success.

Islamic finance admittedly permits debt-based transactions, which are, however, limited to situations where only one of the two countervalues consist of a debt. For example, in bay's bi-thaman aajil, or deferred sale, only the price, but not the sale object, consists of a debt.

Since a sale takes place over a real asset, such as a building or a plant, the debt in question is asset-based and proportionate to the price of the sold item.

This is also the case in the forward sale of salam, in which only the sale object, but not the price, consists of a debt. All the contractual details of the debt in salam must be specified in writing to ensure commitment, proportionality and equivalence in the exchange of values.

Syariah law does not approve of a financing scheme in which both the countervalues consist of debt. A difference of opinion has thus arisen over the validity of istisna', or manufacturing contract, whereby an order is placed for the manufacture of goods, be it a house, ship or handicraft.

Nothing changes hands at the time of contract, and both sides of the bargain consist of debts payable in the future -- which is why Muslim jurists have considered istisna' as basically ultra vires. Yet istisna' has been exceptionally validated by consensus (ijma') because of the people's need for it.

A similar line of analysis can be extended to the entire range of contracts that represent the bulk of Islamic banking and finance transactions. Murabahah or cost-plus-profit sale, which is very common, may or may not involve a debt as it can be spot or deferred. Only when deferred does it involve a debt, in which case it would resemble bay's bi-thaman aajil.

The contract of wadi'ah or deposit, also widely practiced, does not involve either a debt or exchange of values and is therefore free of financial speculation and risk-taking.

Since syariah law proscribes the giving and taking of banking interest, or indeed of any unwarranted increase that violates the principle of equivalence in countervalues, syariah-compliant transactions are less vulnerable to interest-rate fluctuations.

The syariah is similarly averse to excessive risk-taking (gharar) that threatens due fulfilment of contractual obligations, especially in deferred and forward sales, which involve debt.

The applied rules of Islamic financing in Malaysia and elsewhere limit exposure to risk, in that a transaction is not permitted with a company or institution whose balance sheet consists of debt that exceeds 50 per cent of its total available assets. This is a major restraint that curbs asset bubbles of the kind that continue to plague contemporary finance.

These are some of the in-built elements of stability in Islamic finance that are generally absent in their conventional counterparts. Yet, the advantages of Islamic finance can only materialise when compliance with syariah principles is assured, which is not always the case. Many contract specifications are followed in form but not in spirit by the Islamic financial institutions.

For instance, the detailed requirements of delivery and possession are often ignored, and buying and selling take place in the same session. Murabahah is thus manipulated for the purpose mainly of securing the price differential, or mark-up, which is made payable at a later date, and the net result is not very different from earning interest on a conventional loan.

Similarly, the very commonly practised sell-and-buy-back transaction of inah often consists of a price differential in the same session and a quick profit-taking that resembles riba.

Formal compliance that amounts to effective non-compliance has thus aroused much criticism among Muslims, who go to Islamic banks often with pious motives to avoid the forbidden riba, but remain askance about whether the Islamic banks really measure up to their expectations.

These institutions are, like their conventional counterparts, eager to lend as much as possible and gain as much profit as they can. The inner stability and resilience of Islamic finance will not hold, and the low risk element therein is bound to diminish unless the syariah principles that regulate such transactions are faithfully observed.

By Mohamad Hashim Kamali
The writer is chairman and CEO of the International Institute of Advanced Islamic Studies (IAIS) Malaysia

Shariah Sensitive Assets In GCC, Asia Top US$700 Billion

2009-07-12T18:57:00.000-07:00

Shariah sensitive assets in the Gulf Cooperation Council (GCC) countries and Asia touched US$736 billion in 2008 compared to US$267 billion in 2007, said the third annual Ernst & Young Islamic Funds and Investments Report (IFIR) 2009.

In a statement Tuesday, Ernst & Young said that in computing the total asset size this year, the report included Awqaf and Endowments, Takaful operators in Malaysia, sovereign wealth funds in the Middle East and North Africa (MENA) and Asia, as well as the markets of Pakistan and Southeast Asia.

It said that although the Islamic asset management industry had a potential revenue pool of US$3.86 billion, the size of funds remained small with over 50 percent having assets under management of US$20 million or less.

Ernst & Young also stated that the largest concentration of Islamic funds remained in the Middle East and equity funds led the field of choice of asset type. Saudi Arabia held US$19.28 billion in total assets under management for Islamic funds while Malaysia US$4.579 billion, it said.

"The untapped markets in Asia and MENA are a source of growth for the Islamic funds due to their large Muslim populations. These markets, where Islamic finance is still in its infancy include Indonesia, Pakistan, India, Bangladesh, Turkey, Iran and Nigeria," it said.

Ernst & Young said that the average return from Islamic equity funds fell to minus 39 percent in 2008 compared to a 23 percent return in 2007. In the first quarter of 2009, the average return stood at minus 3.7 percent.

On Islamic fixed income funds, the average return dropped from three percent in 2007 to one percent in 2008 and the first quarter of 2009.

Meanwhile, Sukuk issuance slowed as spreads widened -- Sukuks worth US$15.5 billion were issued in 2008 compared to US$47.1 billion in 2007. The report estimated that US$27.5 billion worth of Sukuks would be issued in 2009.

"Last year, we highlighted the phenomenal rate of growth experienced in the Islamic asset management industry. The landscape has changed significantly now, yet the fundamentals of the Islamic fund industry remain strong.

"With almost US$50 billion in fund assets under management and a large, expanding and untapped Muslim population, there are likely to be considerable opportunities in the future.

"This is a time when strategic choices have to be made and market participants have to adapt to survive," said Ernst&Young Islamic Finance Services Group (IFSG) partner and its head of Assurance Services of Malaysia Abdul Rauf Rashid.

Sukuk - Where Next?

2009-07-12T18:53:00.001-07:00

Turbulence in the financial markets during 2008 and the resulting collapse of the securitisation markets has made it increasingly difficult for companies to access these markets in order to raise additional finance. The Islamic securitisation market, often referred to as the Sukuk market, has not been immune to this economic downturn, indeed it has also suffered from controversy over the very nature of some Sukuk structures and suggestions that some Sukuk in issue were not Shari’a-compliant.

However, even with a struggling global economy, organisations throughout the world still need to raise finance to fund their activities, and in some cases their expansion plans. With a continuing lack of bank credit and with no sign of a recovery for the IPO markets, corporate issuers seem to be returning to the financial and securitisation markets and several of these prospective issuers have indicated that they are either planning or actively considering raising funds thorough the Sukuk market.

This article will seek to show that Sukuk structures continue to be a useful way to raise finance for both Islamic and non-Islamic organisations. Furthermore, if, as is expected, the Sukuk-based securitisation market (particularly for asset-backed transactions), recovers more quickly than the conventional securitisation market, will those involved in structuring non-Islamic securitisation transactions learn any lessons regarding the principles of sharing risk and reward and reflect this in conventional structures?

Sukuk
Many readers will be familiar with the general concept of Sukuk, but it is important to reflect on the basic principles in order to appreciate how the market for Sukuk may develop.

In Shari’a Standard No. (17) on Investment Sukuk, the Accounting and Auditing Organization for Islamic Financial Institutions, (AAOIFI) gives the following definition of Sukuk:

“Investment Sukuk are certificates of equal value representing undivided shares in ownership of tangible assets, usufructs and services or (in the ownership of) the assets of particular projects or special investment activity”.

The standard makes it clear that Sukuk must be backed by assets that are subject to a Shari’a-compliant contract, e.g. an Ijara contract, sets out 14 examples of Sukuk structures and distinguishes investment Sukuk from shares, notes and bonds.

Furthermore, the Standard makes it clear that the Sukuk documentation must demonstrate:

* That any income arising must derive from the underlying activities for which the funding has been used, and not simply comprise interest,
* The Sukuk must be backed by real underlying assets and these assets must be halal (allowable) in nature and be being utilised as part of a halal activity, and
* There must be full transparency as to rights and obligations of all parties.

Thus a large part of the conventional securitisation market – for example, mortgage-backed securities – would be prohibited because the income element (though not the principal) of the cash flow would be characterised as riba. Similarly, CDOs and other such instruments could not be allowed as an asset class as these represent “Debt” rather than an allowable commodity or activity. However, investment in tangible assets, used for productive purposes, and reaping the rewards arising from those assets is a core principle of Islamic finance and it is this principle on which Sukuk securitisation structures are founded.

Whilst AAOIFI standards are not compulsory from an international perspective, they are generally binding in six Middle Eastern countries, together with the Dubai International Financial Centre. Furthermore, it is difficult to imagine how an issuer would be able to obtain a fatwa from a recognised Shari’a Supervisory Board if the structure did not comply with Standard 17, thereby making adherence with the standard obligatory from a business perspective.

AAOIFI resolution on Sukuk
In late 2007 Sheikh Muhammad Taqi Usmani, as Chairman of AAOIFI, issued a statement (that was subsequently heavily misquoted) in which it was claimed that many of the Sukuk structure in existence at that time would fall foul of basic Shari’a principles, in particular, many appeared to violate the principle of risk and profit-sharing by promising to pay back capital. Subsequently, in February 2008, AAOIFI issued a statement setting out six core principles for structuring and implementing Sukuk transactions, noting that it was these principles that were often being disregarded in the larger or volume-based Sukuk structures.

A key feature of the AAOIFI resolution is to be found in the final paragraph. This calls for Islamic financial institutions to:

“decrease their exposure to debt-related operations and to increase their operations based on true partnerships and the sharing of risk and reward”

Whilst there is still much debate as to whether Sukuk can be used to raise debt for an institution (i.e. where the underlying structure is asset-based), it is clear that the resolution endorses the use of Sukuk to finance the acquisition of actual assets on behalf of an Islamic entity and in particular where the financing is structured as a traditional asset-backed securitisation.

The Markets
The growth of the Sukuk market in the 21st century, albeit from a very small base, seemed unstoppable, with an approximate cumulative doubling each year from 2002 through to 2007, see chart below.
Global_sukuk_issuance_Islamic_securitisation_market
The chart shows the dramatic decline in new issues during 2008, but it is impossible to determine how much of this decline was attributable to global economics and how much to restraint arising from concerns over the validity of Sukuk structures following the AAOIFI announcements. Similarly, many of the Sukuk issued previously would have had a 3 to 5 year tenure and therefore were repaid in 2008, with market conditions preventing these from being rolled over.

So what are the factors that will drive the resurgence of the Sukuk market. First and foremost is a need to finance the large number of construction and infrastructure projects throughout the GCC. Historically, the financing for many such projects benefited from direct or indirect governmental guarantees, but this was one of the concerns that led to the original AAOIFI statement as Sukuk holders are supposed to bear the risks of ownership and not be immune to affects of changes in the profitability of the venture; it remains to be seen as to how such support can be built into a structure whilst still giving an element of risk. Similarly, private companies throughout the region have been starved of finance and whilst these companies will need to demonstrate that they either have a strong track record or a good business case, together with a pool of appropriate assets to securitise, the entrepreneurial spirit of the region, coupled with pent-up demand for Shari’a-compliant investment products is likely to make such corporate Sukuk structures an attractive proposition for both regional and international investors.

International institutional demand for Sukuk cannot be understated, with both Islamic and non-Islamic or Western institutions participating in many of the large quasi-governmental Sukuk issues of 2006 and 2007. Similarly, several counties in the West have made various announcements as to their own plans to issue Sukuk, most notably the UK Treasury whose plans for a Sukuk have been on/off for the past three years.

The retail market for Sukuk is slowly opening up although demand seems to outstrip supply because of the lack of Sukuk available through the secondary market, which makes it difficult for retails investors to acquire Sukuk. Several institutions have established Sukuk funds to allow retail investors to participate in Sukuk issued by number of different institutions, but to date these too seem to be having difficulty in acquiring appropriate assets due to the lack of supply.

The similarity between Sukuk and traditional asset-backed securitisation structures will be readily apparent. However, as demonstrated in the points raised above, there is much more to establishing a Shari’a-compliant securitisation transaction than a simple rewording of conventional transaction documentation.

The call for a “back to basics” approach contained within the AAOIFI resolution on Sukuk had a negative impact on the issuance of Sukuk in 2008. Whether this will affect the ability of institutions to create innovative Sukuk structures going forward is an unanswered question, but in the author’s experience, provided the basic tenets of Shari’a Law are adhered to, the Scholars will generally accept such innovation.

From Global Arab Network

MCCA Announces Islamic Bank Ambition

2009-07-12T18:52:00.001-07:00

Local Islamic banking co-operative, the Muslim Community Co-operative (Australia) Ltd (MCCA) is confident of securing a banking licence in three years to become Australia's first Islamic bank.

MCCA managing director Chaaban Omran said the co-operative would work with the Australian Prudential Regulatory Authority (APRA) to transition its current registrable superannuation entity (RSE) licence into a banking licence.

"We are (currently) regulated by ASIC (the Australian Securities and Investments Commission) and are the holder of a RSE licence.

"The way the supervision will work will be a modification of that particular licence," Mr Omran told business leaders at an Islamic banking and finance conference in Melbourne.

"If we get enough momentum from the industry it may be less than three years," he said.

In four years MCCA plans to have a presence in the investment banking sector, he said.

MCCA was established in 1989 and provides property finance and is now setting up a superannuation investment mandate and plans to build funds around that mandate.

"The investments are the most critical thing for us," Mr Omran said, adding that MCCA was also planning to launch a range of equity investment funds.

"We have a lot of challenges. Apart from capital requirements, there are issues to do with how we manage cash for example because APRA requires a certain level of funds to be invested.

Mr Omran said there are around 500,000 Australian Muslims forming a market worth $1.3 billion.

MCCA complies with Shariah Islamic law that prohibits all forms of interest charges.

Islamic banks are governed by a supervisory board of Muslim clerics to ensure compliance with Shariah law as well as banking regulations in the countries in which they operate.

Islamic finance does not recognise the concept of caveat emptor ("let the buyer beware") in which risks can be transferred to unsuspecting buyers of products and services, says PricewaterhouseCoopers' head of Islamic finance, Mohammed Amin.

Shariah-compliant finance is innovative, ethical and has been tried and tested throughout the centuries, Mr Omran said.

"We're not dealing with a new concept. The only difference is that the awareness has not been raised in Australia."

UK Aims To Make London Center For Islamic Finance

2009-07-12T18:51:00.000-07:00

The UK government remains committed to Islamic finance and will continue to work with other authorities and with industry to establish and maintain the UK as a global gateway to Islamic finance, said Sarah McCarthy-Fry, exchequer secretary to the UK Treasury in London last week.

McCarthy-Fry, who is the minister responsible for leading Islamic finance policy at the UK Treasury, was giving the keynote address at the inaugural session of the 2009 London Sukuk Summit held on July 2-3. "In these difficult times for international financial markets," she added, "new opportunities for growth and development become increasingly important. The Islamic finance market presents huge long-term opportunities for London and for the UK. Islamic finance is an opportunity that we want to see realized for the benefit of Britain as a whole -- strengthening London's position -- not just as one of the world's leading financial centers -- but as the world center."

Perhaps equally important is the reassurance from the exchequer secretary that the decision not to issue a sovereign Sukuk by the UK Treasury at this time, "in no way reflects a diminished government commitment to Islamic finance in the UK. I hope that other progress, including the measures announced in the recent Finance Bill (2009), will pave the way for the Islamic finance industry to grow, and that corporate Sukuk products will thrive as alternative source of funding for UK and overseas firms."

Provisions for various reliefs involved in Sukuk issuances are included in the 2009 Finance Act which is expected to be adopted by the House of Commons next week and should get Royal Assent on July 21. The measures in detail comprise:

• Relief from stamp duty land tax where transactions are undertaken as part of the issue of Alternative Finance Investment Bonds (AFIBs) -- the name for Sukuk in the UK legislation.

• Relief from tax on capital gains in respect of these types of transactions and

• Clarification of how the capital allowances regime will interact with these changes.

Bankers in the UK and those from abroad attending the summit were encouraged by the minister's remarks and by the fact that the UK Treasury will soon publish details of a consultation on the measures to facilitate corporate Sukuk issuances out of the UK.

In fact, the market may be witnessing a race, albeit a slow one, to launch the first benchmark Sukuk in the European market. While the UK clearly has the lead through its enabling legislation in the last three finance acts regarding tax and capital gains reliefs and the current corporate Sukuk consultation, other EU countries such as France and Luxembourg have publicly announced that they too are interested in raising funds in the wholesale Euro market through a debut benchmark Sukuk issuance.

France recently similarly introduced tax and other neutrality measures to facilitate Islamic finance products in France including Sukuk and Murabaha. Luxembourg, says Marc Theisen, Senior Partner of Theisen Schiltz, a leading local law firm involved in Islamic finance, is also keen to issue a Sukuk, and any outstanding legislation needed could be introduced fairly quickly.

Luxembourg is host to almost 40 registered Islamic funds and about 15 Sukuk listings on the Luxembourg Stock Exchange. As such, it is very familiar with the tax and other requirements relating to Islamic financial products.

The Islamic finance market in fact is keenly awaiting the issuance of a benchmark Eurosukuk, which bankers stress could be the single biggest boost to the Islamic capital markets this side of 2010.

However, according to McCarthy-Fry, London has made much progress in the Islamic wholesale banking space in the last few years. The recent $750 million government of Bahrain sovereign Sukuk is now listed on the London Stock Exchange, bringing the number of Sukuk listed on the said exchange to 19 with an estimated total value of around $11 billion, a figure exceeded only by the Sukuk listings on the Nasdaq in Dubai.

The UK government has also taken significant steps to support the future issuance of corporate Sukuk in the UK.

The Treasury at the same time believes that future progress in the Islamic finance space in the UK must be led by the industry, but it recognizes that more needs to be done to create a level-playing field for Islamic finance in relation to equivalent conventional finance products.

"Our door remains open to consider other ways in which we can support the Islamic finance industry.. In Britain we have community and commitment; skills and scale; expertise and connections around the world," declared the exchequer secretary.

"We want the future of Islamic finance in the UK to be a collaborative effort from all involved. With the expertise and dedication in this industry, I am very optimistic that, working together, we can ensure Islamic finance and trade are major elements in London's success in the decades ahead."

From Arab News

Islamic Insurance On The Rise

2009-07-12T18:48:00.000-07:00

Demand for Islamic products has driven the rise of Takaful, say experts. Chakib Abouzaid does not like playing the part of the outcast. Nor does he want his burgeoning business of takaful, or Islamic insurance, to be marginalised as something separate from the large global insurance providers that now dominate the scene.

“Takaful is not a ghetto and I don’t like to work in a ghetto,” says Mr Abouzaid, the chief executive of Takaful Re in Dubai, the first takaful reinsurer of its size in the world. “Takaful companies are mature companies. We are also part of the insurance industry and I think we are contributing to the development of the insurance industry.”

In many ways he is right. According to a report last October from Swiss Re, the world’s second-largest reinsurer, the takaful sector grew at an annual average of 25 per cent between 2004 and 2007, adjusted for inflation. The rest of the insurance industry grew at slightly more than 10 per cent a year in that period.

But takaful’s fast expansion has not come without growing pains. It still makes up a mere sliver of the global insurance pie, and only in the past five years has it begun to gain ground in the GCC, riding on the development of Islamic finance as a whole.

Figures on the industry are scant but one estimate last year said there was US$500 billion (Dh1.83 trillion) in Islamic bank assets worldwide, a small portion of the global figure. But Accenture, the global management consultancy, forecasts that household Islamic savings will amount to $24bn a year by 2020.

“Takaful penetration is still marginal,” Mr Abouzaid says. “It is still very small but definitely we are contributing to increase the penetration.

“In the past three or four years, all the new insurance companies in the Gulf area have been takaful companies. Nobody is starting a conventional company. It’s a very simple strategy: if some segment of the population is reluctant to buy conventional insurance, why not provide takaful insurance?”

Like many Islamic finance products, takaful first took hold in South East Asia, thanks to strong government support. In Malaysia, overall insurance penetration in 2006 amounted to about 5.4 per cent of GDP, well above the figure for the GCC. Insurance penetration in the UAE was just 1.53 per cent in 2006.

According to figures from 2005, Arab countries accounted for just 24.7 per cent of total takaful contributions, while countries in the Far East – including Iran – accounted for 75.1 per cent.

But takaful is growing in the region, thanks to government encouragement and rising oil prices that are helping spread wealth through the region.

Saudi Arabia’s co-operative companies law, passed in 2004, required firms to operate along Islamic principles. Iran’s companies are also legally bound to use Sharia-compliant financing, which has helped takaful penetration rates to rise there.

Yet central among its hurdles is the underdevelopment of the reinsurance industry of which Mr Abouzaid is a part.

Insurance companies, especially new ones, cannot survive without a mechanism to offload the risks they take on to larger companies with larger asset bases to absorb claims. That is where reinsurance comes in.

In the takaful sector, however, there are not enough large reinsurers to underwrite all the risks takaful companies take when they sell products.

Re-takaful has developed rapidly, industry insiders say, but most takaful companies still reinsure contracts using conventional, non-Islamic means.

“We’re looking to create that capacity or to find that capacity, and in the absence of finding that capacity in the market we have to rely a lot of times, and I’ll state it as unfortunate, we have to rely on conventional reinsurance,” says Abdallah Kubursi, the head of AIG Takaful, which is also based in Dubai and which started three years ago.

Conventional insurance is incompatible with Islam because of Sharia’s prohibitions on overly uncertain transactions that involve a strong element of luck. Conventional insurers also put large pools of money in interest-bearing investments, which are prohibited by Islamic law.

This state of affairs does not sit well with the Sharia boards that oversee takaful companies. But for now, Sharia scholars recognise that takaful-based reinsurance is not always available. They are pushing takaful firms to do their best to switch to re-takaful as capacity grows.

“It is not purely Sharia-compliant to reinsure using conventional reinsurance,” says Michael McMillen, an Islamic finance expert. “However, these are early years in the growth of the takaful business and Sharia-compliant re-takaful is not always available.

“Thus, the Sharia scholars with whom I have spoken on this matter have permitted reinsurance with conventional reinsurers in the short term. As re-takaful becomes available, use of those re-takaful providers would be required.”

The development of re-takaful in the past three years, helped along by the emergence of companies such as Takaful Re, which was capitalised with $250 million when it started in 2005, is proceeding apace.

Insiders say that for many types of risks, the capacity is already there in the re-takaful market. Motor takaful, for example, is almost completely covered by re-takaful companies.

Capacity is still lacking, though, when it comes to large, extraordinary risks.

“When you look at lines of business like financial lines, crisis management, sabotage … kidnap and ransom, directors’ and officers’ liability insurance, and so on, a majority of the re-takaful companies out there today do not really have capacity for those lines of business,” Mr Kubursi says.

For takaful to succeed in the long run, these issues must be worked out. It is unclear how long Sharia boards will tolerate the use of conventional reinsurance.

But takaful is growing so quickly in the GCC that it has become difficult even for large global insurers to ignore. Many global banks and financial institutions have been busy making partnerships with takaful providers to include Islamic insurance among the coverage they offer.

Last week, Mashreqbank began offering a takaful-based savings scheme to its customers, and Dubai Bank announced a partnership to offer takaful products with Salama, an Islamic insurer based in Dubai.

Practitioners say the industry in the UAE could be helped greatly by a formal endorsement from the Government, or by laws that require companies to use takaful instead of conventional insurance.

At the pace at which it is now growing, though, it may only be a matter of time before takaful becomes a global force, whether the Government helps or not.

“In the Middle East we are still fighting, because there is a difference in terms of maturity between Malaysia and the Far East and the GCC,” Mr Abouzaid says.

“Now we are working to convince the Sharia boards and the management of the companies to switch to re-takaful because, in fact, they have no choice.

“From a Sharia point of view, they have to limit their use of conventional insurance to the strict minimum.”

From The National

Islamic Finance – Reality and Outlook Seminar

2009-07-07T19:42:00.000-07:00

Alwashem Economic Consulting Services, Kuwait, in co-ordination with the Malomaty company – Riyadh is organizing an Islamic Finance Seminar to be held from September 26 – 30, 2009 in Bali, Indonesia, at the Westin Resort and Convention Center.

The prime goals for the seminar are to raise awareness of the diverse global interests of members of the Islamic Finance industry and promote greater participation in international dialogue and exchange of information and, by doing so aim at strengthening the finance industry systems at the national levels and globally.

The focus of the seminar will be “Islamic Finance – Outlook and Reality.” Findings, conclusions and action plans resulting from the seminar – and many others being held across the region -- will contribute directly to a stronger financial global community. It is the belief that each finance industry professional attending will make a valuable contribution to the discussions at this seminar and the future outlook of Islamic finance.

Register on-line at the web site www.aecs-kuwait.com Add your name to the growing roster of delegates in the region, working together to further the advancement and prosperity of the Islamic finance industry.
Some topics that will be covered are as follows:

• Shariah and legal frame work for Islamic financial institutions
• Financial accounting aspects of Islamic Institutions
• The role of the Shariah committees in the development of the Finance Industry
• Marketing strategies for Islamic Products and services.
• Recent development in the regulatory and supervision Issues for Islamic Finance institutions
• Growth and development of the Islamic Finance Industry.
• Financial crisis impacts on the Islamic Financial institutions

Some of the distinguished speakers from around the world are:

Sheikh Abdullah Bin Suleiman Al-Manea – Saudi Arabia Sheikh Abdullah Bin Suleiman Al-Manea - Saudi Arabia
Dr. Muhammad al-Bashir Muhammad al-Amine – The Kingdom of Bahrain
Dr. Mohamad Nedal Al Chaar – General Secretary , AAOIFI
Dr. Farid Kourtel – Algeria
Mudassir Amray, head of Citigroup Islamic Finance for Asia pacific, Singapore
Bernardo Vizcaíno – Singapore
Abdul Rahim Kamil Wan Mohamed Ali – Sr Consultant Malaysia Securities
Commission
Dr. Sunil Kamar – UAE, Dubai
Ayad Al-Mutairi – Saudi Arabia
Azmat Rafique - Qatar
Lindsey Rogerson – United Kingdom

This seminar promises to be filled with discussion, guidance and up to date solutions to financial issues of the Islamic finance industry as well as world financial crisis issues.

From Arabian Business

Islamic Banking In 5 years

2009-07-07T19:41:00.000-07:00

Australia could have its first Islamic bank within five years and become an Islamic banking hub if regulatory hurdles can be addressed, government and business leaders say.

Assistant Treasurer Nick Sherry said yesterday the Federal Government was committed to making the regulatory framework governing banks flexible enough to accommodate Islamic banking products and services while still protecting consumers.

Senator Sherry said there were concerns state stamp duty on property sales and other taxation might be hindering the development of Islamic finance in Australia and these issues needed to be addressed.

''Islamic banking has its own set of regulatory issues relating to capital adequacy and accounting requirements,'' Senator Sherry said at an Islamic banking and finance conference in Melbourne.

Former Liberal Party leader and Global DC chairman John Hewson said Australia was likely to have at least one Islamic bank within five years, if regulatory hurdles could be overcome.

''I believe strongly that not only will we see one or more Islamic banks in Australia, but I think we could emerge as the dominant Islamic financial centre in the Asia Pacific region,'' Dr Hewson said.

He said the time was right to attract a foreign Islamic bank to Australia or to turn local Islamic banking co-operative, the Muslim Community Co-operative (Australia), into a bank.

Australia's need to fund major infrastructure projects during the next 20 years could see the wealth of the Middle East and Asia channelled into infrastructure funds if they were run in a Shariah-compliant manner, Dr Hewson said.

Islamic finance differs from conventional finance by complying with Shariah Islamic law and prohibiting all interest charges.

Islamic banks are also governed by a supervisory board of Muslim clerics to ensure compliance with Shariah law as well as banking regulations in the countries in which they operate.

The London head of Islamic finance with global consultancy PricewaterhouseCoopers, Mohammed Amin, said that Islamic finance was a subset of conventional finance.

From Canberra Times

Noor Islamic Bank Eyes Global Expansion

2009-07-07T19:40:00.000-07:00

Dubai's Noor Islamic Bank said on Monday it was well capitalised to fund growth and expansion and was seeking opportunities abroad, about six months after it put plans on hold because of the global economic crisis.

Noor Islamic, which aimed to be the world's largest Islamic bank within five years of its launch in 2008, said the conversion of government deposits into Tier-2 capital had put it in a strong position to weather the economic downturn.

Noor Islamic Chief Executive Hussain Al Qemzi said in a statement the company would try to "take advantage of favourable market conditions for reasonable and attractive growth opportunities internationally".

When Noor Islamic launched in January 2008, Al Qemzi said the lender aimed to be the world's largest Islamic bank within five years, spending as much as $1 billion on individual acquisitions in countries such as Indonesia, Egypt and Britain.

But a year later it said it was putting its expansion projects on hold because of the economic downturn.

Since then the Islamic bank has taken up a conversion option offered to all UAE banks as part of the Ministry of Finance's Dh50 billion ($13.61 billion) deposit injection to shore up local banks' balance sheets.

The bank said on Monday its board and shareholders had approved the conversion of government deposits into Tier-2 capital.

It said its capital adequacy ratio was now above 20 per cent, twice as high as the minimum requirement set out by the central bank.

Jordan Dubai Islamic Bank Receives Banking License

2009-07-07T19:38:00.000-07:00

Dubai Islamic Bank (DIB) announced today that Jordan-based Industrial Development Bank (IDB) has received a preliminary banking licence by the Central Bank of Jordan to operate as an Islamic financial institution.

The new entity, Jordan Dubai Islamic Bank (JDIB), will begin operations with a share capital of $100m.

Earlier this year, DIB announced the official re-launch of IDB following the completion of a private placement of 26 million shares of IDB. Mesc Investments now owns a 52% stake in the new entity, acquired through the private placement in February this year. Mesc is owned 40% by DIB and 60% by Jordan Dubai Capital.

In addition to its stake in newly formed JDIB, DIB is providing the technical support and supervision needed to restructure it in line with international best practices for Islamic banking by giving access to DIB's extensive expertise in structuring innovative Sharia-compliant financial products and services.

'The successful transformation of IDB to JDIB reflects DIB's commitment to Islamic banking and the Jordanian economy. We are confident that DIB's strong experience in Islamic banking will enable us to make JDIB a world-class Islamic finance institution, adhering to international standards and best practices,' said Khaled Al Kamda, Group Managing Director of Dubai Islamic Bank and Vice Chairman JDIB.

'Sharia-complaint investment products are proving to be more attractive more than ever, especially in such times of economic challenges. With strong growth potential, the Kingdom offers great prospects for Islamic banking and JDIB is fully equipped to capitalise on these opportunities,' he added.

Fahad Bin Fahad, Executive Vice President & Chief Risk Officer of DIB and Board member JDIB & Mesc, said: 'Jordan Dubai Islamic Bank marks another chapter in DIB's successful international expansion. DIB is committed to transforming JDIB into a leading player in Jordan's Islamic banking sector. We look forward to providing comprehensive Islamic banking services through JDIB, which will satisfy the Kingdom's growing demand for Islamic banking tools.'

Junaid Ahmed, Executive Vice President & Head of International Operations and Board member Mesc said, 'DIB has successfully consolidated its leadership position through diversification and geographical expansion. DIB runs successful operations in Pakistan, Turkey, Iran, and Sudan. Our latest venture adds Jordan to the bank's growing portfolio. We are confident that DIB, which is built on solid commitment to Islamic banking principles, will continue to maintain its position as the pioneer in global Islamic banking.'
Established in 1975, DIB is the world's first Islamic bank, providing innovative Sharia-compliant banking services. DIB has investments in many financial sectors across the Islamic world, and has created subsidiaries that practice Sharia-compliant banking in Pakistan and Sudan with great success.

Islamic Banks Need To ‘Revamp Model’

2009-07-06T18:53:00.001-07:00

Islamic banks in the Gulf Arab region need to adopt a new business model and take on more customers to weather the economic downturn, Ernst & Young’s head of Islamic finance said.

Islamic banks, many of which are investment houses, have been heavily exposed to the real estate market, which saw prices start to plummet at the end of last year.

They channelled the wealth accumulated during the six year oil boom that ended in mid-2008 into regional real estate through private equity and asset management.

“They relied heavily on selling investments and placements and that business model is being questioned,” Sameer Abdi, who is also a partner at Ernst & Young, said.

The global liquidity constraints will force Islamic banks to look for new customers and sources of funding, including moving into corporate banking, trade finance and retail banking, Abdi said.

Islamic banks cater to investors who do not want to earn or pay interest, viewed as usury under Islamic law.

Some banks have already started to set up funds that enable retail customers to buy sukuk, or Islamic bonds, which in the past were mostly bought by regional banks and large Western financial institutions.

However, analysts have said that it will not be easy for Islamic banks to reduce their heavy exposure to real estate, as they are too small to move into such areas as regional infrastructure and energy projects, which require large investments.
Islamic and conventional banks in the region still have more of the financial crisis ahead of them, Abdi said. “The financial industry is not out of the woods in the Middle East at all, in fact we are still in the middle of our crisis,” he said.
“It’s going to take some support from regulators and governments to actually come out of the crisis, and that may be six to nine months away, at least.”

The restructuring of the debts held by troubled Saudi family groups Saad and Algosaibi could heavily impact many banks in the region.

The United Arab Emirates alone face at least $3bn in potential losses from their exposure to the two groups, an Emirati newspaper reported on Thursday.
Abdi also said corporate defaults of private sector companies in the region were very likely over the next six months.

From Gulf Times

Islamic Finance Lacks Government Support In Some GCC Countries

2009-07-06T18:52:00.001-07:00

Given the predominance of Islam as the religion and being closer to Islam's two holiest shrines, it was quite natural for GCC countries to embrace Islamic financing as an alternative to interest-based financing.

Although a late comer compared to Iran and Malaysia, the growth in the Islamic finance industry in the GCC over the past years has been impressive. For example, at the end of 2007, total Sharia-compliant assets worldwide amounted to about $640 billion (Dh2.3 trillion), of which the GCC countries accounted for around 41 per cent.

The impressive growth of Islamic finance in the GCC countries could not be achieved without government support. However, the extent of government support varies considerably across GCC countries.

For example, there is lack of government support for Islamic finance in Oman, while officials in Bahrain and Kuwait have been very supportive. Notably, the government support in Bahrain has helped the country to host 24 Islamic banks and 11 takaful insurance companies, by far the largest Islamic financial institutions in the GCC.

Ironically, on a comparative level, Saudi Arabia's government has been very reluctant to promote Islamic banking in the Kingdom. For example, the Al Rajhi Bank, today the world's largest listed Islamic bank, was not permitted to function until 1987, much later than the launch of Dubai Islamic Bank in 1975, Kuwait Finance House in 1977 and Bahrain Islamic Bank in 1978.

Whereas the central banks in Bahrain and Kuwait have been active in integrating Islamic banks to the broader domestic financial system, the SAMA (Saudi Arabia's central bank) has yet to formally recognise the presence of Islamic finance in the Kingdom.

The actions by GCC governments have resulted in a fragmented financial market. Despite moves towards creating a monetary union and a single GCC currency, there is little regulatory convergence.

However, the lack of government involvement has helped the private bodies in GCC countries to come forward to develop the Islamic financial market. In this respect, the regional Islamic banks took much of the initiative ranging from their establishments to appointing boards of specialists in fiqh muamalat - the branch of Islamic jurisprudence that is concerned with civil contracts.

This private initiative has helped the system of Sharia compliance to become more market driven in the GCC countries, which has resulted in product differentiation and extended customer choice. For instance, the Islamic banks in the GCC states are regarded as more innovative than their Iranian counterparts in terms of product development, and provide a much more attractive range of services, possibly because of the need to compete with conventional banks in their domestic markets.

Nevertheless, given the complexity of Sharia-structured financial products, the need for government involvement cannot be ignored. There is a debate in the GCC states concerning the appointment of specialists to Sharia boards. In the absence of national Sharia authorities, the boards of each financial institution are free to appoint their own consultant, causing a lack of standardisation of the fatwa of different Sharia boards.

Consequently, GCC banks were permitted to get the fatwa they want, most notably in the case of sukuk, resulting in a burgeoning growth of Islamic products in the region. Bank clients or investors wanting Sharia compliance have the option to shop around for the least restrictive fatwa.

With the increasing availability of Sharia-structured products in the GCC, some scholars, notably Taqi Usmani (head of Bahrain-based AAOIFI), have questioned whether the structures adopted for sukuk are actually Sharia compliant.

Particular concerns were raised over musharaka and mudaraba sukuk, as these contracts are supposed to involve risk sharing without capital guarantees to the investors to justify the profits earned. These issues remain unresolved.

In addition to their normal day-to-day operations in, among others, deposit facilities and consumer credits, GCC Islamic banks' involvement in "investment banking" and "sukuk" has generated considerable attention in the media.

Investment banking gained momentum in the GCC largely because it is more compatible with Sharia than with retail banking, since much of investment banks' income is fee-based rather than accruing from lending and charging interest.

However, the nature of investment banking as understood internationally is different in the GCC, where much of the Islamic investment activity has involved syndicated financing of projects.

Nevertheless, lacking organisational skills and experience, most of the arrangers of the Islamic syndications have been major international banks such as HSBC, Barclays Capital and Standard Chartered.

Saudi Arabia has been the most active market in Islamic syndicated financing of projects, followed by the UAE.

Sukuk securities, which provide the asset backing to financial instruments, were developed in Malaysia, and launched in GCC in 2000. Bahrain has taken much initiative to popularise sukuk securities in the GCC states. This has helped Bahrain to emerge as a reputed Islamic financial centre in the Middle East.

Bahrain has been the most active of GCC countries in terms of numbers of sukuk issued, while UAE leads in terms of value of sukuk issuance. The combined value of sukuk issuance in GCC countries is still lower than Malaysia's issuance of 509 sukuk, worth $ 65.2 billion.

Islamic financial institutions have emerged as credible alternative sources of capital in the GCC and other parts of the world. While the impact of the financial crisis has been severe on conventional banks, the impact has been relatively less on Islamic banks.

For example, Abu Dhabi and Qatar Investment Authorities, which hold significant stakes in Barclays, have seen the value of their investments plummet. By contrast, the value of Al Rajhi Bank and Kuwait Finance House investments in retail Islamic banking affiliates in Asia has been much more resilient.

This undoubtedly presents an opportunity for GCC Islamic banks to expand further in retail and investment banking, insurance, fund management and the issuance of and trading of Sharia-compliant securities.

The author is a research economist at Qatar Central Bank. Views are his own.

From GulfNews

Tabung Haji Wins UK Award

2009-07-06T18:51:00.000-07:00

Lembaga Tabung Haji has won the "Outstanding Institutional Contribution to the Islamic Finance Sector" award at the 2009 London Sukuk Summit Awards.

In a statement here today, Tabung Haji said its group managing director/chief executive officer, Datuk Ismee Ismail, received the award last night.

The annual event, which is in its third year, was organised by the Islamic Conference Group and endorsed by the Treasury, UK Trade and Investments, London Stock Exchange, International Financial Services London and the Arab British Chamber of Commerce.

Ismee said Tabung Haji was proud to be among the few Malaysian organisations to win the award.

"The award will encourage us to be bolder in fulfilling our plans for diversification and to seek new avenues of investments," he said.

Several Malaysian individuals had been honoured previously, including Bank Negara Malaysia governor, Tan Sri Dr Zeti Akhtar Aziz, and the late Tan Sri Datuk Jaafar Hussein, he said.

Ismee said Tabung Haji would increase its competitiveness in its current investment sectors, namely plantations, properties, construction, banking, information technology and travel and tours, while firming its foothold in the oil and gas and the halal food sectors.

The Sukuk Summit Awards aims to help raise the standards in the Islamic finance sector and to set the highest benchmarks for the industry globally.

From Bernama

CIMB Islamic To Seal 19 Sukuk Pipeline In 2009

2009-07-06T18:50:00.000-07:00

CIMB Islamic, The world's leading arranger of Islamic bonds, is poised to complete its 19-strong sukuk pipeline by year's end, its Chief Executive, Badlisyah Abdul Ghani, said on Thursday.

Ghani told Reuters on the sidelines of the London 2009 Sukuk Summit that the string of deals involves several companies around the world. In March, Ghani said CIMB Islamic would raise $2.5 billion through its intended sukuk sales.

Sukuk or Islamic bonds are underpinned by tangible assets and do not pay interest. Sukuk volumes fell 56 percent in 2008, from the previous year, hit by the global liquidity crunch, ratings agency Standard & Poor's said.

Ghani was optimistic about the growth prospects for the Islamic finance market, adding CIMB Islamic was poised to soon raise $1 billion via a five-year sukuk for a Middle East firm.

He declined to name the CIMB Islamic client, which will place the debt privately. This issuance would be on top of an already announced $1 billion multi-currency sukuk, also to be issued by a Middle East company.

Ghani said the bond was due "very, very soon", and he was very sure it would be fully subscribed by private investors. It would be one of the most significant Islamic corporate issuances in 2009, he said.

CIMB Islamic is part of CIMB Group, which is listed on the Malaysian stock exchange through Bumiputra Commerce Holdings CIMB (BUCM.KL). It is Malaysia's No.2 lender and South-East Asia's fifth-largest bank by assets.

DOUBLE-DIGIT GROWTH
Ghani is optimistic about growth prospects for the Islamic finance industry, in spite of the global economic slow down. He expects the industry -- including the sukuk market -- to grow at a double-digit rate this year.

"People are becoming aware of Islamic finance. Because of the crisis people are now asking what Islamic finance can provide them with," he said.

"Corporates who had never given a single thought about looking at Islamic finance, are actually coming to ask questions. It started last year."

He said European too companies had enquired about tapping the Islamic market to raise capital.

OBAMA EFFECT
While countries like the UK have changed tax rules and adjusted legal frameworks to facilitate Islamic finance, U.S. law already lent itself to this, Ghani said.

"There are some movements from the (Obama) administration to explore and learn about Islamic finance better. They have been going around asking a lot of questions," he said.

"I am optimistic about Islamic finance, it is still growing -- at a lower rate compared with the last two years -- but recessions and crises come and go.

"We will be back to a situation where activities will rebound and I am very optimistic it (Islamic finance) will grow faster after we find stability, because the world is very aware of Islamic finance," he said. (Reporting by Cecilia Valente; Editing by Andrew Macdonald)

From Reuters

Sukuk Market On Trial As Islamic Bonds Default

2009-07-06T18:49:00.000-07:00

The Islamic finance industry is undergoing a big test as defaults and restructurings appear in the sukuk market for the first time.

Last month there was a default on a $650 million Islamic bond launched in 2007 by an offshore vehicle linked to Maan Al Sanea’s troubled Saudi group, Saad. This came hot on the heels of the first non-payment of an Islamic bond in the Middle East: the $100 million sukuk issued by Kuwaiti firm The Investment Dar in 2005.

These defaults follow last autumn’s bankruptcy of Texas-based East Cameron Gas Company, which issued a $167 million Islamic securitization in 2006. A court in Louisiana is deciding what rights, if any, the noteholders have. There is uncertainty as to whether the issuer of the notes is bankruptcy remote and whether a true sale of the assets took place.

In the Middle East, other sukuk restructurings are taking place, especially in Dubai. Property developer Nakheel, for example, is trying to restructure its debt, including a $3.5 billion sukuk that matures in December.

Different concept
Restructuring of Middle Eastern bonds is a relatively untested process even in the conventional market. In the Islamic market, however, things are even more complicated, as western resolutions are less readily transferable. Interest, for example, is banned. In Islamic finance there is not even the concept of a group of creditors, but only of banks and investors.

One of the principles of Islamic finance is that participants must share risks and benefits. Sukuk structures avoid paying interest by paying what is referred to as profit, or a share in profit, for example. The pitfalls of this are becoming apparent.

"Shariah law doesn’t even contemplate a default, because you can’t default if all you’re ever giving is a profit share. If there are no profits, then you aren’t defaulting. You are just deferring, or sitting around the table to discuss," says a source involved in a sukuk restructuring in the Middle East.

"Unfortunately these instruments were sold to western investors who expected that the profit terms were equivalent to interest, and so a fixed obligation," adds the source.

Still, western-style restructuring methods are beginning to be applied to defaulted sukuk, according to the source. Instead of interest obligations, so-called profit terms are created that are suited to the companies’ ability to pay. Rather than exchanging debt for common equity, companies must give something akin to a warrant, but called profit participation.

Whatever method is used, Shariah scholars have to approve any change to the structure. This makes the restructuring process even slower. Over the past few years, scholars have become adept at approving or objecting to sukuk issuances. None of them has experienced a default.

As the idea is to share profit and loss, Islamic finance resolutions should be more based on friendly discussion and consensus, taking into account the ability of a firm to repay. Court judgements should rarely be the answer.

But the possibility of a court remedy is more remote in Islamic finance for other reasons too.

As most sukuks were issued by offshore special purpose vehicles governed by English law, a ruling would have to be sought in an English court. This would then need to be enforced in the Middle East, the location of most of the assets of sukuk issuers.

The UAE is a signatory to the New York Convention on Enforcement of Arbitral Law, so in theory this process should be simple in that country. But there is very limited precedent of English judgments being enforced in the Gulf, so the transfer of judgments would be far from mechanical.

In general, consensus-based restructurings might give the chance for a more flexible solution, and might sometimes give investors more. But they would create more uncertainty and less uniformity.

Qudeer Latif, partner at law firm Clifford Chance in Dubai is confident about the sukuk market.

Optimists reckon such problems will diminish as more non-western investors buy sukuk bonds. Sukuk issuance last year was less than half the amount of the year before, partly because of a disagreement about when a bond can be ruled Islamic. At the same time, several big new Islamic banks were created.

Concerns outweighed

"There’s a degree of nervousness about defaults in the sukuk market but that is outweighed by the bullishness demonstrated by the new sukuk deals currently being done and those likely to come to the market in the course of this year," says Qudeer Latif, partner at law firm Clifford Chance in Dubai.

He points out that the $750 million Bahrain sovereign sukuk last month had an order book of $2 billion, while in February Indonesia’s $650 million sovereign sukuk had an order book of $3 billion. Even so, one of the bookrunners tells Euromoney that the Middle East, North Africa and Asia accounted for 70% of the buyers of the Bahrain sukuk. In 2007, however, western buyers sometimes accounted for more than 80% of sukuk investors.

The proportion of western investors is far lower now, and it might not be entirely because of the credit crunch. If defaults dissuade western investors from returning to the sukuk market, it will be a big impediment to the development of the industry.

From Euromoney

Islamic Banking No Longer Exotic

2009-07-06T18:48:00.000-07:00

Islamic banking, once regarded as an exotic but not very practical system and consigned to the outer fringes of the global industry, is now moving steadily into conventional banking and attracting attention from its non-traditional base. The fact that it eschews charging interest on loans has made it appear the perfect antidote to the excessive greed that characterised conventional banking and led to the current financial crisis. In short, Islamic banking, with its emphasis on ethics and its employment of capital solely as a factor of production rather than as a means of gain, is now the politically correct banking system.

It has remained largely insulated from the global credit crisis. It is expanding not only in the Muslim world, but also in other countries where Muslims are a minority, such as Britain, France, the US and even Japan. The industry has grown at the prodigious rate of 15-20% annually over the past decade. This growth is likely to continue, albeit at reduced rates, as more corporates and companies look increasingly to Islamic banks for trade and project finance. Islamic banking has established a firm foothold in Africa but the potential is still enormous. This Special Report examines what Islamic banking is really all about and the role it now plays in Africa.

The ideal model for Africa?
The strong growth of the previous decade was replaced by a mood of uncertainty, worthless assets and tumbling profits but one sector has continued to perform surprisingly well – Islamic banking. Neil Ford reports.

It seems likely that the Islamic banking sector will gain business from customers who believe that an under- regulated global banking industry has helped to precipitate the current global financial crisis. Shariah-compliant investment does not allow speculative activities such as hedging and derivatives, and so could be seen as a safer bet. There is also evidence to suggest that Islamic banks have been less severely affected by the economic downturn than other financial institutions, partly because they invest only in assets and not debt, a fact which allowed them to escape the direct impact of the US housing crash. The global market for Islamic banking certainly enjoyed a good year in 2008. The managing director of UK consultancy Maris Strategies, Joseph DiVanna, says that Islamic banks are not as susceptible to changes in the credit markets as mainstream banks and so continued to be launched in late 2008 and into 2009.

Over the past two years, new banks have been formed in Botswana, South Africa, Sudan and Kenya, as well as across the Middle East and South Asia. Probably the most noteworthy recent development in African Islamic banking is Al Baraka Bank’s decision to seek a listing on the Johannesburg Stock Exchange (JSE). The company is the sole bank in South Africa to offer only Islamic financial products and is currently celebrating its 20th anniversary but has now taken the decision to go public. At present, the bank is owned by the UK’s DCD London & Mutual Plc, Saudi Arabia’s Dallah Al Baraka Group and South African investors – so although it forms the South African leg of the Saudi company’s operations, it is not a mere subsidiary.

Chairman Adnan Ahmed Yousif said: “Listing is on our agenda because it will give us a very good diversity of shareholders and prestige. We also feel that the Reserve Bank in South Africa is beginning to understand Islamic banking very well.” Yousif hopes that the listing, which is expected by the end of this year, will “increase the company’s visibility, attract new customers and grow capital for expansion programmes.” The company’s profits for 2008 increased 19.5% to R21.7m ($2.7m), deposits were 12% higher at R1.6bn ($198m) and advances 7% up at R1.4bn ($173m).

From African Banker

Ningxia to Spearhead Islamic Finance in China

2009-07-02T20:18:00.000-07:00

With encouragement from the China Banking Regulatory Commission (CBRC), Ningxia Hui Autonomous Region is set to take the lead in trialling Islamic financial services in China.

If the pilot project is successful, policy makers hope that Islamic financial services will gradually become available throughout North West China.

Lu Suping, Chairman of the Bank of Ningxia's board of directors, confirmed that the regulatory bodies had given the bank preliminary approval to go ahead with an Islamic Finance trial.

History of the Islamic Finance Initative
The idea of offering Islamic financial services was first raised at the end of last year by the Ningxia Hui Autonomous Region's Peoples' Government, but according to a source from Ningxia Branch of China Banking Regulatory Commission (CBRC), "it was only after many rounds of consultation that the trial finally gained support from the relevant departments."

At the start of this year a special office was set up to undertake a feasibility study into the proposed trial. Lessons were drawn from the experience of both other countries and also Hong Kong in regard to the establishment of Islamic financial services.

The results of the feasibility study have been presented to the CBRC and Ningxia Hui Autonomous Region's party committee.

A source familiar with the matter revealed that, regulatory bodies had suggested that either a special department be established within the Bank of Ningxia or that special service windows capable of providing Islamic financial services be introduced at various branched of the bank.

"In fact, due to disagreements about the scale of the pilot project, the CBRC finally decided to select Ningxia as a trial area. However, they plan to gradually enlarge the scale of the project," the above source added.

The Islamic Finance Pilot Project
Details of how the project will proceed remain scant. According to Lu Suping, "we still haven't formulated a detailed plan, the bank's first priority is to establish a special branch, designed in an Islamic style, and capable of providing Islamic financial services to local Muslims."

She also revealed that they planned to recruit a Muslim manager to run the branch.

When questioned about the bank's ability to support the pilot project in these uncertain economic times, Chairwoman Lu noted that the Bank of Ningxia currently had 34 branches, was well-governed and has an exemplary risk control system.

"Moreover, the bank already employs 200 Hui nationality workers, 13% of the total number. Hui employees also make up 12% of the bank's management level staff," said Mrs Lu.

"These Muslim employees provide the human resources required for the pilot project," she added.

Chairwoman Lu said preparations for the pilot project would be completed before the end of this year.

However, local banking watchdog remains cautious about the pilot project and has drawn attention to some of the difficulties that lay ahead for the bank.

For instance, the scope of Islamic financial services goes beyond those laid out in the country's commercial banking law and therefore the introduction of Islamic financial services will require special permission from various departments.

Furthermore, according to Islamic financial practice, financial transactions are calculated on the basis of the transfer of real assets, which will often meet problems to do with the duplication of tax and therefore will need to apply for some kind of preferential tax policy.

Moreover, commercial banks lack experienced employees who are also familiar with Islamic doctrine.

In order to study the operation of Islamic banks, the local government, the CBRC and Bank of Ningxia have organized an inspection tour of Malaysia and the United Arab Emirates in July.

Global Vision
The EO learned that local government has dreams of turning Yinchuan, capital of Ningxia, into a Islamic financial center on the mainland.

This aim is revealed in the documents relating to the establishment of an Islamic bank in the government's working report this year.

A source from Ningxia branch of CBRC revealed, the pilot project would provide Ningxia with many opportunities to join some international Islamic financial organizations.

This raised the possibility of Ningxia establishing regional trade with these organizations and Islamic countries.

"It's possible in the future that Ningxia could introduce an Islamic investment fund or Islamic bonds to attract international Islamic investors into local economic construction," the source added.

Wall Street to Draw Muslim Investors With New ETF

2009-07-02T20:16:00.002-07:00

The first American ETF to adhere to centuries-old Islamic beliefs about investing and finance is to begin trading on the New York Stock Exchange today under the ticker symbol JVS.

Javelin Exchange Traded Funds ("JETS") Dow Jones Islamic Market International Index Fund will seek to match the performance of the Dow Jones Islamic Market ("DJIM") Titans 100 Index. The index is composed of 100 companies located outside the United States, comprising some twenty-three countries and exposure to eighteen different trading currencies. The fund anticipates a gross expense ratio of 0.68%.

"Adherence to Islamic law leads to a sound investment strategy with an emphasis on concrete assets and services," notes Javelin President and Founder Brint Frith. "By avoiding such areas as gaming and alcohol, the results are often similar to those of the socially responsible investment funds." Islamic finance rules are said to originate with the Prophet Mohammed in the 7th century.

In addition to alcohol and gaming, Islamic law prohibits investment in pork products and certain forms of entertainment. Because Shar'iah law also objects to borrowing or lending at interest, financial stocks are reduced as are highly leveraged companies.

The index's largest sector weighting as of May 29, 2009 was oil & gas, followed by basic materials, health care, technology and telecommunications. As of that date, the United Kingdom showed the highest country allocation at 21.04% of the index, followed by Canada (10.71%), Japan (9.83%) and France (9.82%).

"With over seven million Muslims in the United States," Frith adds, "we were surprised to discover that the investment needs of this vital population were not being met. Javelin is pleased to be serving this market."

Javelin Investment Management was founded for the purpose of introducing a series of new and compelling ETFs. The JETS Dow Jones Islamic Market International Index Fund is its first offering.

An investment in the Fund is subject to investment risk, including the possible loss of principal amount invested. The risks associated with the fund are detailed in the prospectus and include stock market risk, index risk, tracking error risk, replication management risk, small and mid cap company risk, market price risk, trading halts risk, foreign securities risk, foreign currency risk, emerging markets risk, foreign settlement and clearance and Islamic Shari'ah investment risk.

The Dow Jones Islamic Market International Titans 100 Index (the "target index") is an index maintained by Dow Jones Indexes based on a stringent and published methodology. The target index is a float-adjusted, market capitalization-weighted index consisting of 100 securities, each of which is a foreign security.

From PRNewswire

Profit Margin From Islamic Finance Too High

2009-07-02T20:16:00.001-07:00

Datuk Seri Abdul Hadi Awang (PAS-Marang) Wednesday called for a review on the implementation of the Islamic financial system in the country, saying the profit margin from loans provided under the system was too high.

He said the margin did not differ much with the conventional financial system, thus defeating the purpose of having a separate system.

Although the system was free of "riba" or interest, it was too profit-oriented, he added.

"This is not how the Islamic financial system should be operated because the basis for its implementation is to help those in need.

"In this context, the borrowers are the ones in need of help as they had to resort to borrowing. They should be assisted and not be taken advantage of," he said when debating the Bank Negara Malaysia Bill 2009 in the Dewan Rakyat.

Abdul Hadi said the government should do something to make the country's Islamic financial system a truly people-oriented arrangement and to counter the negative perception that it was similar to the conventional system.

Datuk Ismail Abd Mutalib (BN-Maran) echoed Abdul Hadi's sentiment and invited the PAS president to sit down with the government to put the Islamic financial system on its right track.

Datuk Mohamad Aziz (BN-Sri Gading), who interjected, said he agreed with Ismail and asked Abdul Hadi to discuss with Umno for the benefit of the ummah.

"I agree with the Marang MP, whose views are sensible. So let's sit together and discuss," he said.

From Bernama

SIIB To Launch Innovative Islamic Banking Products Using iMAL

2009-07-02T20:15:00.001-07:00

Syria International Islamic Bank has launched new Islamic banking products aimed at the various customer segments. With this launch, SIIB will become the first bank in Syria to offer an innovative range of Sharia-compliant banking services.

For the initial launch, SIIB has introduced four new products: Ijara, Musharaka Moutanakissa (Diminishing Musharaka), Qard Al Hassan and manufacturing contracts (Istisna). SIIB intends to extend the range of its Islamic banking products in the near future in line with local business customers’ requirements.

“Demand on Islamic financial products has increased recently in Syria. We believe we are launching them at the right time”, explained SIIB IT Manager, Firas Shrourou. “We are confident that we can provide our customers with a range of Sharia-compliant products and services, equivalent to those available in any conventional bank and competitively priced”, Shrourou said.

With iMAL parameterization capability, SIIB has been able to successfully launch a comprehensive range of consumer banking products and services through a country-wide network of 9 branches and over 23 self-service terminals, thus maximizing its ROI.

“At SIIB, we aim to usefully extend the range of financial service products available in the Syrian market to complement the existing products offered by other local banks”, Shrourou remarked. “We offer innovative Sharia-compliant products designed to meet the needs of customers seeking for fair, transparent and equitable banking services”.

For individuals, SIIB range of products includes Financing as well as depository products such as Savings, Current Accounts, Time Deposits and Wakala Deposits i.e. Unrestricted Investments.

Alain Abou Khalil, VP Professional Services at Path Solutions said: “We are delighted that SIIB is leading the growth of Islamic banking in Syria. Eventually, this will lead to the creation of a competitive environment in the Syrian financial market. We are confident that this will open up channels for the launch of a new range of Islamic financial instruments in Syria to service the needs of an ever growing and diverse population”.

Azerbaijan Gets First leasing Company based On Islamic Banking Principles

2009-07-02T20:12:00.000-07:00

A leasing company founded by Islamic Corporation for the Development of the Private Sector (ICD) has announced the beginning of its work on Islamic principles in Azerbaijan.

Company’s general director Jeyhun Nagiyev says that registered as Azerbaijan Leasing Company they will operate under trademark Ansar Leasing.

“Ansar translated from Arab means “helper”, “protector”. Besides, there is religious meaning of this word. ICD established this leasing company in Azerbaijan for the purpose to invest in private business entities in Islamic countries in accordance with shariat principles. Company’s current capital makes now AZN 5 million that will allow it participation in financing for large projects,” Nagiyev said.

Ansar Leasing’s pre-payment on leasing project will begin from 20% and leasing period is 12-72 months.

“At primary stage key directions of its financing will be projects in the area of agriculture, construction, and healthcare and in the prospect – motor transportation vehicles,” Nagiyev said.

The Ministry of Taxes conducted state registration of Azerbaijan Leasing Company with charter capital of AZN 5 million on one-stop shop principle on 12 December 2008. The ICD is its only founder shareholder.

The Company has one of the biggest charter capitals among its leasing counterparts in Azerbaijan.

Pakistan Islamic Banks Join Hands

2009-07-02T20:11:00.000-07:00

Pakistan’s six Islamic banks are going to set up an Islamic inter-bank price market in order to stop relying on interest-based conventional banks in meeting their short-term funds requirements.

"Things are almost finalized and an official announcement in this regard will soon be made," Ahmed Ali Siddiqui, head of Product Development Shari`ah Compliance at Meezan Islamic Bank, Pakistan's first full-fledged Islamic bank, told IslamOnline.net on Monday, June 29.

There is already a conventional inter-bank price market for interest-based conventional banks in the South Asian Muslim country.

"Though, the exiting inter-bank price market is not completely haram, our customers and religious scholars feel awkward about that because of the involvement of interest-based banking sector," Siddiqui said.

"Therefore, the Shari`ah advisory boards of the six Islamic banks sat together a few months back and decided to set up their own interest-free price market," he added.

"The major thrust of the proposed market is that the Islamic banks should not depend on the conventional banking sector in order to meet short-term funds requirement, which is unavoidable in this field," Siddiqui explained.

"Therefore, we have decided to meet our respective funds requirements through each other. We believe that the Islamic banks have sufficient funds to meet each others’ funds requirements."

Dr Shahid Hasan Siddiqui, a Karachi-based veteran economist, welcomed the Islamic inter-bank price market plan.

"This is a very timely decision because the Islamic banks have been depending on interest-based banks to meet their short-term funds requirement, which confuses their customers," he told IOL.

"There is no doubt about its viability. It will work Inshaullah."

Pakistan has six Islamic banks, Meezan Bank, Bank-al-Islami, Global Islamic Bank, Al-Barka Bank, Dawood Islamic Bank and Global Emirates Islamic Bank.

They have around 500,000 customers in consumer financing and deposits sectors and hold 5 percent share in the overall banking sector in the country.

Meezan is the first full-fledged Islamic bank in Pakistan and was issued license by the State Bank of Pakistan in 1997.

The banks decision is the latest sign of the boom in Islamic finance in Pakistan.

"This is a major step which we are going to take vis-à-vis expansion of Islamic banking in Pakistan," said Siddiqui.

He asserted that Islamic banking has gained a boom during the last few years, especially after the simmering global financial crunch.

"We have witnessed a growth rate (in Islamic Banking) in three figures during the last year. And we are targeting 12 percent share in the overall banking sector by 2012."

Siddiqui says the current global financial crisis has diverted more and more Pakistanis towards Islamic banks.

"We have not received any direct impact of the global financial crisis because our investments are assets-based rather than speculations."

Islamic finance is already one of the fastest growing sectors in the global financial industry.

The Islamic banking industry, which began almost three decades ago, has made substantial growth and attracted the attention of investors and bankers across the world.

Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2013.

Interview On Islamic Banking

2009-07-02T20:10:00.000-07:00

Isabelle Oderberg: I want to start by asking what sorts of opportunities you see in Australia for Islamic banking.

Ebrahim Fayez Al Shamsi: I think there is a huge opportunity for Islamic banking – and the demand for Islamic banking, globally, has been pleasing, especially after the recent international financial crisis. People believe that Islamic finance can provide a better solution for the financial environment.

IO: Are you targeting primarily the Muslim community or are you looking more broadly?

EA: The Islamic finance is not only for Muslims. Even in our own country, most of our customers have come to us not because of belief issues, but because of the variety of products and the service quality.

IO: Okay. Can you tell me a little bit about what sorts of opportunities have arisen in Islamic banking as a result of the financial crisis?

EA: The solutions and the products of Islamic by nature are based on trading – and assets trading always gives better solutions than trading in debts and using the currency as a commodity.

IO: I was wondering if you could tell me how you would operate in Australia. Would you be looking to take over an existing operation or would you need to start from scratch and set up something from the beginning?

EA: This is a fact finding mission and the options are open for us. We will try to use the easiest way, to start, if we decide to go ahead. It might be through acquisition. It might be through partnership with an existing partner. The options are open for us at this stage.

IO: You say that this is a fact finding mission – can you tell me about some of the conclusions that you’ve come to so far?

EA: We had an interesting meeting the last few days we’ve been here and we believe that the possibility for starting an Islamic banking corporation, even with limited capacity is a possibility.

IO: I understand there have been some government meetings. What has the attitude from Australian government been?

EA: I think the people have been very supportive, very cooperative – and they are willing, too. There is a need for introducing changes. They are willing to discuss that and to see how can we go about it.

IO: I did an interview recently with someone in Dohar about Islamic banking and it was explained to me that one of the key tenets is that there has to be a product behind transactions – some sort of commodity of some description. Does the fact that Australia has such an active commodities market give a good basis for Islamic products here?

EA: I think so, yes. Because the environment here is fit for that.

IO: Does it give more of an opportunity than a country that doesn’t have that kind of commodities market?

EA: Yes, of course. It’s got a diversified economy.

IO: One of the things that I understand has been quite difficult is standardising – what is and isn’t halal within Islamic banking. At the moment there are different religious bodies that give approval to certain products, but I understand there’s a move to do more standardisation. Can you tell me a little bit about that and how it’s progressing?

EA: I think in the beginning of Islamic banking that was the case. But now, actually, we are coming to standardised contracts and products. And we will see more of this in the future, too.

IO: Are there any challenges that face the expansion of Islamic banking in the world generally?

EA: Yes, I think there are challenges even in our own country. I mean, Islamic banking is a novelty sort of banking, so the challenges are always there. But I think we can accommodate ourselves in any environment.

IO: Globally, in finance, people have been pretty downbeat and traditional banking has taken a bit of a hit. What’s the feeling like in the Islamic banking world? Is it still pretty downbeat?

EA: I think Islamic banking is completely different and everybody believes today that the future is for Islamic banking. We very much believe in this and we have many products we can offer to different kinds of economic activities.

IO: Has it experienced the same kind of hit that traditional banking has experienced?

EA: No, not really because we are not involved in trading of loans. We are not at all in that, so we were not affected by the first hit. But of course the second hit, the liquidity issue, affected everybody.

IO: David, I was wondering if you could briefly introduce the Dubai Multi Commodities Centre for me and tell our readers exactly what it’s about.

David Rutledge: Sure. DMCC is a government of Dubai entity. It was established a little over seven years ago. It’s a free zone authority in Dubai, which means it has an area of land set aside which it has developed primarily for offices and residential space. That’s kind of the seed capital for DMCC that the government gave us. And that seed capital is being used firstly to promote a centre for companies that have an interest in trading commodities in one form or another, so we have about 1400 such companies that have now registered with DMCC as free zone companies.

In addition to that, we’ve developed a range of what we call market infrastructure for the commodity sector in Dubai – and to some extent in the region – so we’ve established some exchanges. We’ve established physical facilities for trading certain commodities – notably tea and cotton, which are important regional commodities – and we’ve established or created an electronic commodity warehouse receipt system to facilitate the financing of commodity trade, both in a conventional financing way and in the Sharia compliant way. So, we’re there substantially as a facilitator I guess, but also to establish businesses that have a commodities relevance and are consistent with building Dubai’s role as a significant trading centre for commodities.

IO: So, are you primarily set up to assist in the Islamic banking community or do you deal with other forms of financial operators? I mean, are you essentially a gateway between commodities and Islamic banking?

D: Well, no, I don’t think that’s our primary purpose, and I’d have to say that most of our relationships, historically, have been with conventional financial institutions. But as Mr Al Shamsi has mentioned – and you mentioned previously – the relationship between Islamic finance and the physical commodity sectors is a natural and very strong one. So I guess it’s kind of inevitable that over time we’ve built relationships with Islamic financiers and that many of the things that we do are of interest to Islamic financiers.

IO: What kinds of opportunities are you looking at in Australia?

D: Well, I’m here partly to see whether some of the infrastructure that we’ve developed could be deployed here. And I’m thinking about trade finance platforms that could be deployed here in Australia because of Australia’s very substantial commodities base. Also we have developed a range of investment products that are Sharia compliant and we’re interested in examining the possibility as to whether some of those products may be capable of being distributed here within the Australian market.

IO: And what are the opportunities looking like? What kind of reception have you had here?

D: Well, a positive reception. I mean, the delegation as a whole has been very well received. I think there’s a real burgeoning interest in Islamic finance here at the moment. But I think it’s too early to draw conclusions. We’ve still got one day of the delegation’s, or the mission’s, meetings to conclude – and then I’m sure once that’s done that the members of the mission will want to get together and compare notes and thoughts before reaching conclusions. But I think it’s been a very encouraging few days that we’ve had in Australia and I’m personally quite optimistic about various initiatives that may be able to be undertaken here.

IO: What’s the feeling like, generally, among the commodity trading market in the Middle East? Because in Australia it’s been pretty flat, with the demand tapering off quite sharply for a lot of our key trading partners.

D: Well, obviously the global slowdown has affected commodity markets and many commodity prices have fallen – and that inevitably is of concern to producers, which Australia primarily is. In the Middle East, I think it depends to some extent on what commodities you’re talking about. But I think for many commodities, particularly foodstuffs, it’s business as usual. I mean, the population consumes food basically no matter what stage of the economic cycle we’re at. And my understanding is that trading in many agricultural commodities is proceeding pretty much as before. I guess the one caveat I’d put on that is that, because of the banking crisis, it’s been harder for commodity traders to obtain finance – just because of the effect the liquidity in the banking markets and so on. But look, I think commodity markets are cyclical by their very nature and Australia knows that. I’m sure that the markets will move through the cycle, as they always have, and commodity producers in Australia will see better days again.

IO: I hope you have a successful trip and enjoy Australia.

EA: Thank you.

D: Thank you very much.

From Business Spectator

London Hosts Arab Banking Summit

2009-07-02T20:08:00.000-07:00

“Back to basics” was the main theme of a major international Arab banking summit held in London called to address the workability and likely impact of the “post-crisis strategies” presented before the G20 meetings that took place earlier this year.

The choice of the UK capital to host the event was by no means insignificant. In fact, it was intended to illustrate both the strong ties that exist between Arab and UK banks and, more importantly, the fact that confidence in British banking is still strong in the region despite the recent global financial crisis.

Held over two days on 25 and 26 June at London’s Waldorf Hotel, the gathering was organised by the Union of Arab Banks (UAB) in association with the World Union of Arab Banks and the European Banking Federation. The summit took place under the patronage of UK Prime Minister Gordon Brown, who was thanked by the organisers for his support.

The resilience of the Arab economies in the face of the global crisis was strongly underlined at the summit.

The event sought to address the fallout from the recent crisis, to develop joint solutions to ensure that a similar situation never happens again and to ensure that a clear Arab voice is heard internationally on these vital questions.

Changes in the operations of the major global financial institutions were urgently required in order to ensure future financial and economic stability, it was suggested. The banking industry worldwide needed major restructuring and the practises implemented over the last decade needed to be rethought, conference delegates were told.

It was pointed out by speakers that the developing economies, including those in the Arab world, had been adversely affected by decisions taken elsewhere and over which they had little influence. Furthermore, many economies were disproportionately affected and lacked the resources to make a recovery without assistance.

Influential keynote speakers included the Investment Minister of Egypt, H E Dr Mahmoud Mohieldin, Syria’s Minister of Finance, H E Mohammad Al-Hussein, and Rt Hon Lord Davies of Abersoch, the UK Minister of Trade, Investment & Business.

Other speakers included H E Dr Umayya Salah Toukan, Governor, Central Bank of Jordan and H E Dr Sinan El Shabibi, Governor, Central Bank of Iraq.

In his opening remarks, Adnan Yousif, chairman of the UAB, said that growth in the Middle East was expected to be 2.5 percent in 2009, and better than this in 2010, which contrasted to the negative growth that the major economies of the US and Europe expected to experience this year.

Yousif stressed that Arab banks were improving their competitiveness and playing a more dynamic role in the world economy than in the past. They were looking to new partnerships especially with the UK.

There were now some 420 banks in the Arab banking sector of which 80 are listed as among the top world banks in 2008, according to The Banker magazine.

The Arab banks remained mostly well capitalised and their profits were solid, Yousif said. They had demonstrated considerable growth in 2008 reaching a total in excess of $2.3 trillion, an increase of 15 percent on the previous year and they expected to achieve better results in 2009.

Nevertheless, Arab banks still needed partners to develop the skills and expertise of banking personnel.

The speaker identified opportunities for more investment and to diversify into more development banking. In addition, the expertise of the Islamic banking sector needed to be deepened.

For the UK, Lord Davies, who was appointed Minister for Trade on 5 June in the latest cabinet reshuffle, welcomed the conference and looked forward to closer cooperation between the UK and Arab banking institutions in future.

He felt that London would remain a key global financial centre; it was the leading Western centre for financial services, including Islamic products, whose growth had been facilitated by the UK government. However, he reassured delegates that things would never go back to how they were as the lessons of the recent crisis had to be learned and adjustments made to procedures for risk, governance and more transparency.

Lord Davies said the strong relations between the UK and Arab financial institutions would continue as there were immense opportunities for partnership and investment on both sides.

The minister urged Arab banks to invest more in the UK economy and announced that he would soon be launching an initiative with UKTI to attract more Arab investment into the UK.

Lord Davies said that the UK had taken action in response to the banking crisis and was looking what lessons can be learned with a view to implementing the appropriate reforms to the system. He felt that one obvious lesson was that there was a need for better international cooperation as it had become clear that the world system was not united enough. It would not be possible to adopt only UK, EU or US solutions; what was required was one standard worldwide.

Another lesson was that the demands of shareholders had been out of line with the boards of the banks, the minister said.

During discussion, the minister indicated that the UK was open to new ideas and proposals to do what was required to develop Islamic financial services in the country.

In his keynote address, the Egyptian investment minister said that the impact of the financial crisis was not confined to the banking and financial sectors. While it was legitimate to question the extent of the role played by the market, what was needed was a mixture of the state and market in the economy, he said.

H E Dr Mahmoud Mohieldin also warned that large deficits in US and Europe would have a negative impact on developing economies by reducing the amount of investment available on the world market. Finally, he said that the “new global reality” would see Asian countries such as India and China playing a much greater role in the world economy.

In his address, the Syrian finance minister pointed to the prompt action taken by the Arab governments to mitigate the potential repercussions of the crisis and he called for representation of the developing countries at international summits where vital decisions are taken.

A panel discussion addressed the next step in G20’s agenda to achieve the aim of strengthening transparency and accountability, enhancing sound regulations, promoting integrity in financial markets and reinforcing international cooperation. In particular, the conference addressed the likely impact of the new regulations on the Arab economies.

A further panel discussion looked at corporate governance, accounting standards and financial systems. This considered the importance of tightening the limits on financial systems including the activities of hedge funds, which are currently unregulated investment funds. The need for improvements in accounting standards for the valuation of financial instruments was also discussed as well as the importance of enhancing the capacity of banking boards for the oversight of risk.

A reception for delegates to the summit was held at the Arab-British Chamber of Commerce hosted by the Arab Bankers’ Association, whose chairman George Kardouche was one of the speakers at the conference.

From Global Arab Network

iMAL Solution Delivers Competitive Edge To FEE Bank

2009-06-28T19:29:00.002-07:00

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

2009-06-28T19:29:00.001-07:00

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

2009-06-28T19:28:00.001-07:00

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

2009-06-28T19:27:00.000-07:00

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

2009-06-28T19:26:00.000-07:00

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

2009-06-28T19:25:00.000-07:00

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

2009-06-25T20:29:00.002-07:00

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

2009-06-25T20:29:00.001-07:00

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

2009-06-25T20:28:00.001-07:00

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

2009-06-25T20:27:00.002-07:00

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

2009-06-25T20:27:00.001-07:00

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

2009-06-25T20:26:00.001-07:00

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

2009-06-24T19:46:00.000-07:00

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

2009-06-24T19:45:00.000-07:00

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’

2009-06-24T00:19:00.000-07:00

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

2009-06-24T00:18:00.000-07:00

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

2009-06-23T20:43:00.002-07:00

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

2009-06-23T20:43:00.001-07:00

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

2009-06-23T20:42:00.000-07:00

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

2009-06-23T20:41:00.002-07:00

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

2009-06-23T20:41:00.001-07:00

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

2009-06-23T20:14:00.001-07:00

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

2009-06-23T20:13:00.001-07:00

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

2009-06-23T20:12:00.002-07:00

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

2009-06-23T20:12:00.001-07:00

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

2009-06-23T20:11:00.000-07:00

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

2009-06-23T19:48:00.002-07:00

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

2009-06-23T19:48:00.001-07:00

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

2009-06-23T19:47:00.001-07:00

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

2009-06-23T19:46:00.002-07:00

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.”

Muslim Republic of Russia Islamic Banking

2009-06-23T19:46:00.001-07:00

The Islamic Banking is being developed and promoted all over the World. Recently not only Muslim countries such as Kingdom of Saudi Arabia, State of Kuwait, State of Qatar and others, but also countries not directly connected with Islam: England, France, Japanese and others have shown interest to it.

The Islamic Banking is very young. In contrast to the traditional European model of financial management it has no long history and development experience. Russian bankers got the experience of collaborations with Arabian colleagues three years ago. A Russian bank “Globaks’ announced an economical transaction of the attraction of credit of Dubai Islamic Bank in 2006 year. In 2007 year the agreement about the starting of the collaborations of Slavinvestbank with the financial institutes of the Meddle East countries was achieved.

And in the March a very major event was took place - The First International Conference Islamic Banking; specifics and prospects. It helped to apprise of the approaches an principle this direction for Russia

Nevertheless there is no actual promotion of the Islamic Banking yet. Though Russia is multi confessional country: by opinion of specialists up to 25 million of Muslims live in Russia. By diagnostic of experts, the Islamic Banking should continue to develop in Russia, to offer this service to Russian Muslims in the country in the Republic where people confess to hereditary of way of Islam.

In the early of 1990 years there were business negotiations about founding of financial institutions, offering products according of Seriate in Mahachkala the capital of Dagestan Republic. Now demands for the Islamic products are under examination. Now one of Dagestan Bank “Express” extensively offer of the Islamic debit card as one of hall products.

According to Mr. Ali Aliev, who is the First Vice President of Association of Dagestan Banks – “as of day Republic of Dagestan is a part of the investment processes, taken place at the south of Russia. Now it is profitable to invest in the regions, not to the traditional markets, which are already crowded.

The Islamic Banking will be developing say the Arabian economists. Though, it is difficult to assess the possibility of the durability of the Islamic Banking for Economic Crisis.

A lot of the Islamic financiers say about the big challenge for the Islamic Banking in 2009 year. And the one of goals for the Islamic Banks is the increasing of their business, offered products, a success which will be depend on product range, type of clients, which a bank is aimed, and the conditional of the market in this time.

If the Islamic finance products offered by professionally and a client has a good investment products for the private individual clients and also for corporate and government facilities, very often the Islamic products are more better then the other type of bank operations of a tradition bank said Mr. Aliev.

Despite that in Russia, as in other countries, it has no legislation which it is promoted to the Islamic Banking, anyway there is a possibility of the developing of the Islamic Banking in Dagestan through the structured products – pointed the Dagestan banker.

According to his version, it is not necessary that a share has been issued by an Islamic company. Shares, which are on the Russian stock exchange market RTS, are not be the Islamic shares, but they have Islamic characteristics according claims of the Muslim investors as there are company, for example, they do not business of the developing and selling of alcohol products. In other words despite companies are not Muslim their shares can be approach as social and mental shares for Muslim people. It is a decision of the situation which can become of the beginning of the developing the new model of financing which is the worth financial model by bankers and investors from the World.

Sukuk Rebound Positive Sign

2009-06-23T19:44:00.000-07:00

The recovery of the global sukuk market and a lack of Shariah-compliant assets around the world should encourage domestic firms to tap the Islamic financing market, executives at HSBC’s Shariah unit said.

The sukuk, or Islamic bond, market is showing signs of recovery, with Indonesia and Bahrain successfully selling international sukuk this year after almost a year-long hiatus due to the global recession, said Mahmoud Abushamma, head of HSBC Amanah Syariah.

Amid the downturn, the total volume of global sukuk issues halved to less than $15 billion in 2008 from $30 billion the year prior, HSBC said in a statement.

The market virtually ground to a halt in March 2008, it said.

But after Indonesia’s debut in the global sukuk market in April the country managed to sell $650 million Shariah-compliant securities on orders of $4.7 billion amid strong response from international investors for its dollar-denominated sukuk. At the time, it was the biggest sukuk issue since July 2007.

Mahmoud said Indonesia succeeded with its global sukuk issue partly because it tapped the market “at an opportune time, when there was a limited supply of dollar-denominated sukuk, investors were starting to search for investment assets.”

Gahet Ascobat, HSBC Amanah’s senior vice president of structured finance, said that many investors seeking Shariah-compliant investments have been unsure about where to put their money, due to a complete lack of sukuk issues for more than a year.

“But once a sukuk issue finally came along, investors grabbed it with both hands,” Gahet said.

Indonesia’s success was followed this month by Bahrain, which just issued a $750 million global sukuk, beating Indonesia’s offering.

The Bahrain issue also elicited strong demand, with an order book of $4 billion.

“The huge oversubscription for both the Indonesia and Bahrain sukuk clearly signals that the sukuk market is on the rebound,” Mahmoud said. “It also reflects the need for sukuk instruments among Muslim investors.”

Strong demand, combined with a lack of supply, said Mahmoud, should encourage Indonesian firms to “seriously consider the sukuk market as a viable funding source to diversify their investor base.”

A number of domestic firms, including state electrical utility PT Perusahaan Listrik Negara, cellular provider PT Indosat and shipping company PT Berlian Laju Tanker have issued sukuk this year.

From Jakarta Globe

ADCB Meethaq To Offer Shariah-Compliant Product

2009-06-14T18:56:00.000-07:00

ADCB Meethaq, the Islamic Banking Department of the Abu Dhabi Commercial Bank, or ADCB, has launched the first of its kind Yaqeen Personal Finance, under the concept of Bai Al Salam, which offers customers cash finance in a fully Shariah compliant way.

Bai Al Salam is a sale contract where the bank’s customer (seller) undertakes to supply some specific goods to the Abu Dhabi Commercial Islamic Finance Company, or ADCIF, which is financier/ buyer at a future date, in exchange for an advance price fully paid at spot.

ADCB Meethaq has positioned itself around responsible banking through transparent Shariah compliance and solid values

From Khaleej Times

Bank Ready To Offer Shariah Products

2009-06-14T18:49:00.000-07:00

Standard Chartered is studying the prospects of offering Shariah-based banking products in Qatar.

Standard Chartered chief executive officer (Qatar & North Africa) Tom Aaker said the bank believed there was an opportunity for Islamic banking in the country. Standard Chartered cannot ignore Islamic banking if it maintains the same pace of growth.

“We have a dedicated Islamic bank - Standard Chartered Saadiq - based in Dubai. It has operations in many countries including Malaysia, Indonesia, Pakistan and Bangladesh. But we have not yet introduced Standard Chartered Saadiq in Qatar and we don’t have the licence for that,” Aaker said.
But, he said, expanding Saadiq’s activities to Qatar was on the list of Standard Chartered’s strategic alternatives.

“It is definitely an option for us though we don’t know when we will pursue it,” he said.

Aaker said Standard Chartered was doing an analysis on the costs and benefits of offering Saadiq products and services in Qatar.

“It entails huge investment because it has to be managed separately as per regulations,” Aaker said.
Aaker said Standard Chartered, which completes 60 years of operations in Qatar in 2010, is designing products targeted at both corporate and retail customers.

These products will help corporate and institutional customers’ hedge risks - be they due to commodity price, interest rate or foreign exchange variation.
Since Qatar’s economy depended a lot on the prices of oil, gas and other commodities, hedging risks is quite important, Aaker said.

“We have an efficient relationship team based here in Doha and a team of experts at our dealing room in Dubai, which is the largest in the Middle East. Our sprawling network helps us provide value-added advisory service to our corporate customers,” Aaker said.

He said Standard Chartered had no immediate plans to sell mortgage products in Qatar.
“The real estate sector is going through a correction. The prices have dropped significantly. We don’t think it is the right time to get in. But we will closely monitor the situation and see what time we can launch mortgage products here. However, I cannot give you a timeframe,” Aaker said.

Aaker said he remained bullish about Qatar. “Our researchers have already said Qatar will be the best performing GCC economy in 2009 because of its strong fundamentals. Qatar’s real economic growth will be the fastest in the Gulf region at 8.5% this year, the highest in the world. The GDP growth is so fast that it can definitely sustain the number of banks we have in the country already. I don’t think Qatar’s banking market is overcrowded,” Aaker said.

From Gulf Times Qatar

NAB To Introduce Muslim-friendly Loans

2009-06-14T08:32:00.000-07:00

ONE of Australia's major banks is planning to introduce "Muslim-friendly" loans that do not charge interest, to comply with Sharia law, The Sunday Telegraph reports.

Instead, the National Australia Bank will structure an Islam-approved line of finance to make money from alternative methods.

These include profit-sharing on the transaction, joint-ventures or leasing-type arrangements.

For example, to get round the Islamic ban on usury - or unfair lending - a Muslim mortgage often works by the bank buying the property, then selling it to the customer at a profit, with the customer then repaying the entire sum in instalments.

In this way the profit margin is built in from the start. It also has the advantage of making the loan immune from future interest rate rises.

NAB said the loans, which will start out small, will have to be cleared by a Sharia Advisory Board to ensure they meet strict criteria before they can be made available to the public.

"We are dipping our toe in the water with this scheme and thought we may be able to offer this product in high-density Muslim areas," said Richard Peters, head of community finance and development at NAB.

"We suspect there is demand out there, but we don't know how big it is, so we will trial a few products first."

For the trial's purposes NAB will pump $15 million from its not-for-profit finance division into the program, which will distribute the funds through various community finance schemes around the country.

The bank will monitor the take-up and assess potential demand.

Interest-free loans of up to $1000 will be available to help finance household items, such as washing machines and fridges.

The loans would also be available to non-Muslims.

The news comes just days after federal Assistant Treasurer Chris Bowen said that Australia could exploit international demand for Islamic finance to create more jobs.

E-Dirham Agreement

2009-06-14T08:31:00.002-07:00

The Ministry of Finance and the Islamic Finance Company (IFC) signed a mutual collaboration agreement yesterday morning.

The event took place in the building of the Ministry of Finance in the Capital Abu Dhabi.
The respective agreement was signed by H.E. Mr. Saeed Rashid Al Yateem, the Director of Budget& Finance Department in the ministry, and Mr. Al Walid Al Mubarak IFC Managing Director.

The ceremony was attended by number of high rank personnel and officials from both parties.
Evidently, the collaboration agreement entails granting IFC the rights to sell and recharge the E- Dirham Card, whereas the Ministry of Finance collects the governmental and administrative fees from all corporations and establishments operating within the United Arab Emirates.

This step places IFC on the list of banking & financing establishments provide the E-Dirham services besides a variety of additional financial services. Moreover, the agreement will allow IFC to facilitate client business transactions such as payments and collection of governmental fees.

The Ministry has supplied IFC with specialized collecting equipments and devices which are connected to the central network operated by the Ministry of Finance.

The E- Dirham and E- Bank Guarantees among other advanced services provided by IFC are expected to enhance the level of services granted to the investors and shareholders. Consequently, IFC is considered one of the few financing establishments that offer a comprehensive range of financial services complying with the Islamic Shariah.

Mr. Saeed Rashid Al Yateem comments: 'the expansion of marketing and supplying of E- Dirham service is a result of the ministry's endeavors to develop modern technical means to collect revenue and fees'.

Mr. Al Yateem notes that this effort aims to upgrade the level of services provided to the segments dealing with ministries, authorities and other governmental departments. In addition, it is considered as one of the most significant goals stated in the Ministry of Finance's strategy that seeks to achieve the Federal Government's goals and strategic objectives.

Customer satisfaction is viewed as one of the key performance indicators adopted by the ministry in order to implement its strategy, pointing out the importance of this agreement in enhancing cooperation between the public and private sectors'.

On the other hand, Mr. Al Walid Al Mubarak IFC Managing Director commented
'the implementation of the E- Dirham system through the company will bring added value to both public and private sectors. Furthermore; it will provide our customers with an all-inclusive variety of high quality services. No doubt the services offered by IFC meet high international standards in terms of promptness and performance quality among other characteristics, nevertheless; we consider the joint initiative with the Ministry of Finance in providing services such as the E- Dirham as some of the most distinguished'

The E- Dirham system was launched in the year 2000, becoming one of the most prominent indicators of the United Arab Emirates' progression in the technical and informational arena. Hence, this system became the advanced alternative to the traditional methods used in collecting transaction and governmental authentication fees.

The E- Dirham system has notably reduced the need to carry cash around to pay fees and charges, furthermore; it has helped in allocating and protecting governmental revenue. Consequently, IFC will assist its customers in carrying out their governmental transactions by means of a secure, highly protected and a user-friendly system.

The Islamic Finance Company was established in October 2006 with the primary objective of financing production and service providing projects in compliance with the Islamic Shariah. IFC is mainly concerned with financing small projects and corporations. In addition to this, it finances projects of profession based on the expertise of a small number of individuals whose production encompasses 80% of the United Arab Emirates' economic production base.

The new financial services provided by IFC along with its previous services contribute in enhancing its transactions in the local financial market, simultaneously; strengthening the customer's trust in the company and its services.

From AME Info

Gold ETFs A Sound Option For Investors Seeking Safe Haven

2009-06-14T08:31:00.001-07:00

Individuals looking for safe, sound and productive investments in the domestic market really have something to cheer about.

Last March, Nasdaq Dubai, in collaboration with the World Gold Council (WGC) and the Dubai Multi Commodities Centre (DMCC), launched the world's first Sharia compliant Gold Exchange traded funds (ETFs) called Dubai Gold Securities.

The product being exchange traded tracks the international gold price almost accurately and being Sharia compliant is completely backed by physically allocated gold held by its custodian (HSBC) in their London vault. (Dubai Gold Securities are backed by 400 ounce London good delivery gold bars). This aspect of physically guaranteeing gold, thus eliminating third party counter-party default (credit) risk makes this ETF rather unique.

Further, the small investment size of 1/10th of a troy ounce (equivalent to one security) makes it easily accessible to retail investors. Above all, gold's proven track record of superior performance makes it a safer bet compared to other asset classes, especially when the dollar is on a downward slide, given the fundamental reason of gold's negative correlation to the dollar.

Gold ETFs are relatively new investment products. The first gold ETFs were launched in March 2003 on the Australian Stock Exchange under Gold Bullion Securities (ticker symbol "gold"). Basically, gold ETFs are open-ended mutual fund schemes that invest in standard gold bullion of approximately 0.995 per cent purity. The investor's holding is denoted in units which are listed on a recognised stock exchange. Investors can buy and redeem the units either directly from the mutual fund house (subject to certain stipulations) or from the stock exchange itself. These funds, being passively managed, are designed to provide returns that closely track the returns of physical gold in the spot market. Investing in gold ETFs comes with all the advantages while eliminating the drawbacks related to holding physical gold such as cost of storage, liquidity and purity. Gold ETFs' transparency conforms to stringent regulations pertaining to investment norms and valuations.

Thus, the quality of gold that the fund invests in and transparency in calculation of NAVs (the market price at which these units will trade) are assured.

In some countries, investing in gold ETFs provides tax advantages. If held for more than one year, ETFs qualify for long-term capital gains at 20 per cent, in contrast to the holding period in physical form that has to be three years to qualify for long-term capital gains. For less than three years, the gains are taxed at 30 per cent. Additionally, gold held in paper form is not liable for wealth tax.

No additional fees currently apply to approved applicants who create or redeem Dubai Gold Securities.

Other than the annual management fee (currently 0.4 per cent per annum) and brokerage charges, no other fees or charges will apply to investors buying or selling Dubai Gold Securities on Nasdaq Dubai.

The Dubai Gold Securities on Nasdaq Dubai can be bought and sold through normal broking channels. These instruments trade similar to any other Nasdaq Dubai-listed security. Each Dubai gold security (DGS) represents approximately a tenth of one fine troy ounce of gold bullion. These come with a management fee of 0.40 per cent per annum that is accrued daily and is deducted from the gold backing each security and held on behalf of investors.

From Gulf News

Path Solutions Successfully Implements iMAL At Elaf Bank

2009-06-14T08:29:00.000-07:00

Path Solutions, the world's leading provider of software solutions to the Islamic banking industry has announced that Elaf Bank had successfully deployed iMAL solution.

Elaf has become the 10th bank in Bahrain whose technology is powered by iMAL the only AAOIFI-certified enterprise banking solution from Path.

The solution, which went live in a record 90 days, will enable the bank to embark on its ambitious business strategy aimed at aggressive growth and rapid differentiation as an Islamic investment bank.

'iMAL is a proven technology, we have been able to benefit from a fast and effective implementation. The commitment and dedication we received from Path Solutions' team on the ground and their continued support made this achievable,'said Dr. Jamil Jaroudi, CEO, Elaf Bank.

As to Yousif Janahi, Head Information Technology at Elaf, he commented, 'Elaf is now empowered by iMAL to create a distinguished customer experience through innovative product offerings and a unified customer view for greater convenience.'

He further added, 'What really differentiates Path Solutions is their impeccable implementation track record. Elaf Bank went live with iMAL on the 1st of April 2009, three months after the project kick-off. Thus, we were confident in their abilities to manage such a big project on time.'

'The quick deployment of iMAL at Elaf Bank is important as it demonstrates the quality of our implementation skills combined with our business know-how. Elaf Bank is fast becoming a large investment bank and we are happy to support them in their growth plans,' said Alain Abou Khalil, VP Professional Services - Path Solutions.

Path Solutions is a global player in the Islamic banking solutions' arena, with a customer base spread across 20 countries. The company has a strong presence in the GCC, Middle-East, South East Asia, Africa and Europe.

Still Waiting For Islamic Banking

2009-06-14T08:28:00.002-07:00

During his screening before the nation’s senate, Lamido Sanusi, the new Central Bank governor said of Islamic banking: “It is important we make sure that people don’t say they are offering Islamic banking while they are actually running conventional banking.

You need the knowledge of the modern banking and of Islamic banking in Malaysia, the Arab World, and Pakistan to be on the committee.

“The services would be available to Muslims and non-Muslims. It is not a religion, it is a product available to the public. If things are set in place, I would be in support”.

Islamic banking in Nigeria
The Central Bank of Nigeria (CBN) terms Islamic banking, “non-interest banking”. According to the CBN, a non-interest bank means a bank which transacts banking business, engages in trading, investments and commercial activities, as well as the provision of financial products and services, in accordance with the principles and rules of Islamic commercial jurisprudence.

Transactions and contracts under this type of banking are non-permissible if they involve “interest; uncertainty or ambiguity relating to the subject matter, terms or conditions; gambling; speculation; unjust enrichment; or exploitation/unfair trade practices.”

In March 2009, a framework for non-interest banking was released by the CBN. According to D.A.N Eke, the Acting Director of Banking Supervision at the CBN, “the objective of the framework is to provide minimum standards for the operation of non-interest banking in Nigeria while serving as an exposure for comments, suggestions and/or inputs by stakeholders”.

Banks not yet ready
Some conventional banks in Nigeria such as Fin Bank Plc, Bank PHB and some microfinance banks such as Integrated Microfinance bank offer Islamic banking products.

In the case of Integrated Microfinance Bank, Islamic banking products were introduced by the bank in mid 2008 and three products are now being offered - the Ijara, the Musharaka marana and the Musharaka Nasat. In each of these products, customers contribute funds and both the bank and the customer share in the profits from the product.

Yet, industry analysts do not think that things will be “in place” in the near future to provide an apt environment for the expansion of Islamic banking services in Nigeria. One bank official said to NEXT: “Most of the banks as we know are still trying to sort themselves out, working on maintaining a fair balance sheet and trying to keep ahead of the impact of losses staring them in the face.

It would be quite unrealistic to consider setting up a new establishment. This is because we cannot use our present funds. We have to raise fresh funds. If you go through the framework well, it states that the funds cannot be mixed, they are separate, because they are different entities.”

Fashion, Music And Lots Of ‘Moola’

2009-06-14T08:28:00.001-07:00

The permutations of 786 on the number plates of hundreds of luxury cars parked in the basement at the Inkosi Albert Luthuli ICC complex on Tuesday night was a telling sign of why in 20 years, Albaraka Bank has achieved assets totalling almost R2- billion.

The bank, which ironically has reflected deposits in excess of R1.6-billion despite the tough economic climate, celebrated its milestone anniversary on Tuesday with clients, staff and shareholders.

And near the top of the kudos for this success was the support and vision of the Muslim community — including some of the country’s wealthiest people — who embraced the principle of the faith-based system of financial management as a viable alternative to the conventional banking model since 1989.

Listening to former judge Aboobaker Mohamed eloquently recount the series of chance events and faith demonstrated by Saudi billionaire and banking visionary Sheikh Saleh Kamel, which led to the establishment of Islamic banking in 1989, was a fascinating story, amplified by the classy ambience of the venue (think middle-eastern flamed torches and beautiful fresh flowers).

Formalities — including an introduction by UK director and former South African Schabir Randaree, long service and special service awards, Mohamed’s 20-year history, political rhetoric from provincial minister of economic development Mike Mabayakhulu and the unveiling of the group’s new corporate identity — did go on a bit but, to be fair, these were facilitated by Albaraka employees Ismail Yuseph and Yunus Paruk, who were effective and entertaining as programme directors.

Judging by the bank’s success (which challenges the stereotype that Muslims hide their money under their mattress) the Islamic community commitment is sure to see Albaraka realise their goal of R5-billion in deposits in the near future.

COUNT ME IN: Mohamed explained that in the bank’s formative years management went on a road show to get clients to buy shares. At a time when they were asking for R100000, one wholesale retailer pledged support with R1-million — a lot of money way back in the 1990s.

MILLIONAIRE’S DREAM: One of the guests, Kamdar Akoo, mentioned that his family’s property development wing is busy with a R100-million development of their hotel, Seaboard (which was damaged in a fire last year). They are building 150 bedroom apartments, designed with students in mind, along with a retail component.

A major retail chain store will occupy the building in November and a pharmacy and a popular fast-food restaurant will move in later.

The group, which also owns residential villas on the north coast and commercial property in Pietermaritzburg, says that the hotel will be ready in time for next year’s kick-off.

FOOD AND ENTERTAINMENT: Mains — including prawn-and-chicken curry, rogan josh, roast lamb and kalta rice — were served in bowls on the table, which made the dining experience similar to eating at home as the bowls were passed around.

During starters and mains, guests — males and females seated separately as per request — were entertained by contemporary a capella Islamic group Waheed, which loosely translated means oneness (think Islamic version of Ladysmith Black Mambazo). The group, sadly, didn’t perform their beatbox repertoire, which has earned them favour with the younger generation, who weren’t the target audience on the night.

On the subject of entertainment, hundreds of music lovers looked like condoms on the lawns of the Durban Country Club as they protected themselves with plastic rain macs provided graciously by hosts First National Bank when the heavens applauded the KwaZulu-Natal Philharmonic Orchestra’s Starlight Pop Opera on Sunday night.

The financial sponsors, who have traditionally supported the initiative now in its 11th year (according to KZNPO chief executive Bongani Tembe), made sure all guest needs were catered for — thanks to a nifty cooler bag containing all sorts of goodies including a cheese board, the handy rain macs, cutlery and crockery necessary for the picnic as well as chairs.

Television personality Tumisho Masha was a fitting host for the outstanding performances from the orchestra and vocalists from classic to movie music and made for a wonderful night out, despite the rain.

And that was exactly what former Gate- way public relations officer, Lisa Sukdhev, promised when she invited me to a huge party last Thursday evening that was thrown by Kevro, a corporate clothing wholesaler.

The company, which I had previously not even heard about, celebrated their new premises in the newly developed industrial area of Riverhorse Valley with clients and selected guests.

A number of guests stuck to the black and white theme on the chilly night which kicked off with music by Idols finalist Lize Heerman, magical platters of food (they kept disappearing within minutes of being brought out) and a fashion show featuring their promotional clothing (of course), coordinated by managing director Eugene Haveman’s wife, Debby, who is a former model.

The success of the company — no mean feat in our current climate — means more jobs and bigger premises and no wonder staff, management and clients were in a jubilant mood.

From The Times