Islamic Finance Eases Scots' Home Crisis

"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

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

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

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

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

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

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