ITS Sees Opportunities In Growth Of Islamic Finance

Leading IT solutions provider International Turnkey Systems Group (ITS), winner of the Best IT Solutions Provider at the prestigious Islamic Finance Forum Awards, is gearing up for more business as the Islamic finance industry seeks greater integration with the global banking system.

The Saudi Arabian Monetary Agency (SAMA) said earlier that it believes that more funds will migrate into the Islamic banking system, and such growth is set to prompt banking and finance institutions to integrate into the global banking system.

Globally, banks and financial institutions have been developing Shariah-compliant products and services to soak up this increased demand, and Saudi Arabia will lead the way in setting standards and regulations for this growing industry.

“Developing Shariah-compliant platforms will require major adjustments to the current information technology infrastructure and systems to be able to truly be compliant with Shariah doctrines. The expertise we have accumulated over many years through our office in Saudi Arabia and other leading Islamic knowledge centers has enables us to develop a range of award-winning Shariah-compliant solutions to help in addressing these opportunities while seamlessly integrating with the global banking system,” said Khalid Faraj Al-Said, managing director and general manager, ITS.

Referring to the award conferred on ITS, Al-Said further said. “This award is a further recognition of our passion for, belief in, and commitment to developing superior IT solutions that enable regional and global entities to deliver ethical financial services across a variety of platforms, including ethical (retail and corporate) finance, ethical investments, ethical delivery channels and other technical services,”

ITS is a highly regarded IT solutions provider in the banking and finance sector, providing world-class and state-of-the-art, end-to-end information technology solutions and services to local as well as regional and international banks and financial institutions.

(From Saudi Gazette)

Sharia Trade Swaps Mooted

Islamic banks in Southeast Asia are considering to apply Sharia-compliant currency swaps in support of trade, within the scope of their financial services, a Sharia banking expert said on Monday

The CEO of the Islamic-based Tazkia Group Syafii Antonio said "To develop the Sharia financial system, we have to go global. And for that we need to secure our transactions under Sharia law."

According to him, foreign exchange swaps are necessary to secure trade transactions within the framework of Islamic banking and to guarantee continued liquidity. "Perhaps we can first introduce the foreign exchange swap. This is also important to secure liquidity among the Islamic banks.

"Even more than that we can perhaps apply the swaps under one single currency, perhaps under the Dinar. This could be done under the Sharia banking system," he told the press on the sidelines of a seminar on the ASEAN Sharia economy.

The seminar attracted about 150 participants from six ASEAN member countries, namely Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore, and Thailand. Syafii explained that the requirements for Sharia compliance would be discussed during the seminar.

At present Islamic scholars have different ideas on what is needed to facilitate Sharia-compliant currency exchange swaps and the seminar would address these differences in order to move towards agreement on definitions and applications.

On the development of Sharia in Indonesia, Syafii noted that the government should improve the regulatory and business environment so that the Sharia banking system could develop better and grow faster.

"The government has issued the law on Sharia banking and on sukuk ‘Islamic bonds’. But I think they can do more to accelerate its development. "This is a matter of political will. If the government has the political will then Sharia banking here can grow much faster," he said.

He also proposed that the government should consider Sharia banking as an infant industry for at least 10 years, during which the government should design its laws to meet the needs for tax incentives and should create a favorable climate for its development. "Malaysia and Britain have given such incentives to the Islamic banking," he noted.

However, the CEO of the CIMB Islamic bank Badlisyah Abdul Ghani, (pic above) who also participated in the ASEAN seminar, said that what the Sharia banking system actually needed was a level playing field.

"Actually, what we need the most is a level playing field, not a new legal framework for sharia banking. With a level playing field all players will receive equal treatment as has been the case with conventional banking.

"I think this kind of problem is faced by most countries in ASEAN, except Malaysia," he said. He pointed out that the Indonesian government needed to go further in pushing the growth of shariah banking by providing tax neutrality, as had been done by some other countries.

"Malaysia provided such tax neutrality since long time ago. Even Britain and Singapore have followed suit ," he noted.

(From Jakarta Post)

Will Shariah Banking Make The Same Mistakes As Conventional Banking?

Indonesia just hosted the third Asean annual meeting of sharia economic experts in Jakarta, raising the question as to where sharia banking is going and how to avoid the heady heights of high finance that brought down banks in the West.

Or will shariah banking fly too high and make the same mistakes?

Understandably Syafi Antonio (pic right), CEO of the Tazkia Group, wants sharia banking to go global.

"To develop the sharia financial system, we have to go global. And for that we need to secure our transactions under sharia law," he said.

So the meeting discussed the idea of sharia-compliant currency-exchange swaps and the possibility of a single Islamic currency to back trade.

However, this involves precisely the areas of derivatives, hedging and collateralisation which caused problems for conventional banks during and after the October 2008 crash and complex concepts like simultaneous term and reverse back-to-back murabaha to try to avoid riba (interest), gharar (uncertainty of value of underlying assets) or maisir (speculation).

The full complexities of secondary (reverse) murabaha and full cross-currency swap structures have been described by Richard Tredgett of Allen and Overy and published in the financial press, for example in Derivatives Week, along with advanced hedging mechanisms and profit-rate swaps, total return swaps and fund/index linked derivatives.

But given the reservations felt by many Asean conventional and Islamic bankers about such financial instruments since the October 2008 crash in the United States and Europe, is |this the sort of thing we should prioritise when promoting |the capacity of Asean Islamic banks and financial institutions?

Antonio acknowledged in |the same meeting that the Indonesian government would need to treat sharia banking in Indonesia as an infant industry for at least 10 years.

The third Asean annual meeting attracted participants from six countries: Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand. All of these countries are developing Islamic banking and finance.

There is also an interest in sharia banking in Cambodia and Burma, both of which have Muslim minorities. Muslim firms and traders are also active in Laos and Vietnam.

So everybody in Asean can benefit from Islamic banking and finance, which should be regarded as an ambassador of Muslim modernisation and a vehicle for economic and social development, in line with the aspirations of the Organisation of the Islamic Conference and the World Islamic Economic Forum.

The disparities between Malaysian Islamic banking and finance, as well as the comparative state of development of Indonesia and most Asean countries, highlights that as yet there is no realistic strategy where sharia banking can reach adequate financial volume and significant market penetration in most Asean countries.

Muliaman Muliaman D Hadad, deputy director of the central bank, recently underlined to an Indonesian Chamber of Commerce and Industry (Kadin) seminar in Jakarta that the country's sharia banking industry had almost no chance of expanding capital deployment from 3 per cent of national banking capital to the target of 5 per cent without more capital, more people and a new strategy including lending to corporations and not just SMEs.

This could be built on four pillars: a broad individual customer base including lending to small lenders; expansion of corporate lending in high-growth and labour-intensive sectors; private-sector bonds for company expansion and small infrastructure; and large-volume Islamic bonds to finance state-budget deficits and large infrastructure.

All this requires big increases in capital and capacity to handle clients, corporates, public-private partnerships and projects.

Only Malaysia, a decade in front of the pack, has anything like this delivery capacity, while Singapore and Brunei can take a different path, focusing on building regional financing partnership hubs with their high capital resources and low populations.

Asean should therefore focus on building Islamic banking and finance on strong foundations and not waste time and energy on the sharia banking and finance equivalent of rocket technology. You do not need to be a rocket scientist to work out that what Asean sharia banking needs first is its feet on the ground and much stronger foundations.

(From The Nation - Thailand)

The Optimal Solution For Financial Crisis

Speaking on the the role of Islamic banks in providing initial solutions in view of the current financial crisis, Safa Abdul Rahman Al-Hashem (pic left), Chairman and Managing Director of Advantage Consulting Company, said that Despite all the skepticism the world had toward the Islamic banking system in the GCC, particularly in Kuwait, not only does the integrity of the system hold, but Islamic finance also remains the most optimal solution to avoiding the repercussions of the Financial Crisis

She said however, that Islamic finance needs to be revitalized. As although Islamic banks do contain an array of real Islamic Banking products like Tawreeq, Sukuk, Murabaha, Islamic real estate mortgages, they in effect provide the same traditional products of commercial and investment banks with only change of trade name.

Al Hashem added, 'This is primarily due to the fact that the Islamic banking system is a part of capitalistic system and endeavors to realize profits using Fiqh (Jurisprudence) tricks to reformulate products in an Islamic framework and then sell Islamic products at a higher price as compared to original traditional financial products.'

First Sharia Compliant Product For Tharawat

Tharawat Investment House of Bahrain has launched its first Sharia compliant investment product 'Tharawat Sukuk Fund'.

The fund is an open-ended, Sharia'a compliant investment fund domiciled in the Kingdom of Bahrain investing around 70% of its assets in government and corporate Sukuk in the GCC and MENA areas.

"The fund aims to preserve capital and achieve high return for investors through purchasing Sukuk in primary and secondary markets," said Tharawat CEO Aref Mohammed Al Alawi (pic right).

The fund offers investors the choice to receive the fund's distributions in cash or through issuance of additional Units.

The fund is targeting investors from individuals and organizations that are looking for investments that generate higher returns than bank deposits,' Al Alawi said that Tharawat Sukuk Fund is different from other investment funds in many ways. As not only is it fully compliant with sharia, it also provides the benefit of easy exit anytime the investor wishes without any losses or hidden conditions,'

Sharia'a Supervisory Board at Tharawat Investment House have audited, reviewed and approved the fund and all its conditions and operations. The Board consists of Shaikh Nedham Mohammed Saleh Yaqoobi, Chairman (from the Kingdom of Bahrain), Shaikh Dr. Mohammed Abdulrahim Sultan Al Olama, Member (from the UAE), and Shaikh Osama Mohammed Bahar, Member (from the Kingdom of Bahrain).

Financial Crisis An Opportunity For Islamic Banks

The financial crisis presents an opportunity for Islamic banks based in some of the Gulf States according to a new report from the London School of Economics and Political Science (LSE) released recently.

The report entitled “The development of Islamic finance in the GCC”, by Professor Rodney Wilson (pix left), states that the Islamic banks have been less adversely affected than the major international banks by the 2008-9 crisis, making them more attractive to investors.

Gulf Cooperation Council-based investors in conventional banks have seen the value of their investments plummet. These include Prince Waleed’s Kingdom Holdings in Saudi Arabia, which holds five per cent of Citibank, and the Abu Dhabi and Qatar Investment Authorities, which hold significant stakes in Barclays. In contrast, the value of the Saudi Al-Rajhi Bank and Kuwait Finance House (KFH) investments in retail Islamic banking affiliates in Asia has been much more resilient.

Professor Wilson, who wrote the report for LSE’s Kuwait Program on Development, Governance and Globalization in the Gulf States, said: “There has been much questioning of the values underpinning the conventional financial system, and the search for alternatives means that Islamic banks are likely to receive more attention, especially as their raison d’être is morality in financial transactions, based on religious teachings.”

“The increasing international respect for Islamic finance has been noted in the GCC, and this should encourage local acceptance by both governments and bank customers, not least because no Islamic bank has failed in the crisis and required a substantial government bail-out.”

Islamic banks have been somewhat insulated from the current financial crisis because, in contrast to their conventional counterparts, they do not borrow in interbank markets, their funds coming instead from their own deposits. They also did not hold toxic collateralized debt obligations because they are not allowed to hold interest-bearing securities.

According to the report, the GCC is well positioned at the heart of the Muslim world to serve as an Islamic finance hub linking Europe, Asia and Africa. The spread of subsidiaries of GCC-based Islamic banks illustrates that this is starting to happen. Furthermore a global economic recovery is likely to benefit the GCC as oil and gas prices rebound, resulting in fresh liquidity being pumped into Islamic banks to fuel further expansion.

Despite being a reluctant supporter of Islamic banking to date, the report argues that Saudi Arabia could become the global leader in the Islamic finance industry worldwide if the Saudi Arabian Monetary Agency (SAMA) and the Capital Markets Authority become more proactive in promoting the industry. This would bring significant benefits to its economy including employment creation in the King Abdullah Financial District where, for example, although a grand mosque is included in the plans, there is no mention of Islamic finance in the vision.

First Sukuk Fund By HSBC Amanah

HSBC Amanah, said it will start marketing its first Islamic bond fund as it bids to tap into investors' appetite for the asset class.

The HSBC Amanah Sukuk Fund, domiciled in Saudi Arabia, will comprise sukuk, issued by 12 to 14 companies, mostly in the real estate, commercial banking and utilities sectors based in the Gulf Cooperation Council (GCC) area.

According to a report in Reuters an HSBC spokeswoman said it would seek to raise $100 million for the fund, which has a four-year maturity and will target mid- to high-single-digit annual returns.

Three quarters of the bonds will be issued by corporates with the balance issued by GCC governments.

Unlike a mainstream bond, sukuks generate income for its holders without paying interest. Most of the sukuks included in the HSBC fund will be lease and buy back structures, known as Ijara.

The fund will use private banks in Saudi Arabia and the rest of the GCC as sales intermediaries and will invite investments in dollars, Saudi riyals, Qatari riyals and the Emirati dirhams.