5 Interactive Distance Learning Programs on Islamic Banking and Finance

Saturday, September 13, 2014

Shariah Gets Hotter as Kazakhs Revive Islamic Bank Plan

Kazakhstan is reviving plans to develop Islamic finance, joining nations from South Africa to the U.K. in targeting an industry that’s forecast to reach $3.4 trillion during the next four years.
The majority Muslim central Asian nation is “fine-tuning” legislation for Shariah-compliant banking, central bank Chairman Kairat Kelimbetov said at an Islamic finance conference in Almaty last week. Some lenders are seeking to convert into Islamic banks, he said.
Borrowing costs for sellers of Islamic securities have tumbled this year as investors snap up debt from first-time issuers including Britain. South Africa, Luxembourg and Goldman Sachs Group Inc. are also preparing sales. The drive by Kazakhstan comes two years after its debut sukuk, which was denominated in Malaysian ringgit.
“The sovereign sukuk may not be quite ready, but there are other financial institutions who may be looking at issuing sukuk,” Rizwan Kanji, a Dubai-based partner at King & Spalding LLP law firm, said Sept. 9 in an e-mail following his first visit to Kazakhstan. They may use structures that appeal to Gulf Cooperation Council investors, he said.

Global Capital

The Islamic finance industry is expected to double in the five years through 2018, according to Ernst & Young LLP. The U.K., which is vying to establish itself as a global hub for Shariah-compliant financing along with Dubai and Kuala Lumpur, received orders for more than 10 times the 200 million pounds ($322 million) it raised in its inaugural sale in June.
The debt will contribute to a 30 percent surge in global sovereign Islamic bond issues to $30 billion this year as investors clamor to take advantage of lower yields, according to Moody’s Investors Service.
Average sukuk yields worldwide declined 65 basis points in 2014 to 2.77 percent on Sept. 9, Deutsche Bank AG indexes show. That compares with a 30 basis-point drop to 4.77 percent in average yields for the Bloomberg Emerging-Market Sovereign Bond Index.
The U.K. was the first non-Muslim government to sell a sovereign sukuk. The issue’s success has tempted other nations to tap Islamic capital markets, according to Sheikh Bilal Khan, a co-chairman of Dome Advisory Ltd.

Following Suit

“There’s no doubt that the U.K. sovereign sukuk has encouraged many countries to follow suit,” Khan said by e-mail last week. “Kazakhstan and Kyrgyzstan are looking to become Islamic finance hubs of” the region, he said.
Kazakhstan first explored sukuk as early as 2010, when the government said it sought to make Almaty an Islamic finance hub for Central Asia. Abu Dhabi’s Al Hilal Bank opened a branch in Kazakhstan that year, and remains the only Islamic lender in the oil-rich nation.
“We look forward to additional players coming into the market,” Prasad Abraham, chief executive officer of Al Hilal Islamic Bank JSC of Kazakhstan, said in an interview with Bloomberg Television Sept. 2. The bank plans to double its assets to $300 million over the next three years, he said.

Legislative Hurdles

Al Hilal Islamic experienced difficulties in generating business after setting up in Central Asia’s biggest energy producer because of a lack of understanding of Shariah-compliant products by customers, Chief Financial Officer Aidyn Tairov said in 2012.
Kazakhstan will face legislative hurdles as it seeks to promote the industry and the nation is experiencing the early stages of development, Central Bank chairman Kelimbetov said last week.
“We have a roadmap for development of Islamic finance until 2020, adopted by the government,” Kelimbetov said. “We have a number of Kazakh banks seeking to convert to Islamic banks.”
The economy of Kazakhstan, which has the third-lowest investment-grade credit rating at Standard & Poor’s, grew 5.95 percent last year from 5 percent in 2012, data compiled by Bloomberg show. Gross domestic product will slow to 4.7 percent this year before accelerating to 5.8 percent in 2015, according to a Bloomberg survey of 12 economists conducted in late June.
“There’s a bit more of a systematic approach now, rather than rushing in to issue a sukuk,” Kanji said of the latest drive from senior government officials to develop Islamic finance. “It makes sense for them to look at the Middle East, attract funding and establish a track record.”

Monday, September 8, 2014

Kazakhstan Islamic bank eyes regional expansion

Kazakhstan's Al Hilal Islamic Bank, the only Sharia-compliant lender in the country, may expand into neighbouring countries as legislative efforts to develop Islamic finance gather pace across the region, its chief executive said.
Fresh Islamic finance legislation is being developed in Azerbaijan, Kyrgyzstan and Tajikistan, creating a more welcoming framework for the industry in countries which have secular regulatory regimes.
Legislation is also being redrawn in Kazakhstan, the first former Soviet country to introduce Islamic finance rules in 2009; the initial set of rules failed to spur much activity.
Almaty-based Al Hilal, whose parent is wholly owned by the Abu Dhabi government, is considering increasing its geographical presence as part of its 2015 business plan, chief executive Prasad Abraham said on the sidelines of an industry conference.
"Our medium-term strategy is to test the effectiveness of the Kazakhstan model, and then use that as a base for further expansion to other regions of the CIS (Commonwealth of Independent States) as appropriate.
"An important precondition for any expansion is the existence of a proper legislative framework for Islamic finance in the respective countries."
A draft amendment, currently awaiting discussion in Kazakhstan's parliament, would provide the bank with a clearer framework that could translate into better commercial opportunities, Abraham said.
This could spur new entrants into the sector, such as Zaman Bank, a local bank which is working to convert itself into the country's second Islamic bank. It has not given a time frame for that plan.
In addition to Zaman, the regulator has now received an application to operate another fully-fledged Islamic bank, Abraham said without elaborating.
Launched in 2010, Al Hilal is on target to see asset growth of 70 per cent this year, with similar growth expected for 2015, he said, adding this was partly because growth was from a low base; it is expected to slow as the bank gains size. The bank posted a 46pc increase in assets in 2013, reaching 16.7 billion tenge ($92 million), financial statements showed. Its business is focused on government and large corporate clients, and after conducting a feasibility study earlier this year it has decided to wait for legal issues to be resolved before offering retail banking services. Islamic banks in Kazakhstan are categorised on a par with other commercial banks, known as Tier 2 banks, but current law does not extend to them all the tax privileges that conventional banks have.

Monday, September 1, 2014

Slow, Subtle Rise of the Insurance Industry

Expressed in terms of gross premiums as a percentage of the country’s gross domestic product (GDP), insurance penetration has traditionally remained low in Pakistan.
However, official statistics show a significant improvement in recent years. Not only the country’s insurance penetration increased from 1.3% of the GDP in 2010 to 1.73% in 2013, insurance density also rose substantially over the same period.
Insurance density – or the ratio of gross premiums (in dollars) to the country’s total population – went up from 6.36% in 2010 to 9.39% in 2013.
The overall trend becomes more obvious by looking at the growth rate of gross premiums that insurance companies collected in the last three years. They amounted to Rs100.7 billion in 2010 and reached Rs176.5 billion in 2013 – the last year for which official data is available. It translates into the compound annual growth rate of 20.55% for the last three years.

As a dividend of their enhanced footprint in the economy, insurance companies managed to expand their bottom lines significantly in recent years. Excluding government-owned State Life Insurance Corporation (SLIC), combined profits of all life and non-life insurance members of the Insurance Association of Pakistan amounted to Rs3.4 billion in 2010. They clocked up at Rs9.7 billion in 2013, which translates into a massive increase of 41.7% per year between 2010 and 2013.
SLIC has yet to release its financial results for 2012 and 2013 because it does not have a full-time chairman.
In addition to the statistics showing tangible growth, the regulatory framework for the insurance industry underwent huge changes in the last many years that reduced entry barriers for new players.
A case in point is the introduction of Takaful Rules 2012, which allow conventional companies to set up dedicated window operations to sell Islamic insurance. The move was bitterly contested in court by Takaful players that feared competition from well-established insurance players.
But the legal battle has finally ended largely in favour of the conventional companies. Industry sources say at least 10 conventional insurance companies will have entered the Takaful market by December, resulting in huge investments and thousands of new jobs.

Similarly, a number of foreign companies have shown interest in entering Pakistan’s insurance industry. They include the world’s leading insurance brokers Marsh and Lockton.
Similarly, Rosewood Insurance Group of Switzerland has shown intention to acquire a 74.9% stake in TPL Direct Insurance. Sources say the Swiss group wants to buy a significant shareholding in two other insurance companies as well.
Progress in the micro-insurance segment has also been encouraging. Firms like MicroEnsure and Bima, which provide system support and IT backup to micro-insurance providers, are eyeing the Pakistani market.
Analysts believe the country’s insurance industry, which went downhill following its nationalisation in the 1970s, is making a strong comeback that may prove long-lasting.
The fact that the insurance industry had its first full-time commissioner at the Securities and Exchange Commission of Pakistan (SECP) three years ago played a key role in recent developments.
Improved governance structure and a fully functional regulator in the last three years have resulted in rapid growth and foreign investment in the insurance industry. But with the retirement of SECP Insurance Commissioner Mohammed Asif Arif in the first week of September, industry officials are wondering whether the recent upturn in business activities will come to a grinding halt.
The SECP has been operating without a full-time chairman for over a year now. Instead of having five to seven members, the SECP will be left with only two commissioners after the retirement of Arif.
Letting the insurance division of the country’s apex regulatory body operate without a full-time head may undo the successes achieved in the last three years.

Friday, August 29, 2014

Securities Commission Malaysia introduces new Sukuk framework

The launch of the SRI Sukuk framework is in line with the initiative set out under the SC’s Capital Market Masterplan two to promote socially responsible financing and investment. With the shifts in investor demographics, there are growing concerns over environmental and social impact of business and greater demand for stronger governance and ethics from businesses. The Malaysian capital market is well-positioned to capitalise on these changing trends and facilitate sustainable and responsible investing.

“The introduction of the SRI Sukuk framework is part of the SC’s developmental agenda to facilitate the creation of an eco-system conducive for SRI investors and issuers and is also in line with the rising trend of green bonds and social impact bonds that have been introduced globally to facilitate and promote sustainable and responsible investing. Combined with Malaysia’s leading position in the global Sukuk market, this framework will further enhance the country's value proposition as a centre for Islamic finance and sustainable investments”, said Datuk Ranjit Ajit Singh, Chairman of the SC.

The SRI Sukuk framework is an extension of the existing Sukuk framework and therefore, all the other requirements in the Guidelines on Sukuk continue to apply. The additional areas addressed in the framework for the issuance of SRI Sukuk include utilisation of proceeds, eligible SRI projects, disclosure requirement, appointment of independent party and reporting requirement.

Thursday, August 28, 2014

Book Review - The History & Future of Islamic Finance

Yet today Islamic finance is a trillion-dollar industry with many financial institutions, corporations and governments keen to embrace it as a profit-making alternative to mainstream financial dealings.

Harris Irfan is an insider on two fronts. He is a Muslim and also an expert in finance and commerce. He has worked as an investment banker in Europe and the Middle East and been head of Islamic finance at Barclays; he also founded Cordoba Capital, an Islamic finance advisory firm.

Mr Irfan is a man with a mission: to show that Islamic finance might be able to make a real contribution to our economic woes. He asks the reader to consider whether the Islamic world can "bring something of benefit to the Western world, and vice versa".

This is no mean task, but Mr Irfan uses his own professional and personal experiences to weave together an accessible and interesting story.

We get an insight into the birth of the Islamic finance system in the fifties, to the establishment of the first Muslim banks in Saudi Arabia and the Gulf States and the gradual recognition by Western banks of the enormous profit potential in structuring products on a sharia-compliant basis.

Traditional clerics were flattered with the attention and remuneration offered by the giants of the banking industry in exchange for their expertise.

While this book isn't full of jargon, it helps to know something about how the investment industry works. You also need to have some sense of Islamic history and religious concepts. But the religious commentary does not overcomplicate the narrative. Anecdotes about the life of the eighth-century Muslim legal scholar Abu Hanifa, the financial workings of the Ottoman Empire and the modern controversial Pakistani scholar Taqi Usmani all add weight.

The last chapter ponders the future of Islamic banking after some sharia-compliant finances were unfairly equated with funding terrorism, Worth reading.

Indo Business

Wednesday, August 27, 2014

Govt taking steps to Promote Islamic Banking: Expert

The government is taking meaningful steps to promote Islamic finance which will soon transform Pakistan as a world leader in this sector, an industry expert said on Sunday.
Currently, Pakistan ranks ninth globally in terms of development of the Islamic financial services industry but some recent purposeful steps would prove to be a game changer, said Mian Shahid, Chairman United International Group (UIG).
Now, the conventional insurance companies in Pakistan are set to make major inroads into the Islamic insurance business with the active support of regulators, he added.
Mian Shahid said the size of the global Islamic financial industry has been estimated to touch mark of $1.8 trillion soon while Pakistan will become an important player in it due to the largest Islamic market in the world outside Indonesia.
Takaful in most markets is still in its infancy and its potential to supersede conventional insurance in Muslim world is still largely unexploited, he said, adding its premiums that exceeded $4 billion in 2007 is expected to reach $20 billion by 2017.
Saudi Arabia, UAE and Malaysia enjoy the lion’s share on account of their advanced Islamic finance sector while Pakistan would need more simplified regulatory frameworks to propel the industry’s expansion, the insurance veteran observed.
He said that United Insurance Company (UIC) had become first company to operate Takaful (Islamic Insurance) in Pakistan which had pushed us to look aggressively beyond the borders. Financial performance and proper handling of key strategic issues remained challenging for Takaful operators, he noted.

Saturday, August 2, 2014

Making Pakistan a Centre of Excellence for Islamic Finance

Before the financial crisis ensued in 2007, there was an explosion of interest from a number of countries in becoming hubs for Islamic finance. These countries included Malaysia, Singapore and Hong Kong in the East; United Kingdom, France, Italy, Luxembourg and Ireland in the West; and Bahrain, Qatar and the UAE in the Middle East. Even countries like Japan and South Korea showed serious interest in Islamic finance in those pre-crisis days. Many of these countries, however, went cold on their claims during the financial crisis, leaving Malaysia as the most important global player in Islamic banking and finance (IBF).
Malaysia’s global leadership role is now once again being challenged by the likes of the UAE and Qatar, where the governments are actively supporting the promotion of the IBF. According to the Islamic Finance Country Index (IFCI) , published annually by Edbiz Consulting, Iran ranks number one in the global Islamic financial services industry. Malaysia and Saudi Arabia are second and third. Pakistan ranks ninth on the list. The current PML-N led government is the first democratically-elected government in the country which seems serious about promoting the IBF in Pakistan. The appointment of a dedicated deputy governor at the State Bank of Pakistan (SBP), with a focus on promotion of Islamic banking alludes to this fact. Apart from the developments at the central bank, advocacy of the IBF in Pakistan remains rather limited. The SBP has recently initiated a project to promote quality education in the IBF, by committing to invest in Pakistani universities and institutions of higher learning and develop them into centres of excellence.
In Malaysia, the prime minister himself keeps himself abreast of with new developments in the IBF. In the UAE, the ruler of Dubai is directly behind its initiative of making Dubai a centre of excellence for the global Islamic economy. In Pakistan, such a central leadership role has yet to emerge. Given the ongoing military operation in North Waziristan, political noise created by the likes of Imran Khan and Tahirul Qadri, and numerous other important engagements, the prime minister has not been able to embrace IBF fully. The finance minister also has a full plate and so has the secretary of finance. In such circumstances, there is a need that a full-time advisor be appointed to the prime minister, who should have multiple roles, including but not limited to, advocacy of IBF in Pakistan and overseas, liaison between different government departments (Ministry of Finance, Planning Commission, and SBP, etc) and international bodies like Islamic Financial Services Board and Accounting and Auditing Organisation of Islamic Financial Institutions for the promotion and development of IBF in the country, devising a national strategy on promotion of the IBF, developing a framework for enhancing the role of Pakistan as a global leader in the IBF and more specifically, preparing recommendations for the government to create a centre of excellence for the IBF in Pakistan.
It is absolutely imperative for Pakistan to work towards a leadership role in the global Islamic financial services industry to fully benefit from an industry that is fast approaching the important psychological mark of $2 trillion under management worldwide. This can be done by advocating the IBF nationally and by being involved in the decision-making of international forums related to Islamic finance. It should also look into hosting an international body related to Islamic finance. There are a number of other bodies that work for the promotion of IBF, including but not limited to the International Sharia Research Academy (ISRA)  for Islamic Finance and International Islamic Liquidity Management Corporation IILM — both hosted by Malaysia. The World Islamic Economic Forum (WIEF), supported by the Malaysian government, is also very active in advocating IBF. The Dubai Centre of Excellence for Islamic Banking and Finance is another body trying to pitch Dubai as the capital of the global Islamic economy. Pakistan, on the other hand, lags behind all these countries in such endeavours, despite having contributed significantly to the amount and quality of human capital to the global Islamic financial services industry.
There are a number of reasons behind this indifference to promoting and projecting Pakistan as a global leader in the IBF. First, the ongoing war on terror, and the law and order situation in the country did not allow the authorities to focus on this strategic area of paramount importance for the national economy. Second, the previous governments (the military government led by General (retd) Pervez Musharraf and the PPP-led government) shied away from anything Islamic, primarily due to the apologetic view of the Musharraf regime, and the aversion of the PPP government to be seen as promoting or backing any Islamic phenomena. Third, the lack of talent available in Pakistan was also responsible for not giving confidence to it to vie for a global role in the IBF. Finally, in the absence of a political push, the bureaucracy in the country has never considered the IBF with sympathy.
Despite all these obstacles, the share of Islamic banking in the banking sector has exceeded 10 per cent, and its growth is almost double of what conventional banking has witnessed in the last five years. Given this, it is recommended that Pakistan should now develop an international centre of excellence for Islamic finance, similar to the Dubai International Financial Centre (DIFC) and Qatar Financial Centre (QFC). These two centres are not exclusively for Islamic finance but are certainly engaged in the promotion of the IBF. The Malaysian International Islamic Financial Centre (MIFC), on the other hand, follows a different model to the DIFC and QFC, and is a virtual body connecting Ministry of Finance, Bank Negara Malaysia (the central bank), the Securities Commission Malaysia, other bodies in the government and international organisations. Pakistan should start with this model, eventually setting up a physical centre of excellence exclusively for IBF. This centre could be hosted on the outskirts of Islamabad as a ring-fenced financial centre like DIFC and QFC. The proposed special adviser to the prime minister on IBF should be given the task of developing a framework for setting up such a centre, among other things listed above.
The writer is an Islamic economist with PhD from Cambridge University.

Monday, July 28, 2014

Kenya's KCB to offer Islamic banking in all its branches

Kenya's KCB Bank, the country's largest lender by assets, plans to offer Islamic banking products through its entire branch network, accelerating the expansion of sharia-compliant banking in east Africa's biggest economy.
The move comes after Kenya's Capital Market Authority proposed a separate regulatory framework for Islamic finance, part of a broader strategy designed to boost the country's capital markets.
KCB has received all necessary approvals to launch Islamic banking across its 182 branches in the country, chief executive Joshua Oigara said in a statement. "In the long term, the product will...promote development in the marginalized areas of our country," Oigara said.
The lender will initially roll out Islamic banking services through seven branch centers, beginning from next month.
KCB joins Standard Chartered in offering Islamic banking services in Kenya, after the British lender launched its "Saadiq" brand in March.
Islamic finance, which follows religious principles such as bans on interest payments, accounts for roughly 2 percent of total banking business in Kenya, where Muslims make up about 15 percent of the population of 40 million.
There are currently two full-fledged Islamic banks in Kenya - Gulf African Bank and First Community Bank (FCB) - as well as Islamic banking services at several conventional lenders.
KCB, which operates across east Africa from Burundi to South Sudan, already offers Islamic banking services in Tanzania.
Islamic finance is also being developed by several other sub-Saharan countries in Africa such as Nigeria and Djibouti.

In June, Kenya's finance minister said the government would consider issuing Islamic bonds, or sukuk, after a successful debut $2 billion Eurobond.

EiD Greetings from AlHuda Centre of Islamic Banking & Economics

Saturday, July 26, 2014

Islamic Financing To Overtake Conventional Banking In Kuwait

Commercial Bank To Provide Shariah-Compliant Products And Services

KUWAIT CITY, July 24: An increasing number of Kuwaiti lenders are moving away from traditional banking in a bid to tap into a booming market for Shariah-compliant financial products in the region — a move that could soon see Islamic financing overtake conventional banking in the Gulf state.
Commercial Bank of Kuwait (CBK) is the latest to unveil plans to turn into a fully-fledged Islamic institution. CBK announced in July that it had received regulatory approval to issue up to KD120m ($425.16m) in bonds in preparation for the transition, which received the approval of 85% of its shareholders in April. 

The move by CBK, to be completed by the end of 2014, will help Kuwait cement its position as a provider of Sharia-compliant products and services. There are already five other Kuwaiti Islamic banks; Kuwait Finance House (KFH), Boubyan Bank, Al Ahli United Bank, Kuwait International Bank, and Warba Bank, which was established in 2010. This compares with four conventional banks.
Kuwait’s Islamic banking assets grew by 8.7% during the first nine months of 2013, reaching KD22.5bn ($79.7bn), while Islamic financing grew by 11.2% to hit KD13.5bn ($47.8bn) during the same period, reported in The Banker in April. This exceeded the growth rates in the overall banking sector, which saw a 7.1% growth in assets and a 7.5% growth in loans between January and September. 
This move toward Islamic banking follows a broader regional and indeed global trend. Islamic finance industry’s assets worldwide are estimated to have grown 18.6% annually to reach $1.8trn at the end of 2013, according to KFH Research, which projects that total Islamic financial assets will reach $2.1trn globally by 2015. 

The Sharia compliant sector has expanded rapidly within Southeast Asia and the Gulf Cooperation Council (GCC), whose assets accounts for more than a third of the worldwide total according to KFH. Other banks in this region are also looking to make the switch to Islamic banking. Malaysia’s Agro Bank plans to convert to Islamic banking by 2015 while the country’s SME Bank is planning a full conversion by 2018 according to Reuters. In Pakistan, Faysal Bank and Summit Bank are mulling similar plans. 

In Kuwait, the sector’s history goes back to 1977 with the establishment of KFH Group, Kuwait’s largest Islamic bank. For the last three years to end-2013, KFH total assets grew at a compounded annual growth (CAGR) rate of 8.8% to reach KD16.1bn ($57.2bn).
CBK, the state’s fifth-largest lender by assets, is following in the footsteps of both Boubyan Bank and Ahli United Bank (AUB) Kuwait in converting from a conventional lender, drawn by the sector’s rapidly rising popularity and promising outlook for growth, which continues to outpace that of conventional lenders. According to Reuters, CBK’s conversion will increase Islamic banks’ market share in Kuwait above an estimated 40%. 
AUB Kuwait, (formerly known as the Bank of Kuwait and the Middle East) posted a record $579.4m in net profit in 2013, a 72.6% increase over 2012’s $335.7m, which Deputy CEO Ahmed Zulficar attributed to the switch to Islamic Banking: “Since the bank’s conversion to Islamic banking, our performance has improved”. 

Islamic finance expert Blake Goud, who writes for the Thomson Reuters Islamic Finance Gateway, noted that AUB had no debt when it switched to Islamic banking in 2010, which was beneficial due to the fact that less instruments had to be converted from conventional to sharia-compliant. 
As a result, it had converted the majority of its loans and advances to sharia-compliant financing by the end of its first year as an Islamic Bank. 
“Contrast that with a similar balance sheet from CBK which has significant assets and liabilities under a year, but will now have a sizeable additional interest-based liability longer than one year (17% of existing liabilities) that will remain on its balance sheet post-conversion,” said Goud.

Wednesday, July 23, 2014

Q&A: H Abdur Raqeeb on The Need for Islamic Banking in India

India's central bank is reviewing regulations on Islamic banking in Asia's third-largest economy.
The Reserve Bank of India has set up an internal committee to examine the matter, unnamed sources told Firstbiz.com.
The RBI has reportedly set up a three-member panel comprising senior RBI officials Rajesh Verma, a deputy general manager with the Department of Banking Operations, Archana Mangalagiri, general manager, Non-banking Supervision and Bindu Vasu, joint legal adviser.
Islamic banking is practiced in several countries, including in the UK, which in June issued an Islamic bond that attracted orders in excess of £2bn ($3.4bn, €2.5bn) from global investors.
What is Islamic Banking?
Islamic banking follows the Shariah law. The model differs from conventional banking in that it does not accept deposits, only investments, which essentially make banking a venture capital activity. The model also encourages interest free loans in a bid to boost financial inclusion.
Islamic banking is also based on profit and loss-sharing; the model forbids the payment and receipt of interest and prohibits investment in businesses that are considered sinful – such as adult entertainment or the production of alcohol.
Speaking to IBTimes UK, H Abdur Raqeeb, General Secretary of the New Delhi-based Indian Centre for Islamic Finance  (ICIF) told us how India stands to benefit from the roll out of Islamic banking.
Q: Do you think that India is a key place for growing the Islamic banking market and why?
Ans: The misconception among many Indians is that Islamic banking caters to only the Muslim population. The model promotes financial inclusion. India's small farmers and petty traders for instance are still not part of the banking system despite over 40 years of nationalisation of the country's major banks. They cannot go to the capital markets to raise money. Islamic banking can cater to [the millions] outside the commercial banking system.
In addition, Muslims' savings are not being ploughed back into the Indian economy as a large section of the Muslim population here does not bank with commercial lenders.
Q: What needs to be done in terms of rolling out Islamic finance in India?
Ans: Political will is necessary. The government has to take a decision on Islamic banking and the RBI has to regulate it. The central bank has to look into it.
We have been pleading with the government and have met Finance Ministry officials in the previous [Congress Party-led] regime.
Moreover, we don't have to use the term 'Islamic banking' in India. We can refer to it as alternate banking, which is what the UK calls it. Or, we could call it participatory banking, which is what they call it in Turkey.
Q: But, if India adopts Islamic finance on a broader scale, will this mean that a lot of the legal framework will have to change?
Ans: Not much actually. We in India can borrow and benefit from examples of Islamic banking in the UK or in Singapore.
India Reforms
The question about whether India should allow Islamic banking has been debated for long and RBI Governor Raghuram Rajan is no stranger to the debate.
In 2008, India's Planning Commission roped in Rajan, then a Professor at the University of Chicago, to head its High Level Committee on Financial Sector Reforms (CFSR).
The CFSR, tasked to identify 'real sector reforms', recommended that New Delhi 'permit the delivery of interest free finance on a larger scale, including through the banking system.'

Monday, July 7, 2014

Islamic Banking VS Conventional Banking

Islamic banking has developed  recently.  Put forward  to be having high ethical criterions, the banking system upraises questions from many.  First of all, we should answer some questions like that in this field.   Are these standards just a sham —a smart  way to hide  that Islamic banks are basically like any other?  Are they a real attempt to reunite religious principles with finance in a capitalist world?
To answer if Islamic banking is totally different from the conventional banking system, we  should know the history of  this  interest-free  banking system.
Origin of Islamic banking
The most important property  of Islamic banking is its banning  of  interest. Doing business  without the use of interest-bearing loans, in the form of Mudaraba rules, advances the coming  of Islam.
Before Islamic period, Arabs  in Mecca, close to the crossroad  of old commerce  routes, coordinated  caravans to carry  goods between Syria and Yemen.  The Meccan merchants  sometimes  used agents to deliver the goods, buy, sell and report back with the numbers for profit or loss.  Later on, it  was  shared according to the traditional  principles  of Mudaraba.
When a merchant  united with others in a shared trading initiative, the profits or losses were shared, under an another principle called Musharaka, suitable  for an agreement between participating sharers in a trade.  Therefore,  the trading caravans were capitalized with  the principle of  sharing profits or losses, not by interest-bearing loans.
Smaller communities
Before modern banking system becomes popular, Mecca was a quite small town, and the forming  a trade caravan was a principal  occasion.  The travelers and their patrons were acquainted  with one another’s general fame  and status, and possibly knew each other as a  person.  That continued true of societies in the early Muslim period.
But, society is more disunited in today’s world.  Rich people  to invest do not need to know anybody  with an  initiative  that requires capitalizing, and people who have trade thoughts may have no contact  with possible investors.
The conventional banking system has grown up to intercede  between the groups of people, enterprisers and investors.  To exist, the banks obviously  have  to make a profit.
Prohibition on interest
The prohibition of  interest (riba) on loans in Islamic banking system is well known.  Riba is considered as haram, or forbidden in Islam.  But to operate  a bank needs  to charge some fees for its services.  For conventional banks, a principal  of profit is from revenue that is obtained from charging interest.
In contrast, Islamic banks make their profits in other ways such as ‘profit-sharing’.  Is it possible for Islamic principles of profit-sharing rather than interest taking to transfer from the  trading caravans to the anonymous banking system that we experience now?
The old systems of Musharaka and Mudaraba survive in the modern Islamic banking system.  They both refer to ways of sharing risk and reward in place of remuneration at a fixed interest rate.
Mudaraba is used for a more passive kind of investment or participating, in which  one side supplies capital or goods, and  the other side  carries out the work necessary  to gain  a profit.
Musharaka presents  a more active investment style by a person  who is either a partner in the business or  a supplier of money.
A very distinct  difference of the Islamic banking system over conventional banks is on the sharing of risk, that is equally spread to either the lender or borrower.

Thursday, July 3, 2014

Islamic Banking Sector in South Africa shows healthy growth

ABOUT half of Africa’s population is Muslim and businesses are gearing up to meet the needs of this growing market with Islamic finance and banking products.
Just less than a decade since the market was created, the local Islamic banking sector is estimated to be worth R80.6-billion in terms of assets under management.
On the African continent, the market’s assets are estimated to be more than $1.6-trillion (about R17-trillion) and are expected to surge to more than $5-trillion by 2020. These numbers may seem a stretch, but Africa is home to more than 500 million Muslims — about a quarter of the world’s Muslim population.
The growth of Islamic banking has not gone unnoticed by the National Treasury. Earlier this year during the budget speech, former finance minister Pravin Gordhan revealed that South Africa will launch Islamic bonds — better known as sukuk — before the end of the year. Sukuk are normally based on property or infrastructure and are designed to pay a fixed profit rate rather than a coupon.
Absa, FNB, Al Baraka Bank and HBZ Bank offer Islamic commercial and corporate banking products in South Africa.
Standard Bank has Islamic banking offerings in other countries on the continent, and Nedbank is rumoured to be assessing the possibility of dipping its toes into the market.
Islamic banks do not require their clients to be Muslims. “We are not pushing a religion here. We are pushing a [financial] product that has certain requirements,” said the head of Islamic banking at Absa, Uwaiz Jassat.
Those requirements have to be compliant with sharia law, which prohibits the taking and receiving of interest and also rules out certain other practices in conventional banking.
For example, when Islamic banking clients deposit money in their savings accounts, the lender will then trade the money to earn a return on it and those returns are shared with the customers.
Jassat said this method sometimes beat the return on a conventional interest-bearing savings account.
Last year, the returns for Absa Islamic banking saving accounts were 2% higher than for conventional ones.
So it is not surprising that more people are opting to switch to Islamic banking. About 10% of Absa’s Islamic bank customers are non-Muslim. Although Absa’s Islamic banking division is relatively small, its contributions are quite significant to the parent company’s bottom line, according to Jassat.
Al Baraka, the first stand-alone Islamic bank to operate in South Africa with a full bouquet of financial products, has more than 40 000 customers.
Al Baraka, whose parent company is based in Bahrain, has eight branches nationwide, most of them in Muslim communities. Last year, total assets grew 18.7% to nearly R4.4-billion, and advances swelled 13.1%. Al Baraka’s deposit book grew 18.6% to R619.1-million and the equity finance book increased 23.1% to R126.6-million.
Al Baraka’s CEO, Shabir Chohan, said about 30% of the Muslim population — which is estimated to be more than two million strong in South Africa — was using Islamic banking products provided by local banks.
The total Islamic banking sector in South Africa is estimated to be worth as much as R12-billion. Chohan said this meant his bank had the potential to grow eight to 10 times its current size.
Absa’s Islamic banking division is eager to introduce vehicle and home-loan products. Jassat said that once more products were introduced, “customer numbers will skyrocket”.
However, if it does not move fast, it might end up eating its rivals’ dust. FNB’s Islamic banking unit already offers these products and recently launched a term-deposit product.
The CEO of FNB’s Islamic banking unit, Amman Muhammad, attributed the success of FNB’s Islamic banking products to the fact that they were underpinned by strong values and principles that, he said, covered much more than just finance.
Much like Absa, which is controlled by Barclays, FNB has its sights set on expansion beyond South Africa’s borders.
“Africa provides a large opportunity for growth,” said Muhammad. “Muslim entrepreneurs play an important role in the African economy, so the need to provide appropriate financial services through the correct channel is paramount.”

Friday, June 27, 2014

Al Huda CIBE extending its services to the USA market

Al Huda CIBE extending its services to the USA market
Islamic Banking & Finance has a Bright Future in the United States: Zubair Mughal

(Lahore) AlHuda Center of Islamic Banking and Economics (CIBE), continuing its commitment to bring Islamic finance to the United States, announces a joint-training workshop in Islamic Banking and Finance in conjunction with FAAIF and the University of New Orleans on October 06 and 07, 2014 in New Orleans, Louisiana, USA.  Al Huda CIBE, having conducted hundreds of successful training workshops all over the world is excited to enter the American markets to bring fascinating and complex Islamic finance and banking products and structures to the citizens of the United States. 

Muh. Zubair Mughal, Chief Executive Officer of AlHuda CIBE, said that Islamic Banking and Finance has immense potential in the USA market and it has come up with a blooming prominence after the emergence of International financial crisis, thereafter Islamic financial system has appeared as a sustainable and reliable financial system in the world which does not have such flaws which were the root causes of International financial crisis. He mentioned that about more than 30 Islamic financial institutions are operating in the USA but the potential is much higher as USA is suppose to be regional hub for North America, South America, Latin America and Caribbean countries, a handsome demand of Islamic financial products already exist in Brazil, Argentina, Canada and others countries. American continent is dwelling 8 million approx Muslim population, amongst them Canada have 2% Muslim Population, 0.8% of the U.S. population, Muslims constitute about 1 percent of the North American population and Argentina has the largest Muslim population in Latin America with up to 2% of the population, which shows a big appetite of Islamic financial products in the region.

He mentioned that we have chalked out a detailed strategy to penetrate into the region with our services and this workshop is our entry point to introduce Islamic financial services in this region. He also mentioned that the collaboration of University of New Orleans and FAAIF for upcoming workshop will further strengthen our vision to achieve our optimum goal for the development of Islamic finance Industry.

FAAIF CEO Camille Paldi is looking forward to this tremendous opportunity to bring Islamic finance to the people of the United States, which is her home country, and she is very much hopeful that the American people are just as excited as she is about learning this distinct form of Holy Book finance.  Not only does Paldi hope to enrich the lives of US citizens, she aims to help US companies stay competitive in the International financial markets and keep America strong #

Thursday, June 5, 2014

AlHuda CIBE Eyes African Islamic Finance Market

AlHuda Centre of Islamic Banking and
Economics (CIBE) chalks down the strategy to offer its services in African
countries to promote Islamic banking and finance through consultancy, Research,
education and capacity building where there is an excellent potential related
to this industry. This was said by Mr. Muhammad Zubair Mughal, Chief Executive
Officer, AlHuda CIBE, while talking to the media in the opening ceremony of “6
months road map for the strategy of Islamic Banking and Finance in Africa”.
According to the strategy, AlHuda CIBE will begin different initiatives on 15
African countries from June 2014 to December 2014. In this, AlHuda CIBE will
establish Islamic microfinance institutions; will offer Takaful consultancy
services, technical and Shariah support, and help giving education and capacity
building to the relevant personnel. AlHuda CIBE has also chalked the plan of
organizing “African Islamic Banking and Finance Road Show 2014” in 6 African
countries i.e.
South Africa, Tunisia, Kenya, Mauritius, Tanzania and Nigeria for the awareness and
remove the capacity constraint from the mentioned countries.

He further added that
this is quite a wrong conception that Islamic finance is only taking its roots
in North African countries e.g. Tunisia, Morocco, and Algeria etc, rather its
potential exists in all African continent. Islamic banking and finance is
growing rapidly in Nigeria, Libya, South Africa, Kenya and Morocco, while Egypt,
Sudan, Tunisia have already taken good initiatives in the mentioned field. He
said that there is also a rising trend of Islamic banking and finance in
Senegal, Mauritania, Uganda, Ghana and Ethiopia. He said, to tap the African
Islamic finance market in better way, Alhuda CIBE has been incorporated in
South Africa, Uganda and Dubai to provide better and prompt services to their  clients according to International standards.

Analyzing Islamic financial
industry of Africa, he added that, according to a careful estimate the total
volume of Islamic finance in Africa is 78 Billion USD, which is less than 5%
share of global Islamic finance industry, out of that Islamic Banking have 81%
share, Islamic Fund 7 %, Sukuk 5 %, Takaful 6%, and Islamic microfinance have only
1% share in the African Islamic Finance Industry,  while  96+
Islamic banks, 29 Islamic Funds, 31 Islamic Microfinance Institutions and more
than 41 Takaful companies are working over there.

He also emphasize that
the increasing trend of poverty in Africa can be reduced by utilizing Islamic
Microfinance methodology, the multilateral organizations e.g. African
Development Bank, Islamic Development Bank, GIZ, IFAD and world bank can play a
pivotal role in this direction to achieve the optimum goal of poverty
alleviation and social development #