5 Interactive Distance Learning Programs on Islamic Banking and Finance

Monday, September 29, 2014

Dubai Islamic Economy Development Centre to launch State of the Global Islamic Economy Report 2014

The report will also highlight key local and global findings of the Global Islamic Economy Indicator (GIEI), a numeric measure representing the overall health and growth of the Islamic economy. An independent multi-dimensional barometer, the GIEI defines the development of the global Islamic economy beyond the growth of its assets, focusing on awareness, governance and social metrics.
His Excellency Mohammed Abdullah Al Gergawi, Chairman of the DIEDC Board, said: “The UAE and more specifically Dubai’s Capital of Islamic economy model mandates us to assume a leadership role in developing knowledge and cultivating an understanding of the Islamic economy and the various forces driving its growth. The 2014 State of the Global Islamic Economy report provides fresh insight into the challenges and opportunities emerging within economic sectors that are critical to the long term prosperity of Muslim majority countries and the wider global economy.”
Commissioned by the DIEDC, the 2013 edition of the State of the Global Islamic Economy Report that was also developed in association with Thomson Reuters, was a ground-breaking report that, for the first time, took a holistic view of the global Islamic economy across the seven key Islamic economy sectors, highlighting the convergence opportunities globally. The report, which was launched at the Global Islamic Economy Summit (GIES) in Dubai, in November 2013, received industry-wide attention regionally and globally and has been used as a reference point for understanding the impact of the Islamic economy on the global economy.
His Excellency Essa Kazim, Secretary General of DIEDC, said: “The State of the Global Islamic Economy Report 2014 will be a guiding tool for all stakeholders and investors to further understand the huge economic potential, as well as the challenges of building an Islamic economy hub. The findings of the 2014 report will define a new wave of opportunities for commerce within the Islamic economy.”
Abdulla Mohammed Al Awar, CEO of the Dubai Islamic Economy Development Centre, said: “The State of the Global Islamic Economy Report 2014 will catalogue the developments that have taken place within the Islamic economy over the past 12 months, as well as providing a comprehensive picture of the important trends that are gathering momentum across the full spectrum of the Islamic economy. I am confident that its findings will help facilitate investments and industry growth, providing a solid framework for businesses to assess and evaluate market opportunities for each sector of the Islamic Economy.”
SOURCE: http://www.cpifinancial.net/news/category/islamic-finance/post/28419/dubai-islamic-economy-development-centre-to-launch-state-of-the-global-islamic-economy-report-2014

Thursday, September 25, 2014

Islamic Banking and Finance in New Orleans

FAAIF Announces a Two Day Workshop on Islamic Banking and Finance in conjunction with AlHuda CIBE and the University of New Orleans, October 6-7, 2014 

FAAIF enters the US markets with Islamic Finance. 

FAAIF, continuing with its commitment to bring Islamic finance to the United States, announces a joint-training workshop in Islamic Banking and Finance in conjunction with the Al Huda Center of Islamic Banking and Economics and the University of New Orleans October 6 and 7, 2014 in New Orleans, Louisiana, USA. 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 hopes 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. 

Paldi mentioned that the global Islamic financial industry is a billion dollar industry and suggests that the USA should become involved on a wider scale in order to attract funds into the United States and maintain the USA’s status as a strong force in the international economy. In addition, Paldi would like to see economic rejuvenation in depressed areas of the United States and sees Islamic finance as a tool of the people for social uplift and expansion of life opportunities. Paldi explains that Islamic finance is based on a form of interest-free Holy Book financing and profit and loss sharing where the bank acts as a finance house rather than a loan house and where the bank and borrower enter into more of a business partnership rather than a creditor/borrower relationship. Paldi elaborates that this model of finance allows the economy to grow rather than stagnate and decline from excessive debt and limits the use of destabilizing financial instruments such as derivatives. Paldi emphasizes that the life of the average American has become weighed down by a cycle of debt, which may become a lifetime trap for an American, making life more difficult than necessary. She also reveals that Islamic Finance can help the small to medium businessman/woman in times of massive corporate expansion. 

FAAIF CEO Camille Paldi is a US citizen who has lived in the United Arab Emirates for six years and has spent many years training in Islamic finance and Shariáh abroad in addition to having qualified as a lawyer in four countries. 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 citizens of the United States. Contact camille@faaif.com or info@alhudacibe.com for registration. Event Website: http://www.alhudacibe.com/usa2014/


Lawyers, Bankers, Academics, Students, Knowedge-Seekers.


Investment Banking, Finance

Monday, September 22, 2014

Islamic Finance goes Global, but Malaysia still leads the way

Islamic finance is going global. South Africa has joined the UK and Hong Kong to become the third non-Muslim country to issue an Islamic bond or sukuk. And this follows American investment bank Goldman Sachs raising US$500m from its first Islamic bond sale. These moves reflect the desire to effectively tap into the wealth of Muslim investors around the world.
Fuelled by booming industries in the Middle East and South-East Asia, the Islamic finance industry is booming. Forecasts estimate it will double over the next five years to more than US$3.4 trillion. The two global centres for it are currently Malaysia and the UAE (where Goldman is issuing its sukuk). But London too has staked its claim on standing alongside Dubai and Kuala Lumpur.
Playing host to the 9th World Islamic Economic Forum last year, London appeared to make a deliberate challenge to rival the traditional Islamic financial powers. Opening the forum, David Cameron said:
"London is already the biggest centre for Islamic finance outside the Islamic world … I want London to stand alongside Dubai and Kuala Lumpur as one of the greatest capitals of Islamic finance anywhere in the world"
London followed this up by launching a £200m sukuk in June 2014 and a groundbreaking new Islamic index on the London Stock Exchange. But can the non-Muslim power really challenge the traditional centres and how do they compare?

Malaysia’s market share

In terms of market share, Malaysia leads the pack with 16 fully-fledged Islamic banks including five foreign ones. Its total Islamic bank assets total US$135 billion (£82.7 billion), which accounts for 21% of the country’s total banking assets. By comparison the UAE has seven fully-fledged Islamic banks accounting for US$95 billion of assets and this represents around 19% of its total banking sector. Meanwhile, the UK has just six Shariah-compliant financial institutions, with total assets of US$19 billion.
If we focus on Islamic capital market development, Malaysia is once again a long way ahead of its competitors. The country boasts more than 60% of the global sukuk market amounting to US$164 billion worth of outstanding sukuk in the first half of 2014. London on the other hand has US$38 billion of outstanding sukuk raised through 53 issues on the London Stock Exchange since 2009. Dubai fares the worst with just US$21.08 billion as of May 2014 in sukuk on its exchanges. In fact state-owned companies in the UAE have gone to London to seek further capital.
But Goldman Sachs' debut sukuk was, of all the favourite Islamic finance locations, listed on the Luxembourg Stock Exchange. Intent on avoiding the controversy of their failed 2011 sukuk, Goldman this time adjusted the sukuk structure and enlisted several heavyweight Gulf banks including Abu Dhabi Islamic Bank, the National Bank of Abu Dhabi, Dubai’s Emirates NBD Capital and the investment banking arm of Saudi Arabia’s National Commercial Bank to arrange the sale.
This is only the second such deal from a conventional bank outside a predominantly Muslim country and so a significant step in Islamic finance going mainstream. It will also act as a big boost for GCC investment banks and give one more thumbs up for Dubai as the centre for Islamic finance.
Malaysia is also way ahead when it comes to regulating Islamic finance. Malaysia passed an authoritative Islamic Financial Services Act in 2013, which built on its earlier Islamic Banking Act of 1983 to oversee operations within the country. Dubai, London and other would-be centres meanwhile both rely on their common banking law with some Islamic finance add-ons to govern Islamic finance operations.

Islamic finance future

In relation to the Islamic finance education infrastructure, the UK is actually ahead of the game. The UK has been ranked as the global leader in Islamic finance education with more than 60 institutions offering Islamic finance courses and 22 universities offering degree programs specialising in Islamic finance.
Malaysia and the UAE followed. Malaysia has 50 course providers and 18 universities offering degree programs, while the UAE has 31 course providers and nine universities offering degree programs. But when it comes to research output in Islamic finance, Malaysia stood first with more than 100 peer-reviewed research papers released in the past three years. The UK followed with 56 peer-reviewed research papers and there was no data available for the UAE.

Under threat

Based on the above observations, it is apparent that Malaysia is still the superpower of Islamic finance. But with the recent developments in the rival centres this position is going to be under continuous threat.
The Islamic Development Bank has set up a US$10 billion sukuk issuance program on the Nasdaq Dubai exchange that will be a big boost to Dubai’s efforts to become a top centre for Islamic finance. And London, which is already a global financial centre, is making its moves to bolster Islamic finance from education to cultivating relationships with Muslim banks and investors.
Malaysia, however, still has the advantage of a vibrant market in sukuk issuance, thanks to the Islamic hinterland of southeast Asia and a good reputation for strong Islamic finance regulation. So, it’s not a surprise that other international banks are going there to do business. And we can expect this to continue for the foreseeable future. But how Malaysia reacts to its competitors and can maintain its position is another matter.

Source: http://theconversation.com/islamic-finance-goes-global-but-malaysia-still-leads-the-way-27347

Thursday, September 18, 2014

Major opportunities with Islamic Finance: Maldives Monetary Authority (MMA) Governor Dr Azeema Adam

Speaking at opening ceremony of Maldives Islamic Banking and Finance Industry (MIBFI) conference on Wednesday, Chief Guest of the ceremony, MMA Governor Dr Azeema Adam said that Islamic finance models were being successfully implemented all over the world and that the start of Islamic financing in Maldives looked promising for the future of Maldives finance industry.
“Islamic finance provides solutions to problems in conventional financing models. It is therefore something that needs to be developed in Maldives. There is room for development [with Islamic finance] in Maldives as well,” said Dr Azeema.
She said that discussions and new ideas were needed to develop Islamic financing and noted the need for future plans to do so.
The governor noted the geographical distribution of Maldives as the major obstacle to providing banking services to all citizens of the country. She said that they had not been able to cover all areas of the country as Maldives was distributed into hundreds of islands, and because it wasn’t feasible to establish a bank in each and every island.
She said that the solution to the problem was in applying modern innovative principles in providing banking services, and called out to financial industry to adopt such principles in providing banking services to the remaining islands.
“Banking services can be widened to the whole country through innovative thinking. Financial industry should, too, look to expand services through modern ideas and philosophy,” she said.
Organized by UTO EduConsult, the conference is being attended by both Maldivian and international financial institutions.

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.'