5 Interactive Distance Learning Programs on Islamic Banking and Finance

Thursday, October 23, 2014

2nd Public Lender to set up Islamic Bank

The government sent Parliament a draft for a change in laws regulating the Turkish banking sector on Monday. The anticipated changes would involve plans to allow public bank Vakıfbank to set up the country's second anticipated Islamic public lender, after Ziraat Bankası. Ziraat received regulatory approval from the Banking Regulation and Supervision Agency (BDDK) last week to establish an Islamic bank. The moves are part of government efforts to develop the Islamic banking sector at home.
Ziraat, the country's largest state-run bank and its second-largest in terms of assets, will be allowed to set up a standalone Islamic unit with $300 million in capital, the regulator said late on Wednesday. Meanwhile, Turkish media speculated on Monday that, Emlak Bank, a lender which was transferred to Ziraat Bankası during Turkey's 2001 domestic financial crisis, would be reactivated as part of the Islamic bank plans. Emlak Bank, established in 1926, failed in 2001 and has since been in a liquidation process, with its operations being carried out under Ziraat.
There are currently four Islamic banks operating in Turkey, which hold a combined 5 percent share of total banking assets: Albaraka Türk, Bank Asya, Türkiye Finans and Kuveyt Türk, a unit of Kuwait Finance House.
Islamic finance has developed slowly in Turkey, the world's eighth most populous Muslim nation, partly because of political sensitivities and the secular nature of its laws. This changed in 2012, when the Turkish government issued its debut $1.5 billion Islamic bond and kick-started regulatory moves to allow wider use of Islamic finance contracts. The government has since issued dollar and lira-denominated Islamic bonds and is finalizing plans for another deal.
Source: http://www.todayszaman.com/anasayfa_2nd-public-lender-to-set-up-islamic-bank_362108.html

Friday, October 17, 2014

The Basics of Sharia Finance explained

Let’s say you need some money to start a business. You approach a bank offering conventional non-Sharia finance and they give you a loan. Whether or not you turn a profit or your business fails, you must still make payments to the bank with interest. With compound interest, the longer you take to pay off the loan, the more interest you pay. So if your business loses money, the financial difficulty you’ll face will be even more severe. You’ll have no income from your business and the bank can take legal action against you. This is the reality of debt. The bank earns a surplus without having to assume risks and obtains the added income through interest, making money on top of money; getting extra from the interest just because they were in the position to lend.
The distinction in Sharia finance is clear. It aims to protect all parties, ensuring that transactions are done according to Sharia principles, on fair grounds and for the benefit of the community. Profits must be generated through trades and economic activities in the real economy (see box). In addition, business risks must be shared rather than transferred to borrowers when they take out a loan.
Real Economy
This refers to sectors of the economy concerned with actually producing goods and services, as opposed to the part of the economy that is concerned with buying and selling on the financial market
Source: Financial Times
As the Sharia prohibits dealing with interest, the products that you see in Islamic banks are generally based on one of the following concepts:
Profit Sharing  – These are profit sharing arrangements in which the financier and the receiver of funds will share the profits and loss borne from the partnership. An example is a savings or current account called Mudarabah. When you deposit money into the account, profit is given to you based on the performance of the bank. The bank needs customers to place funds with them so that they can make a profit from having received customer deposits.
Buy and Sell – Charging a profit is justified when selling a product because of the risks associated with developing, sourcing and owning the product. Buying and selling of products can be done when you require funds. Because there is no borrowing or lending arrangement, the term ‘loan’ is not used in Islamic banks. Instead, the term ‘financing’ is preferred. For a personal finance arrangement, a bank generally follows a Murabahah contract where you agree to buy from the bank commodities – metal, for example.
This is how it’s done:
I. Let’s say you require $10,000 cash. You apply for personal financing from the bank, which sells you commodities worth this amount. They charge you, for example, $10,700, with $700 being the bank’s profit.
II. At this stage, you own $10,000 worth of commodities. Next, the bank arranges to sell these commodities to a third party on your behalf. The bank then gives you the $10,000 cash, providing you with the funds you needed.
III. You now owe the bank $10,700, which you will pay in instalments until the entire sum is paid off.
Unity and social cohesion are so central among the objectives of the Quran for humankind that all conducts prohibited may be regarded as those that cause disunity, and those prescribed are to promote social cohesion. It is a natural consequence of such a system to require risk sharing as an instrument for social integration. Therefore promoting maximum risk sharing is, arguably, the ultimate objective of Islamic finance.– From the book Risk Sharing in Finance:The Islamic Finance Alternative by Hossein Askari, Zamir Iqbal, Noureddine Krichene and Abbas Mirakhor
The system envisioned by the Qur’an does not reward the rich at the expense of those in need of funds
Instead of the financier just providing funds and expecting a payment, the parties of the contract are expected to cooperate and work together, ensuring solidarity is created in the community. Those in need of help in business or trade activities should be duly supported.
The system envisioned by the Qur’an does not reward the rich at the expense of those in need of funds. This is why compound interest is prohibited, as it ensures that a brother or sister who needs help is not exploited in times of hardship. In trade, there is real movement in economic activity. The buy and sell arrangement, for example, gives the supplier of the product a chance to earn an income from selling their goods.
Sharia finance also prohibits unfair practices in transactions. The notions of fairness and justice are the cornerstone of all its activities. Products that are full of uncertainty or based purely on chance, speculation or gambling one’s positions all boil down to making money on top of money without justification. This is unfair, and is evident in the global financial crisis. A group of people benefited from manipulating transactions, causing others to face financial difficulty as a result.
Another feature unique to Islamic banking is the presence of Sharia scholars who advise and govern matters relating to the Sharia. The extent of their involvement varies between regions. In the UAE, for example, scholars govern the products of the bank and how they are implemented. In Saudi Arabia and Malaysia, however, scholars oversee products and the bank’s entire operations to ensure that they do not contravene the Sharia. Regardless of the model adopted, whenever Sharia non-compliance is found, the bank cannot profit from a transaction that was done against Sharia principles. The profit would have to be purified by giving to charity.
The Islamic financial industry is still in a development phase and is a system that is not without its own set of issues. These include limited customised infrastructure to support its model, as well as differing regulatory standards that have resulted in different practices across countries. But in a world so heavily entrenched in debt and unfair practices, it may be worth our while to appreciate the potential that Sharia finance has for true risk sharing and mutual cooperation.
Source: http://www.aquila-style.com/lifestyle/sharia_finance/basics-sharia-finance/82533/?ref=sidebar

Monday, October 13, 2014

SUKUK PIPELINE - Issue plans around the world

DUBAI, Oct 12 (Reuters) - Following are major Islamic bond issues in the global pipeline.
The Thomson Reuters Global Sukuk Index is at 115.16353 points, up from 114.41171 at the end of last month and 109.78969 at the end of last year. The Thomson Reuters Investment Grade Sukuk Index is at 113.13021 points, against 111.97123 at end-September and 107.28036 at the end of 2013.
ETISALAT - Abu Dhabi-based telecommunications firm Etisalat is planning its first sukuk issue, bankers told IFR in early October. The company will have the documents ready in coming weeks, but the deal is more likely to be launched in early 2015, they said.
TUNISIA - Tunisia has sent banks a request for proposals for a debut U.S. dollar sukuk transaction, market sources told IFR in early October. The sovereign hopes to complete it by end-2014, one source said.
BANK ISLAM - Malaysia's Bank Islam, wholly owned by BIMB Holdings, has set up a 1 billion ringgit ($307 million) subordinated sukuk programme to boost its regulatory capital, RAM Ratings said in early October.
BINTULU PORT - Malaysia's Bintulu Port Holdings is expected to prepare for its planned Samalaju Port project with a proposed sukuk issue, likely to be 700-800 million ringgit, The Edge daily reported in early October.
TURKEY - Turkey wants to make an international sovereign sukuk issue annually, but has not yet made final plans for a sukuk this year, a Treasury official told IFR in early October.
1MDB - Malaysia sovereign fund 1Malaysia Development Bhd (1MDB) will raise 8.4 billion ringgit with Islamic bonds to build a power plant, IFR reported in early October.
WCT - Malaysian construction firm WCT Holdings will raise up to 1.5 billion ringgit through sukuk to refinance debt, pay working capital and capital expenses, Malaysian Rating Corp said in late September.
MALAYSIA MARINE - Malaysia Marine and Heavy Engineering said in late September it had received approval from the Securities Commission to establish a sukuk murabaha programme of up to 1 billion ringgit.
TURKIYE FINANS - Turkiye Finans Katilim Bankasi plans to issue $50 million worth of ringgit-denominated sukuk in Malaysia by year-end to diversify its funding base, chief executive Derya Gurerk told Reuters in late September.
DIFC INVESTMENTS - DIFC Investments, the investment arm of the company running Dubai's financial free zone, is looking to raise as much as $700 million before the end of October by issuing a sukuk to help repay existing debt and fund real estate development, its top executive said.
MAHCO MALAYSIA - Mahco Malaysia, a vehicle to issue sukuk for Mohammed Othman Al Houkail Trading & Contracting Co, a medium-sized contractor in Saudi Arabia, proposed an Islamic medium-term note programme of up to 300 million ringgit, RAM Ratings said in late September.
CENDANA SEJATI - Malaysia's Cendana Sejati, a unit of local bank Masraf Al Barakah, proposed a 360 million ringgit senior sukuk murabaha medium-term note programme, RAM Ratings said in late September.
INDONESIA - Indonesia's finance ministry will hold an auctions of project-based sukuk as well as six-month sharia T-bills on Oct. 21.
AGAOGLU - Turkish construction-to-energy Agaoglu Group plans to raise around $300 million by issuing sukuk, Niyazi Albay, Agaoglu's chief investment officer, told Reuters in mid-September. No specific time frame was given.
KUVEYT TURK - Lender Kuveyt Turk, 62 percent owned by Kuwait Finance House , plans to issue sukuk in Malaysia, aiming to raise as much as 2 billion ringgit, Turkey's Capital Markets Board said in mid-September. It gave no details.
AKTIF BANK - Aktif Bank, Turkey's largest privately owned investment bank, has received regulatory approval to issue 200 million lira ($91 million) in sukuk, the Capital Markets Board said.
IFFI - The International Finance Facility for Immunisation Co. (IFFI), for which the World Bank acts as treasury manager, has picked four banks for a potential U.S. dollar-denominated sukuk, a document from lead managers showed in mid-September.
ADVANCED PETROCHEMICAL - Shareholders of Saudi Arabia's Advanced Petrochemical Co gave approval on Sept. 15 for the company to issue sukuk in a total amount not exceeding its share capital.
OMAN - The government of Oman is expected to issue 200 million rials ($520 million) of sukuk early next year, its first issue of Islamic bonds, Jamil Al Jaroudi, chief executive of Bank Nizwa, told Reuters.
PAKISTAN - Pakistan's Ministry of Finance selected Citigroup, Deutsche Bank, Dubai Islamic Bank and Standard Chartered as bookrunners for a U.S. dollar sukuk issue, a ministry official said; the tenor of the bond and the format would be decided as soon as the week of Sept. 8.
DOGUS GROUP - Turkish conglomerate Dogus Group has received regulatory approval to raise $370 million by issuing the country's first U.S. dollar-denominated corporate sukuk, the Capital Markets Board said in late August. No time frame was given.
CIMB Islamic - CIMB Islamic, the sharia-compliant unit of Malaysia's second largest bank, is preparing an Islamic bond programme to raise up to 5 billion ringgit, ratings agency MARC said in late August.
SUNWAY - Malaysian property developer Sunway will raise up to 2 billion ringgit by issuing sukuk mudaraba, it said in August; short-term commercial paper under the programme will have maturities of between a month and a year, while medium-term notes will have maturities of one to seven years. Sunway will make its first issuance within two years.
MALAYSIA AIRPORTS - Malaysia Airports Holdings hired four banks for a subordinated perpetual sukuk musharaka to raise 1 billion ringgit; investor meetings would be held on Aug. 25.
RAS AL-KHAIMAH - The emirate of Ras al-Khaimah, part of the UAE, invited banks to pitch for arranger roles on a potential dollar-denominated sukuk, sources said in early June. However, bankers said in August that Ras al-Khaimah had sent out requests for proposals for a syndicated loan, casting doubt on whether the planned sukuk issue would now go ahead.
GULF FINANCE HOUSE - Bahrain-based Gulf Finance House said in mid-August it planned a $200 million sukuk issue to repay outstanding debt and for acquisitions. The deal would take place in coming months.
ADIRA DINAMIKA - Indonesia's PT Adira Dinamika Multi Finance plans to raise at least 500 billion rupiah ($42 million) with ringgit-denominated sukuk in Malaysia by the end of the year, bankers said.
K-ELECTRIC - Karachi-based utility K-Electric plans to raise as much as 22 billion rupees ($223 million) through sukuk to refinance existing debt, the company said in late June.
LIBYA - Libya's central bank is proposing to issue Islamic bonds to help fund the country's budget and offset a loss of oil revenues that could create a deficit of $25 billion this year, a bank official said in June.
KENYA - Kenya plans to issue another international bond and may consider a debut sukuk issue, the finance minister said in late June, after a successful debut $2 billion eurobond closed.
BANK MUAMALAT - Malaysia's Bank Muamalat, a unit of sovereign fund Khazanah and auto-to-property conglomerate DRB-Hicom Bhd, will raise up to 2 billion ringgit with Islamic bonds, credit agency Malaysian Rating Corp said in late June.
BAHRI - National Shipping Co of Saudi Arabia (Bahri) plans to arrange long-term sharia-compliant financing in the next year to replace a bridge loan backing its $1.3 billion acquisition of Saudi Aramco's marine unit, Bahri said in June. Banking sources prebiously told Reuters Bahri was looking at a potential debut sukuk issue to replace the bridge loan.
SOCIETE GENERALE - Societe Generale completed the roadshow for the first issue in its 1 billion ringgit multi-currency sukuk programme in Malaysia, and would decide on the size in days, the bank said on June 18. In early July, banking sources said Societe Generale was still seeking a window to launch.
IFC - The International Finance Corp, the World Bank's lender to the private sector, is considering a return to the Islamic bond market, an IFC official said. A sukuk issue is still in the early stages of discussion but would likely be in the fiscal year starting in July 2014.
JORDAN - Jordan's government is studying a proposal to issue its first Islamic bond as early as next year, possibly raising over $1 billion in multiple currencies, but a preference for concessionary loans from aid donor countries could hinder the plan, government sources said.
MALAYSIAN RESOURCES CORP - Malaysian Resources Corp, a local construction firm, said on June 12 it would issue Islamic bonds to raise up to 680 million ringgit for land acquisitions and working capital.
BANGLADESH - The central bank is seeking to amend rules on its existing sukuk programme to broaden its use and allow for sovereign issuance by the government, a central bank spokesman said in June.
AL OTHAIM - Saudi Arabia's Al Othaim Real Estate and Investment Co, owner of five shopping malls in the kingdom, plans to issue its debut local currency sukuk as early as in June, sources aware of the matter said at the start of the month. The transaction is likely to be worth between 500 million and 1 billion riyals ($133-267 million), one of the sources added.
JEDDAH ECONOMIC CO - Saudi Arabia's Jeddah Economic Co said in mid-May it was in talks with local banks to raise funds for the 14 billion riyal first phase of its Kingdom City project. For part of the money, "we are looking at the bonds and sukuk market but this will need a structure in place, which we are working on," chief executive Mounib Hammoud said.
BANK MUSCAT - Bank Muscat plans a dual-currency U.S. dollar and rial sukuk issue worth around $300 million that would be the first sukuk sale by an Omani bank. The issue, which could carry tenors of three to five years, would be part of a 500 million rial ($1.3 billion) sukuk programme which shareholders approved in March, Sulaiman Al Harthy, group general manager of Meethaq, Bank Muscat's Islamic operation, told Reuters in early May.
PELABURAN MARA - Malaysia's Pelaburan MARA, the investment arm of Majlis Amanah Rakyat, plans to issue sukuk worth up to 1 billion ringgit this year or next to finance its investments in the oil and gas and technology sectors, group chief executive Nazim Rahman was quoted as saying in April by The Edge Financial Daily.
HUA YANG - Malaysian property development firm Hua Yang Bhd said on April 29 it had won approval from the securities commission to raise up to 250 million ringgit with an Islamic bond programme.
FIRST GULF BANK - Abu Dhabi's First Gulf Bank, the third-largest bank by assets in the United Arab Emirates, plans to raise up to 3.5 billion ringgit with Islamic bonds in Malaysia, RAM Ratings said in March.
KILER REIT - Turkish real estate investment trust Kiler GYO plans to issue a five-year sukuk worth at least $100 million in the second half of this year, parent company Kiler Holding's chief financial Officer Kaan Aytogu said in February.
ACWA - Last December, Saudi Arabia-based water and power project developer ACWA Power said it had raised a 1.77 billion riyal Islamic loan from four local banks to help finance investments including acquisitions and act as a bridge to a sukuk issue in 2014.
ADB - The Asian Development Bank said in December that it was considering an Islamic bond issue as early as in 2014.
Source: https://en-maktoob.news.yahoo.com/sukuk-pipeline-issue-plans-around-world-050841558--sector.html

Thursday, October 9, 2014

Interest Free Banking a Reality?

The Ugandan government has embraced Islamic banking as evidenced by Cabinet’s recent approval of the same with the proposed Islamic Banking Bill 2014 currently before the Uganda Law Reform Commission undergoing a few changes, and likely to be tabled on the floor of Parliament soon.

Islamic banking is Sharia-compliant banking based on the principles of trade, partnerships, Profit and Loss Sharing (PLS) and the prohibition of reckless risk. Specifically, it prohibits interest-based banking, speculation and financing of haram transactions such as gambling and alcohol. It has the same purpose as conventional banking: to make money for the bank by lending out capital. However, the Islamic economic system revolves around the prohibition of interest. Two of the several Islamic banking products that avoid the concept of interest are Musharaka and Murabaha.

Under a Musharaka contract, the bank provides the money while the client provides the business expertise, and profits are shared at a predetermined ratio while losses are borne exclusively by the bank, having provided all the capital initially. This is essentially a partnership loan between the bank and customer. The bank obtains ownership interests in the assets it finances, or earns a profit-share. Because of the bank’s involvement in the implementation of the project, it has a higher likelihood of success, which should see more successful investments.

On the other hand, Murabaha is cost-plus financing. Because Islamic banks are prohibited from making returns on money lending, these contracts provide for the bank to buy an investment good or commodity on behalf of the client and resell it to the client at a fee which enables the bank to make a profit. So, for example, an Islamic bank will not offer an interest loan to clients to buy a house, but will buy the house instead and sell it to the client for a profit.

Between 2010-2012, interest rates of some commercial banks in Uganda were as high as 30-32 percent. Islamic banking, being interest-free, should increase access to investment finance and see a rise in entrepreneurship projects, as well as boost competition in Uganda’s banking sector inevitably leading to provision of more efficient and better banking services.

Kenya and Tanzania have already embraced Islamic banking with banks such as Standard Chartered offering Islamic banking windows. Kenya’s central bank introduced Sharia-compliant bonds, also known as Sukuk which are bonds backed by an asset, with the bank sharing in the profits derived from the assets. Islamic finance currently accounts for about 2 per cent of the total banking business in Kenya, with corporations making up a considerable portion of the clientele. In Tanzania, Islamic banking gained such popularity upon its introduction more than seven years ago that demand for it eventually far exceeded supply. This was due not only to the large number of Muslims in the country, but also to the lucrative services and partnerships that Islamic banks have offered.

In Uganda, only 8.3 percent of the Ugandan population use banking products, and the Muslim population is only about six million of the total population. Islamic banking products would likely be particularly appealing to Muslims, but would also be available to all Ugandans and should be a viable option for the majority of youthful entrepreneurs and low-income earners, regardless of religious affiliation.

It is noteworthy that the Financial Institutions Act of Uganda (2004) neither envisages nor provides for Islamic banking. The proposed Islamic Banking Bill (2014), therefore, would provide a much needed regulatory framework to realise the benefits of this alternative banking model.

Source: http://www.independent.co.ug/column/comment/9392-interest-free-banking-a-reality-

Saturday, October 4, 2014

National Bank of Fujairah offers sharia-compliant financial solutions in UAE

The new Islamic unit will initially offer retail banking products to customers, with plans to expand the offerings for companies and businesses in the region.
NBF retail banking head Sharif Mohd. Rafei said: "Over the years, we have been witnessing a growing demand for Islamic banking products as we broadened our personal banking footprint beyond our traditional home base of Fujairah.
"With NBF Islamic, we will not only be able to better serve the needs of our customers, but further establish our growing reputation as a well-respected local bank fully committed to preserving the values of the community."
To operate the new unit as per the principles of Islamic law, NBF Islamic will be helped by the Shariah Supervisory Board of Amanie Advisors.
According to a report from Ernst and Young, the Islamic banking assets in the UAE increased from $83bn in 2012 to $95bn in 2013, reported Gulf Business.
NBF CEO Vince Cook said: "We are pleased to contribute to the UAE's aspirations to becoming a hub for Islamic finance. Expanding our suite of client-centric solutions is crucial to the success of our customers and the bank, and we are confident that NBF Islamic will further establish our position as a reliable and trusted banking partner in the UAE."

Source: http://retailbanking.banking-business-review.com/news/national-bank-of-fujairah-offers-sharia-compliant-financial-solutions-in-uae-031014-4392007

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.

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