UK to develop tools to boost liquidity in Islamic Banking

(MENAFN - The Arabian Post) The scope of Britain's Islamic finance market is widening with several initiatives from the government and private sector, although the country is about to lose one of its six full-fledged Islamic banks.

In June, Britain became the first Western country to sell sovereign sukuk (Islamic bonds), helping boost its industry credentials as competition intensifies among global financial centres for a slice of Islamic business.

Britain has 22 firms that offer sharia-compliant financial products and they held an estimated 19 billion in assets last year, according to a report by lobby group TheCityUK. These include six full-fledged Islamic banks such as Bank of London and the Middle East BLME.DI, European Islamic Investment Bank (EIIB.L), Gatehouse Bank and the Islamic Bank of Britain (IBB).

Last week a government official said the central bank would look into developing a liquidity management tool for use by Islamic banks, while Britain's export credit agency expects to guarantee sukuk for the first time next year, an issue by a customer of European plane maker Airbus (AIR.PA).

In May, the Bank of England widened the types of sharia-compliant debt instruments that Islamic banks can use in their liquidity buffers, under a policy statement known as PS4/14.

Islamic banking accounts for only a tiny fraction less than 1 percent of the British banking sector, far below the share of roughly a quarter seen in the Gulf.

But taken together, the new official initiatives seem likely to create a more benign environment for Islamic finance, allowing banks to operate more flexibly and efficiently, and therefore more cheaply. Depending on how quickly it moves ahead, the plan for the liquidity management tool could conceivably put Britain ahead of some Gulf countries in providing options in this area.

"PS4/14 is a strong enabler"this is very powerful for us," Sultan Choudhury, chief executive of Birmingham-based IBB, said on the sidelines of an industry conference in Dubai.

The new rules allow Islamic banks to hold a variety of instruments, ranging from sukuk issued by the Qatari government to those issued by Saudi Arabian firms, Choudhury said.

The IBB, a unit of Qatar's Masraf Al Rayan MARK.QA, is now moving into the wholesale business and plans to change its name to Al Rayan Bank in December, subject to regulatory approval, as it looks to appeal to a wider customer base.

Despite this, London-based European Islamic Investment Bank is now in discussions with regulators to relinquish its banking licence, the lender said in a regulatory filing.

Under a 2012-2016 strategy, EIIB is exiting legacy private equity investments, seeking more stable income from its asset management and advisory services.

Dropping its deposit-taking licence would remove cumbersome capital and reporting requirements. In July, EIIB failed to secure regulatory approval to appoint a chief financial officer.

Other banks are also adjusting their strategies. London-based Gatehouse Bank aims to generate more deals outside the domestic property market, its recently appointed chief executive told Reuters in August.

Bank of London and The Middle East, Britain's largest Islamic bank, is developing private banking services with Malaysia's Bank Muamalat.

Non-banks are also spotting opportunities, such as asset management firm London Central Portfolio (LCP), which has launched two sharia-compliant property funds since December.

"We have every intention of rolling this out across all future funds," said Naomi Heaton, chief executive of LCP. "With the Islamic finance industry growing rapidly and far quicker than the conventional fund sector, we wish to continue to capitalise on this market."

Last week, London's Battersea Power Station project announced it had secured a 467 million pound (754 million) Islamic syndicated loan, one of the largest Islamic transactions ever conducted in the country.-Reuters

Source: http://www.menafn.com/1094006978/UK-to-develop-tools-to-boost-liquidity-in-Islamic-banking

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

EiD Greetings from AlHuda Centre of Islamic Banking & Economics

Islamic Banking VS Conventional Banking

Islamic banking has developed  recently.  Put forward  to be having high ethical criterions, the banking system upraises questions from many.  First of all, we should answer some questions like that in this field.   Are these standards just a sham —a smart  way to hide  that Islamic banks are basically like any other?  Are they a real attempt to reunite religious principles with finance in a capitalist world?

To answer if Islamic banking is totally different from the conventional banking system, we  should know the history of  this  interest-free  banking system.

Origin of Islamic banking

The most important property  of Islamic banking is its banning  of  interest. Doing business  without the use of interest-bearing loans, in the form of Mudaraba rules, advances the coming  of Islam.

Before Islamic period, Arabs  in Mecca, close to the crossroad  of old commerce  routes, coordinated  caravans to carry  goods between Syria and Yemen.  The Meccan merchants  sometimes  used agents to deliver the goods, buy, sell and report back with the numbers for profit or loss.  Later on, it  was  shared according to the traditional  principles  of Mudaraba.

When a merchant  united with others in a shared trading initiative, the profits or losses were shared, under an another principle called Musharaka, suitable  for an agreement between participating sharers in a trade.  Therefore,  the trading caravans were capitalized with  the principle of  sharing profits or losses, not by interest-bearing loans.

Smaller communities

Before modern banking system becomes popular, Mecca was a quite small town, and the forming  a trade caravan was a principal  occasion.  The travelers and their patrons were acquainted  with one another’s general fame  and status, and possibly knew each other as a  person.  That continued true of societies in the early Muslim period.

But, society is more disunited in today’s world.  Rich people  to invest do not need to know anybody  with an  initiative  that requires capitalizing, and people who have trade thoughts may have no contact  with possible investors.

The conventional banking system has grown up to intercede  between the groups of people, enterprisers and investors.  To exist, the banks obviously  have  to make a profit.

Prohibition on interest

The prohibition of  interest (riba) on loans in Islamic banking system is well known.  Riba is considered as haram, or forbidden in Islam.  But to operate  a bank needs  to charge some fees for its services.  For conventional banks, a principal  of profit is from revenue that is obtained from charging interest.

In contrast, Islamic banks make their profits in other ways such as ‘profit-sharing’.  Is it possible for Islamic principles of profit-sharing rather than interest taking to transfer from the  trading caravans to the anonymous banking system that we experience now?

The old systems of Musharaka and Mudaraba survive in the modern Islamic banking system.  They both refer to ways of sharing risk and reward in place of remuneration at a fixed interest rate.

Mudaraba is used for a more passive kind of investment or participating, in which  one side supplies capital or goods, and  the other side  carries out the work necessary  to gain  a profit.

Musharaka presents  a more active investment style by a person  who is either a partner in the business or  a supplier of money.

A very distinct  difference of the Islamic banking system over conventional banks is on the sharing of risk, that is equally spread to either the lender or borrower.

Al Huda CIBE offering "Free Shariah Advice" in this Holy Month of Ramadan