Azerbaijan: Islamic banking’s opportunities to be mulled in Baku

Baku is scheduled to host the ‘7th World Islamic Banking Conference – CIS’ in April, 2016, a source in Azerbaijan’s finance market told Trend August 15.

“The event’s exact date isn’t yet known,” said the source. “Currently, organizers are negotiating with partners in Azerbaijan in this regard.”

The source further said the conference is expected to be attended by about 500 representatives of foreign countries, as well as Islamic banks and financial institutions from over 30 countries of the Persian Gulf.

“The conference will attract the leading Islamic banks’ representatives to Azerbaijan and will become a platform to discuss new opportunities and realization of joint projects, as well as make it possible to establish economic ties between the countries of CIS and the Persian Gulf,” the source added.

The interviewee also said the conference will help promote Azerbaijan in the Islamic countries, especially on the eve of the 4th Islamic Solidarity Games, to be held in 2017 in Baku.

(Trend News Agency / 15 August 2015)

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Azerbaijan’s Islamic banking skills to drive Russian Islamic finance development

Islamic finance industry in Russia still needs to be developed, despite some 20 million Muslims living in the country, and Azerbaijan’s skills maybe helpful for Russia.

Russia hopes to learn from the experience of Azerbaijan in the field of Islamic banking, said Sergey Drobyshevsky, the scientific director of the Gaidar Institute for Economic Policy in Baku last week.

He said the presence of IBA Moscow, a Russian subsidiary of the International Bank of Azerbaijan, the largest lender and the only state-owned bank in Azerbaijan, must contribute to this.

Drobyshevsky believes it will be easier for the Azerbaijani banks and businessmen to work in Russia than the Malaysian specialists of that sphere, where Islamic banking is also developed.

“There is no language barrier between Azerbaijan and Russia, they have similar culture and a lot in common,” said Drobyshevsky.

He also touched upon the prospects for the development of Islamic banking in Russia.

“The more financial instruments the market has, the more differentiated they are, the more effectively it helps investors to diversify their risks, according to the theory of finance,” he said. “These are new possibilities and their implementation does not depend on the state - it depends on the participants of the market themselves and potential customers of Islamic banking.”

Islamic banking can claim only 5 percent of the Russian financial market during 5-10 years, but the main thing is to start the process, Drobyshevsky emphasized, Trend reports.

Behnam Gurbanzada, the director of Islamic banking at the IBA, earlier called Russia a "promising" platform to further the development of Islamic finance.

“Azerbaijan with all prerequisites to build a bridge between Asia and the Middle East, as well as between the CIS and the Gulf countries, is supposed to receive good financial dividends from applying Islamic banking. The IBA is keen to develop a plan of amendments to the regulatory to apply the full-fledged Islamic banking in the country. The amendments can fasten up the process of creating the Islamic development center in Azerbaijan,” he told AzerNews earlier.

The Baku-based IBA is a universal bank with subsidiary banks in Russia, Georgia and Qatar, as well as representative offices in London, Frankfurt, Luxembourg, Dubai and New York. The bank, 50.2-percent owned by the Azerbaijani Ministry of Finance, holds over 40 percent of banking assets in the country.

The IBA‘s reported consolidated total assets of 8.8 billion manats, aggregate capital of 1.008 billion manats and net profit of 64.5 million under audited IFRS as at year-end 2014.

(Azernews / 20 April 2015)

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Islamic Financing, alternative investment source to Azerbaijani economy

The International Bank of Azerbaijan, the largest lender and the only state-owned bank in the country remains confident to promote Azerbaijan as an Islamic Banking hub in the region.

Behnam Gurbanzade, Director of the Islamic Banking Department of the IBA, spoke quite positive about the prospects of Azerbaijan’s eventful role in the Islamic finance markets.

“Developing Islamic Financing in Azerbaijan gives us an advantage to set up a center for the development of Islamic Financing in the CIS based in Baku,” Gurbanzade wrote in an e-mail to AzerNews.

“Thus, in 2015 we are planning to increase the amount of Islamic financing in Azerbaijan. To this end, an alternative banking division was set up within Bank IBA-Moscow where the Islamic Banking is also part of new duties,” he said.

The IBA concluded last year with $526 million sharia compliant assets compared to the Islamic Banking assets at the level of $220 million at the beginning of 2014.

Islamic finance has not developed well in Azerbaijan, which has a predominantly Muslim population. The IBA assists the government to draft the relevant regulation. It also plans to convert its Islamic unit into major Shariah-compliant lender after the country OKs the Islamic legislation licenses.

The Baku-based bank actively works in this direction, which is encouraging the development of Islamic Finance here. The bank currently offers Shariah-compliant products through an Islamic window introduced in September 2012, a practice which allows conventional lenders to provide Islamic financial services as long as client money is segregated from the rest of the bank.

Gurbanzada said the IBA Islamic Banking department is working on draft legislation together with consultants. “The initial documents including Islamic Financial Policies and Procedures, Operational procedures and Products and Services are under consideration,” he said.

Laws allowing Azerbaijan to OK Islamic bond offerings is expected to be passed in 2015, and the government may issue securities that adhere to Islam’s ban on interest the next year.

Speaking about the role that the Islamic bank could play in driving the banking sector of the country, Gurbanzada said Islamic Financing is considered as alternative investment sources to the economy of Azerbaijan.

“Azerbaijan and CIS markets are growing and there is a huge demand for direct investments. The IBA realizes that sources of funding should be diversified in order to secure economic safety. All this comes against the backdrop of the world financial crisis in which the liquid capital stands as the primary issue,” he noted.

Gurbanzada said the current Islamic Banking portfolio of the IBA is 386 million manats ($493 million) which is approximately 6.2 percent of the total credit portfolio.

The loan portfolio of the Bank hit 5.868 billion manats as of early January with an increase of 16.6 percent since early 2014.

IBA Islamic presented a new Murabaha card which was set up on MasterCard Gold basis. The card is for retail financing in Azerbaijan and outside of the country. “Furthermore we are also strutting Musharakah refinancing products and unrestricted and restricted Mudarabah financing. Most of products and services will be implemented after legislation development,” he concluded.

The bank, 50.2-percent owned by the Azerbaijani Ministry of Finance, holds over 40 percent of banking assets in the country and enjoys huge importance for Azerbaijan's economy. The IBA‘s reported consolidated total assets of 8.8 billion manats, aggregate capital of 1.008 billion manats and net profit of 64.5 million under audited IFRS as at year-end 2014.

(Azernews / 30 January 2014)

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Azerbaijan’s IBA plans stand-alone Islamic banking unit

International Bank of Azerbaijan (IBA), the country’s largest lender, is preparing to launch a separate sharia-compliant banking unit as the former Soviet state prepares an Islamic banking law slated for next spring.

A stand-alone unit would allow IBA, 50.2 per cent owned by Azerbaijan’s Ministry of 

×

Finance, to more than quadruple its 

×

Islamic financing business in the country, said Behnam Gurbanzada, IBA’s director of 

×

Islamic banking.

“IBA is working on developing new products as well as establishing a platform for a separate, fully sharia-compliant unit,” Gurbanzada said.

IBA, which holds 40 per cent of banking assets in 

×

Azerbaijan, has thus far extended $180 million of 

×Islamic financing in the country; after legislation is passed, this could increase to as much as $750 million within a year, he added.

The bank currently offers sharia-compliant products through an 

×

Islamic window, a practice which allows conventional lenders to provide 

×Islamic financial services as long as client money is segregated from the rest of the bank.

A separate unit could help increase the appeal of Islamic banking among retail clients, in a country where an estimated 93 per cent of the population of 9 million are Muslim.

IBA also wants to create a strong domestic Islamic banking platform for use with its subsidiaries in Russia, Georgia and Qatar.

“Azerbaijan shows considerable promise to become a hub for Islamic banking in the region and has great potential to cooperate with Russia and all other CIS (Commonwealth of Independent States) countries which are interested in Islamic banking,” said Gurbanzada.

This month, the Association of Russian Banks asked Moscow to consider ways to promote Islamic finance in the country, including through an industry-specific law.

IBA has hired Bahrain-based consultancy Shariyah Review Bureau to help in the design of several projects including a real estate development in Azerbaijan’s capital Baku and a cash financing product, said Gurbanzada. The bank is also developing a sharia-compliant student financing product.

(Gulfnews.Com / 18 August 2014)

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Azerbaijan's top bank to drive Islamic banking in Russia

The International Bank of Azerbaijan, the major state-owned bank holding at least 40 percent of all bank assets in the country, is determined to play an active role in the Islamic finance markets of the Persian Gulf and Russia.

Director of the Islamic Banking Department of IBA Behnam Gurbanzade told Trend Agency that the bank is constantly expanding its ties with financial institutions interested in Islamic financing which in turn would create a favorable investment environment in Azerbaijan.

"Currently, the total amount of funds attracted by the IBA from the Islamic financial institutions stands at 218.7 million," he said.

The bank's goal is to attract $400 million in 2014. The current share of Islamic banking in the IBA loan portfolio, which was 5,695 billion manats as of July 1, 2014, is around 3 percent.

Gurbanzade further said that the IBA plans to establish a working group and prepare a package of proposals to the Central Bank of the Russian Federation given the interest of Russian banks in Islamic banking.

"We see that the Central Bank of Russia is actively working to improve the banking system of the country. Russia specifically revoked the licenses of more than 30 banks that didn't meet the requirements of the Central Bank of the country, and this process is still underway. We assume it would be appropriate to establish a working group and prepare a package of proposals to the CBR after the reforms are implemented. IBA-Moscow has initiated this process, and today the IBA and IBA-Moscow are working to analyze Russian legislation to provide financial services based on Islamic principles and to develop Islamic banking products there," he said.

The IBA has repeatedly announced that Azerbaijan has a good chance of setting up an Islamic banking center across the CIS. The IBA is ready to take the responsibility of promoting Islamic banking in the CIS countries as requested by Financial-Banking Council of the CIS.

Azerbaijan with all prerequisites to build a bridge between Asia and the Middle East, as well as between the CIS and the Gulf countries, is supposed to receive good financial dividends from applying Islamic banking. The IBA is keen to develop a plan of amendments to the regulatory to apply the full-fledged Islamic banking in the country. The amendments can fasten up the process of creating the Islamic development center in Azerbaijan.

So far the Islamic Banking Department of the IBA, which began to offer the Islamic banking services from April 2013, has several products to offer to their clients such as two types of Ijarah - house financing and goods financing, Qard-Hasan (current account) - for Individuals and Corporate customers, Wakalah deposit - from 3 up to 120 months, Islamic Bank cards - Jasmine card, Qibla card. The IBA has already proceeded to work on Sukuk structuring.

The bank is also actively working in the field of improvement of the legislation. The work on adoption of legislation on Islamic banking in Azerbaijan will begin in September.

Gurbanzade said the bank has officially notified the Economy and Industry Ministry about the approval of a $200,000 grant for this purpose.

"We've formally applied to the Cabinet of Ministers on the proposal of the ministry to set up a working group that will prepare the Islamic banking laws for the country. So far the candidates for group's members were proposed from the Economy and Industry Ministry, the Central Bank, the IBA and other organizations. In parallel, the text of the grant agreement is under coordination with the IDB. The deal may be signed by late August. In turn, this will enable the working group to embark on the 12-month project as early as in September 2014," Gurbanzade said.

He further added that the working group will finish its analysis of the international Islamic banking legislation during September-December, and in the spring of 2015 will submit the draft for consideration to the Central Bank.

The bill can be adopted by the parliament in 2015 should it is coordinated by late this year.

Gurbanzade said despite lack of the Islamic banking legislation the internal Islamic banking in Azerbaijan has reached grandmaster performance.

"The Islamic finance in the country through the Department alone is about $215 million," he underscored.

In addition to the IBA specialized department, the country also has another full-fledged Islamic financial institution - Ansar Leasing, whose volume of business is few times less than the activity of the department.

(Azernews / 02 August 2014)

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Azerbaijan aims for Islamic banking law in 2014

Nov 26 (Reuters) - Azerbaijan's largest lender, International Bank of Azerbaijan (IBA), is working with national authorities on a draft Islamic banking law and a final version could be presented to parliament in 2014, a senior executive said.

Islamic finance has developed slowly in the former Soviet state, where an estimated 93 percent of the 9 million people are Muslim. But IBA's Islamic banking business is now growing strongly, which is encouraging authorities to take action.

"The main aim is legislation. The cabinet of ministers of Azerbaijan has already started the project together with the ministry of economic development and IBA," Behnam Gurbanzada, IBA's director of Islamic banking, told Reuters.

With strong state support, the draft legislation could be ready by May with a final version presented to parliament by the end of 2014, Gurbanzada said on the sidelines of the Global Islamic Economy Summit in Dubai.

"It covers banking, taxation...It covers some specific issues like civil law." Among other provisions, Islamic banking bans interest payments and pure monetary speculation, and the structures which it uses to achieve this can be expensive unless special tax arrangements are made.

IBA now offers sharia-compliant products through an Islamic window, but legislation would pave the way for a stand-alone Islamic banking unit, Gurbanzada added.

The bank, 50.2 percent owned by Azerbaijan's Ministry of Finance, holds 40 percent of banking assets in the country.

"By the end of 2013 we will reach $200 million of Islamic banking assets and with a goal for 2014 of around $300 million to $350 million," Gurbanzada said. The bank held $60 million of Islamic banking assets last December.

Next year, the lender plans to open four dedicated Islamic banking branches, Gurbanzada added. 

(Reuters / 26 Dec 2013)

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Azerbaijan: Legislative amendments on Islamic banking not on CBA agenda

The Central Bank of Azerbaijan (CBA) does not currently consider amending the domestic legislation to ensure the implementation of Islamic banking in Azerbaijan, CBA Chairman Elman Rustamov told Trend news agency.

Prohibition on charging interest for loans is the major distinction between Islamic and Western-style banking. Instead of interest, Islamic banks take a stake in businesses to which they loan money and share both the profit and loss with the client.

There is a special order of taxation of Islamic financial instruments, forms and methods of regulation and supervision of Islamic banks, along with the procedure for the issuance and circulation of Islamic securities and the requirements of Islamic investment funds in the world.

Banned activity includes speculation in financial markets, financing the economy through methods of interest calculation and financing production, trade or services prohibited by Islam, such as producing alcohol, food containing pork, gambling, etc.

"It is necessary to first create a legislative basis, then a regulatory one based on it, then licensing and the issuance of permits can begin. If there is no such basis, these actions remain exploratory by nature," Rustamov said.

The only 'Islamic window' in Azerbaijan, created by the International Bank of Azerbaijan, has already begun serving customers. The amount of assets attracted from Islamic financing sources has hit $60-70 million. At the same time, Islamic leasing products are actively offered via the Joint Leasing Company, one of the co-founders of IBA.

The range of services offered by the bank includes such products of Islamic banking as Ijara, an analogue of traditional leasing, Vakala deposit, an equivalent of a conventional deposit, Islamic bank cards, and opening of Gard Hassan accounts.

IBA Islamic Banking Department head Behnam Gurbanzade earlier said that the above-said products of the IBA have undergone relevant certification in independent Sharia financial and legal advisory company Dar al Sharia, founded by Dubai Islamic Bank in accordance with international practices.

Thus, all procedures and documentation on these types of services provided by the IBA Islamic Banking Department meet the standards assigned by leading Islamic financial regulator AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions).

To create a legislative basis for Islamic banking, the IBA jointly with international financial institutions is preparing proposals for amendments to the banking legislation.

Experts believe that the application of Islamic window in Azerbaijan would influence positively the development of Islamic banking in the country. They suggest that as long as loan interest rates stay above the 20-percent mark, Islamic banking could potentially gain market share.

The IBA is not alone in studying the field of Islamic finance. Earlier, the Russian-owned Nikoil Bank started offering clients the opportunity to make interest-free deposits, which would then be invested into Sharia law-compliant business ventures.

Also, Amrahbank, partly owned by the Bahrain-based International Investment Bank, has plans to offer "Sharia-complaint financial products" to cash in on "the untapped Islamic banking market both in Azerbaijan and neighboring regions."

Earlier, Kovsarbank attempted to offer a full range of Islamic banking services in Azerbijan. However, the CBA withdrew its license, saying it was violating the law and citing a small portfolio. The bank subsequently closed down.

(Azernews / 07 May 2013)

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Azerbaijan's biggest bank plans $150 mln Islamic loan

Behnam Gurbanzada, IBA's director of Islamic banking, said the bank planned to sign a mandate in January and close the deal in April.

The one-year private syndication would be the first of its kind in Azerbaijan and would help IBA cater to the estimated 93 percent of its 9 million population who are Muslim.

The bank is in talks with a number of Gulf-based lenders to manage the syndication. Gurbanzada did not disclose their names.

IBA, 50.2 percent-owned by Azerbaijan's Ministry of Finance, holds a 40 percent share of banking assets in Azerbaijan. It offers sharia-compliant products through an Islamic window, which follow religious principles such as a ban on interest and on pure monetary speculation.

IBA plans to increase its Islamic banking assets to $120 million by the end of 2013 from $60 million currently, Gurbanzada said.

"We are planning to increase Islamic banking activity with the help of our subsidiaries and reach $500 million in assets in 2015."

This would help the bank launch products domestically and prepare it for future expansion across neighbouring and other countries, where it sees opportunities for Islamic finance.

"IBA would like to create a strong platform for Islamic banking in Azerbaijan and use it for implementation with its subsidiaries in Russia, Georgia and in Qatar," Gurbanzada said.

Plans to have an Islamic banking subsidiary in Qatar by the end of this year await regulatory approval.

PRODUCTS

Growth would be driven by new products including small business lending, vehicle and real estate financing and financing of export-related activities.

Managing private clients' assets through wakala, or agency agreements, could grow to $30 million in 2013, Gurbanzada said.

"We are also working on the retail market and inviting private clients to participate in wakala deposit pools. At present we have received a bid for $3.5 million."

IBA is also working to attract a $15 million wakala deposit from the Islamic Corporation for the Development of the Private Sector, a Jeddah-based multilateral financial institution, in order to finance small- and medium-sized businesses.

Also planned are Islamic debit cards based on an interest-free loan concept and Islamic financing cards with credit limits based on fixed monthly commissions.

At present the bank is not considering a dedicated subsidiary for its Islamic banking activities but it could explore a spin-off when changes to banking legislation are passed, Gurbanzada said. "I suppose sooner or later we should come to this significant point".

(Reuters / 09 Dec 2012)

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