Sultan Nazrin: Strive to make Islamic finance dynamic

DUBAI: Muslim countries must strive to make Islamic finance and the ecosystem in which it operates as dynamic and information-rich as possible, said Sultan of Perak, Sultan Nazrin Shah.

He said that in order to do so, there must be considerable investment in human capital particularly research, education and training.

These, he said, include financial institutions, the investment community and importantly, those responsible for Islamic jurisprudence and policy makers.

Sultan Nazrin noted that Islamic finance is fast becoming mainstream global finance, citing that the United Kingdom became the first sovereign issuer of sukuk outside the Islamic world followed by Hong Kong and South Africa.

“These sovereign issues mark a milestone and a coming of age of sorts for Islamic finance and asset management,” he said.

The Sultan of Perak, who is the Royal patron for Malaysia’s Islamic Finance Initiative was speaking at the Islamic Forum Dubai 2014 The Franklin Templeton Investments.

Sultan Nazrin made a special mention on Dubai and Malaysia, which he described as being major players in the Islamic finance sector.

He said efforts must continue to ensure the soundness and integrity of Islamic assets, where they have to be true not just to good investment principles but also the ethical values enshrined in the teachings of Islam.

“The ultimate objective of Islamic investment is to achieve al falah or success, happiness and well-being in this world and the hereafter through efficiency and effectiveness but also with fair dealing and economic justice,” he added.

Sultan Nazrin said a large proportion of Islamic investment today takes place on a cross-border basis where in terms of forging inter-connectivity, the effects of Islamic finance are global and should be recognised as such.

Training the much-needed capital, industry talent, regulatory bodies and business networks would draw people of all races and creeds closer together and not just Muslims, he added.

“With earlier provisos that Islamic financing and asset management need to be managed progressively and sustainably, this increasing closeness cannot but have positive effects in promoting greater mutual understanding and acceptance of Islamic finance by all,” said Sultan Nazrin.

He said Asia, particularly East and South-East Asia were the regions likely to take Islamic finance and investing to the next level as economic growth and wealth creation in this part of the world is expected to continue, albeit at possibly more suitable rates.

(The Star Online . 28 October 2014)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Tunisia Plans $500 Million Sukuk Sale by End of November

Tunisia, where citizens started voting for a new parliament, plans to raise $500 million from the sale of sukuk by the end of next month, according to Finance Minister Hakim Ben Hammouda.

Citigroup Inc., Natixis SA, Standard Chartered Plc and Qatar-based QInvest “expressed their willingness to cooperate” and consultations are ongoing, Hammouda said in an interview in Tunis on Oct. 24. Former Finance Minister Elyes Fakhfakh in July 2013 said the nation would raise as much as $700 million from the sale of Islamic bonds, the same month it approved a sukuk law.

“The issuance of sukuk took a long time because of the complexity of this process and lack of experience in this field,” Hammouda said. “But in the end our government decided to have this challenge and to issue sukuk by the end of November.”

Tunisia may follow the U.K. and Hong Kong in selling debut Islamic bonds this year as governments globally seek to attract Shariah-compliant investors. The sovereign sukuk market is expected to reach $30 billion this year, Moody’s Investors Service said last month. Global sukuk sales climbed 13 percent so far this year to $37.8 billion from the same period last year, data compiled by Bloomberg show.

Tunisians cast ballots for a new parliament today, marking a milestone in the North African nation’s transition to democracy following the ouster of President Zine El Abidine Ben Ali more than three years ago. Results are expected Oct. 29, according to the election commission, and presidential elections are scheduled for next month.

The Islamist Ennahda movement won the first free election in 2011 after Ben Ali’s ouster with 37 percent of the vote. It stepped aside earlier this year after a political crisis triggered by the assassination of two secular leaders by Islamist militants.

(Bloomberg / 26 October 2014)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Islamic finance outlook 'bright'

MANAMA: The GCC Islamic finance industry is expected to maintain its rapid growth over the coming years despite mixed results across sectors this year, according to Standard & Poor's Ratings Services (S&P).

The industry's expansion is expected to be driven by the GCC's robust economic prospects, continued infrastructure needs and rising issuance from governments and government-related entities.

"We remain upbeat on the outlook for the GCC Islamic finance industry, but we have seen mixed fortunes across sectors this year and a broad spectrum of structural issues continuing to pose challenges," Standard & Poor's Middle East managing director and regional head Stuart Anderson said.

Despite growth, the industry remains a demand-driven market, with limited supply.

The expansion and enhancement of existing Islamic finance centres in the GCC and a more transparent regulatory environment are critical to accelerate growth.

The sukuk sector has registered healthy volumes this year with $20.3 billion worth of issuances in the GCC as of October 5, 27.3 per cent higher than the same period last year.

The fall in the issuance of corporate and infrastructure sukuk by almost a third compared to the same period last year was more than compensated by higher issuance from governments and financial institutions.

S&P believes sukuk issuance this year is on course for a 5pc growth from last year.

Refinancing needs from maturing sukuk and the good economic prospects for the GCC underpin our expectations.

Meanwhile, GCC Islamic banks have continued to increase their market share in the region.

Although S&P expects the growth of Islamic banks to gradually converge with that of their conventional peers over the next decade, the market share of Islamic banks will continue to rise in the next few years.

S&P expects total GCC banking assets - both conventional and Islamic - to rise to $2 trillion by next year's end from $1.7trn at last year's end.

The GCC banking credit stock is also expected to climb by around 10 this year and next year.

"Islamic banking growth is being driven by strong economic growth, recovering corporate asset quality cycle and ample financing opportunities.

"We believe Islamic banks will continue growing visibly faster than their peers, particularly in countries that have the highest domestic credit growth prospects," said Mr Anderson.

In contrast to the Islamic banking sector, the takaful sector in the GCC underperformed their conventional peers.

Continued resistance to the concept of insurance has left the market dominated by compulsory lines of business and weakened by fierce price competition.

S&P estimates the GCC takaful sector to generate just over 10pc of total market premiums. The sector is dominated by medical and motor insurance while the provision of life savings products, the mainstay of mature markets, is still undeveloped in the region.

(Gulf Daily News / 27 October 2014)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Islamic banking UK: Islamic Bank of Britain re-branded to Al Rayan Bank as number of non-Muslim investors grows

The Islamic Bank of Britain has unveiled plans to change its name to Al Rayan Bank, as it aims to increase its presence in London and acquire a wider range of customers.

 

It will also update its logo and all other aspects of its brand identity across its website and UK branches. As long as shareholders approve, the new identity will be introduced in December this year. 

 

The IBB, which was set up in 2004, remains the UK's only sharia-compliant retail bank and has developed the largest range of related retail financial products in the UK. Earlier this year, it was acquired by Masraf Al Rayan (MAR) – the fifth largest Islamic bank in the world and the second largest in Qatar. 

 

As it enters its second decade of existence, the bank hopes to see through ambitious expansion plans, particularly in London where its commercial and GCC operations will be based. It has £100m of capital investment from its new parent company.

 

It will focus on corporate and real estate finance, and hopes to continue attracting a wide range of customers. The bank estimates that nearly 83 per cent of customers who opened a deposit account the bank between January 2013 and August 2014 were non-Muslim. 

 

Sultan Choudhury, CEO of IBB said, “IBB has pioneered British retail Islamic banking over the last 10 years, achieving global recognition for its outstanding successes.  The change to Al Rayan Bank represents the latest chapter in the Bank’s history, in which it will expand its retail and commercial product offering to a wider audience, with the backing of a strong and successful parent.”

 

The Bank will continue to operate as a UK regulated bank, and customers’ deposits will remain protected by the Financial Services Compensation Scheme.

(City A.M / 23 October 2014)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Morrocan bank ‘planning Islamic finance subsidiary with Gulf partner’

Brahim Benjelloun-Touimi said in an interview with Reuters that the proposed subsidiary “will take our partner’s name”, but he declined to reveal the identity of the financial institution.

Benjelloun-Touimi said he would give details after a bill to regulate Islamic banks and sukuk issues has been approved by Morocco’s parliament, which is expected before the end of this year. BMCE’s move would then need to be endorsed by Morocco’s central bank.

According to the Arab international newspaper Asharq Al-Awsat, Morocco’s lower house of parliament backed the bill last June. The paper said currently only the country’s leading bank, Attijariwafa, which is part-owned by Moroccan King Mohammed VI’s investment company Societe Nationale d’Investissement, has an Islamic banking subsidiary in the kingdom.

Morocco’s minister for general affairs and governance Najib Boulif said earlier this year that the Islamic finance bill was designed to allow “a gradual introduction of Islamic banks to preserve the competitiveness of existing, conventional, banks”.

Boulif said: “Local banks will be allowed to take at least 51% of the capital and as much as 49% will go to foreign Islamic lenders. There is a very strong demand from abroad for such a project.”

“We thought it is best to start with one Islamic finance institution as we wish to assess closely the experience to ensure its success,” Boulif said. “If it proves to be a success within six months, then nothing should stop us from authorising more Islamic lenders.”

A report published last February by international ratings agency Standard and Poor’s said Islamic finance could be a “good fit” for infrastructure and project finance in North Africa, because banks lack the long-term funding that these projects require. “After tremendous global success over the past decade, with total assets estimated at about $1.4 trillion, Islamic finance could make inroads in North Africa,” the report said.

Islamic finance expert Amir Ahmad of Pinsent Masons, the law firm behind Out-Law.com, said at the time that the report “sets out the natural course of development of Islamic finance in the rest of the Islamic world”. “The demand for infrastructure in North Africa could be the ideal catalyst for this development and North Africa is likely to be an attractive market.

(Out-Law.Com / 23 October 2014)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Saudi Arabia's Advanced Petrochemical plans sukuk investor meetings

Saudi Arabia's Advanced Petrochemical Co. will begin meeting investors from Sunday ahead of a potential sale of a sukuk denominated in riyals, it said on Wednesday.

The pricing, tenor and size of the Islamic bond to be offered will be determined based on market conditions, Advanced said in a statement published on the kingdom's bourse.

Funds raised from the issue, to be arranged by HSBC Saudi Arabia and the investment banking arm of Riyad Bank , would be used for general business purposes, it added.

Should Advanced complete an issue, it would be a debut sukuk transaction from the petrochemicals firm.

In the past, Advanced has relied on bank loans, including Islamic equivalents, to fund itself; last year it raised 200 million riyals ($53.3 million) through a two-year murabaha, a common Islamic financing contract, for a housing project.

However, like many companies in the kingdom, it is turning to the debt capital markets to take advantage of high liquidity in the Saudi investor market which has made finance cheap, while the authorities have been encouraging firms to issue sukuk to diversify funding away from bank loans and develop the local debt market.

The company said on Sept. 4 it planned to invest in a project worth around $1 billion to produce propylene in South Korea. The joint venture with South Korea's SK Gas is due to start in the first half of 2016.

(Reuters / 22 October 2014)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Pakistan central bank to phase in new Islamic finance rules

Pakistan's central bank will phase in new capital adequacy rules for Islamic banking subsidiaries and trade sharia-compliant government debt in the open market, addressing a lack of liquidity management tools in the sector.

The initiatives are part of an ambitious five-year plan by the regulator to promote Islamic finance through an array of proposed legislative changes, product incentives and instructions to market participants.

In April, the central bank said it was working on such tools as part of efforts to ensure a level playing field for Islamic banks in the majority-Muslim nation.

The central bank has revised the minimum paid-up capital requirement for Islamic bank subsidiaries to 6 billion rupees ($58.4 million), giving them a five-year period to raise it. The minimum paid-up capital requirement required for all other banks is 10 billion rupees.

The move would encourage conventional banks to establish subsidiaries rather than operate Islamic windows, a practice that allows lenders to offer Islamic financial services provided client money is segregated from the rest of the bank.

In a separate circular, the central bank said it would trade government-issued Islamic bonds (sukuk) with Islamic banks on a competitive basis, serving as a money market instrument and a monetary policy tool.

(Reuters / 20 October 2014)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

U.K. Dream of Becoming Islamic Hub Needs Corporate Assist

The U.K.’s ambition to become a global hub for Islamic finance, bolstered by a debut sovereign sukuk in June, needs corporate borrowers to take the baton.

There’s never been a publicly sold Islamic bond from a corporate in the country, according to data compiled by Bloomberg. The closest it has come was a $500 million issue by the Middle Eastern unit of London-based HSBC Holdings Plc in 2011. International Innovative Technologies Ltd., a clean energy company in Gateshead, privately placed the U.K.’s first corporate sukuk in 2010.

London is attempting to marry its status as one of the world’s financial hubs with an industry that’s poised to almost double in the four years through 2018 to be worth about $3.4 trillion, according to Ernst & Young LLP estimates. Even after the city’s former Lord Mayor, Roger Gifford, said Islamic finance should be as British as fish and chips, the U.K.’s debt office said in August it doesn’t have any current plans to sell further sukuk.

“We’re really looking for corporates to issue sukuk, to create a benchmark,” Farmida Bi, a London-based partner at law firm Norton Rose Fulbright, which advised Goldman Sachs Group Inc. on its debut sukuk sale, said by phone Oct. 9. The U.K.’s sukuk “was never just about fundraising for the government,” she said. “There’s definitely a desire to build the industry beyond the sukuk, to provide a framework.”

Corporate Catalyst

The U.K. sold Shariah-compliant notes maturing in July 2019 at a profit rate of 2.036 percent, receiving orders worth more than 10 times the 200 million pounds ($322 million) raised. The debt yielded 1.47 percent at 9:35 a.m. in London. The average rate of sukuk in the Middle East is 4.1 percent as of Oct. 17, according to JPMorgan Chase & Co. indexes.

“The demand seen for the U.K. sukuk should act as a catalyst for further issuances from the government or from U.K. corporates looking to access the liquidity in the Islamic market,” Humphrey Percy, London-based chief executive officer of the Bank of London and The Middle East, said by e-mail on Oct. 9. BLME is the largest Islamic bank in Europe, according to its website. “We welcome more participants here to further develop the market and increase its depth.”

The government will review its sukuk sale and consider how it can further develop its strategy for Islamic finance, Sarah Ellis, spokeswoman for the debt office, said in August. The office last week directed a request for comment to the Treasury, who didn’t respond to e-mailed questions.

‘Western Center’

A lack of issuance may not hold back the industry. The U.K. has six Shariah-compliant lenders, more than any European country, according to London-based Wayne Evans, a senior adviser of international strategy at TheCityUK, an independent company promoting financial services in the U.K.

The government last year set up an Islamic finance task force to cement London’s position as the leading “Western” center for Islamic finance, and TheCityUK was invited to be one of the practioner representatives, Evans said.

“Arguably, London already has this status,” Evans said by e-mail Oct. 16. Two London-based banks are among “the leading arrangers of global sukuk, around 25 law firms in the U.K. are supplying services in Islamic finance, and advisory services are provided by the largest four professional services companies,” he said.

Global Islamic bond sales jumped 16 percent so far this year to $37.2 billion, according to data compiled by Bloomberg. The U.K. was the first non-Muslim government to sell sovereign sukuk, and was followed by Hong Kong, South Africa and Luxembourg.

“There is energy, drive and focus on promoting Islamic finance across the economy,” Norton Rose’s Farmida Bi said. The government is “trying to make it clear to corporates that Islamic finance is a source of financing that they can tap into, it’s available,” she said.

(Bloomberg / 20 October 2014)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Malaysia: Muslim world needs to develop revolutionary method in Islamic finance

KUALA LUMPUR: The Muslim world needs to develop a revolutionary method in Islamic finance to allow entrepreneurs and financiers to leverage each other to contribute to the nation’s economic growth sustainability, Datuk Seri Najib Tun Razak said.

The prime minister said Islamic countries had made remarkable progress and became a significant group in the global economy as the total gross domestic products of the Organisation of Islamic Cooperation (OIC) countries had grown to US$9.4 trillion in 2012 from US$7.5 trillion.

The numbers showed that the Muslim world has limitless potential, he said in a keynote address at the Association of National Development Finance Institutions in Member Countries of the Islamic Development Bank (ADFIMI) – SME Bank International Forum 2014 here yesterday.

“The Muslim world through organisations, such as ADFIMI, must continue to emphasise that Islamic nations are peaceful sovereigns and a source of prosperity for the world.

“Our potential is enormous if we are organised and get our act together,” he said.

The prime minister said as an Islamic finance pioneer, Malaysia could and must play an influential role in ensuring the sector’s future development.

“Ten years ago, Malaysia issued the world’s sovereign sukuk.

Today, Islamic finance is a US$1.2 trillion market; this is expected to rise to US$2.6 trillion by 2017.

Islamic finance is now growing at 50 per cent faster than conventional banking,” he said.

Hence, Najib called on small medium enterprises (SMEs) to make greater inroads in Islamic finance as one of the fastest growing sectors in a crowded financial marketplace.

Najib drove home the point that there were some issues that needed to be rectified by the industry, such as regulatory hurdles, lack of consumer education and the need for more business-friendly policies.

In Malaysian context, he said, the government aimed to increase the SME macroeconomic contribution to 41 per cent of the GDP, 62 per cent of employment and 25 per cent of exports by 2020.

“This is a tall order, but I believe this is achievable and attainable,” he said

.

Najib noted that RM12 billion was spent for 157 SME development programmes last year that supported nearly 890,000 projects across all economic sectors.

He said that this year the spending rose to RM13 billion and almost half of the funds came from the private sector.

Present were Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz, Khazanah Nasional Bhd Deputy Chairman Tan Sri Nor Mohamed Yakcop, SME Bank Group Managing Director Datuk Mohd Radzif Mohd Yunus, and ADFIMI Chairman Mehmet Emin Ozcan.

(Borneo Post Online / 22 October 2014)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Sukuk: An asset class goes mainstream

Dubai: Islamic finance, particularly fixed income instruments known as Sukuk, has come of age and is now an integral component of the mainstream global financial system. A decade ago, the Sukuk market was valued at $9.6 billion, issues were generally small in nature, and the market was concentrated amongst a handful of issuers; in 2013, the market topped US$269.4 billion, with an exponential growth in the number of large deals and increasing diversification of issuers. The Islamic finance industry is expected to continue growing at nearly 20 per cent per year, and the pool of investors interested in Shariah-compliant securities is expected to rise along with it. And while Islamic investors are the natural buyers of Sukuk, the appeal of Sukuk now extends far beyond the Islamic world. Some estimates suggest that conventional investors may account for as much as 40% to 60% of any individual Sukuk offering.

In our view, Sukuk may be attractive options for both Islamic and non-Islamic investors seeking to diversify their investment portfolios. Not only are the returns attractive relative to traditional fixed income assets, the volatility of Sukuk has historically been more subdued—something that could prove important in a rising interest-rate environment. Moreover, Sukuk provide exposure to some of the fast-growing and most financially sound economies in the Gulf Cooperation Council (GCC) and Southeast Asia, countries that are often underrepresented in many traditional bond indexes and funds. Due to their unique structure and market dynamics, Sukuk returns also tend to be less correlated with other parts of the global fixed income market. All of these factors, we believe, may make Sukuk an appropriate complement to investors’ existing equity or global bond allocations.

Innovation and Growth

In essence, Sukuk combine religious law dating back some 1,500 years with the latest developments in modern structured finance. Sukuk are fixed income securities that comply with Islamic law’s prohibition of paying or charging interest. Instead of basing payments on interest, payments are based on either profit sharing or rental or lease income—and they are typically backed by a tangible asset. The Sukuk market has surged from just US$121.5 billion outstanding in 2010 to US$247.6 billion in 2013, according to data from KFH Research. Impressive as that increase has been, it still pales in comparison to the demand for these investments.

New Sukuk issues are often many times oversubscribed, and given the growing acceptance of Sukuk outside of traditional Islamic markets and issuers, the asset class is reaching critical mass. Global consultants Ernst & Young predict that global demand for Sukuk will reach US$900 billion by 2017. The strong demand stems partly from the massive expansion in the assets of Islamic investors, and the relatively limited supply of Sharia-compliant investment alternatives. Islamic financial assets currently total more than US$1.8 trillion, and continue to grow at an annualised rate of nearly 20%. Furthermore, the strength of the asset class during the global financial crisis and Eurozone sovereign debt crisis, as well as the growth of the asset class beyond the Islamic world, is fuelling demand.

Sukuk market goes global

The bulk of Sukuk issuance still comes from Malaysia and the oil-rich Gulf States, but an increasingly wide array of countries and companies in other parts of Asia, Africa and Europe are seizing the opportunity to tap the Islamic debt markets to take advantage of the vigorous demand. Indeed, in June 2014, the United Kingdom (UK) became the first Western government to issue Islamic bonds. The yield offered was comparable to what the UK government pays on its conventional Gilts, with investors receiving rental income based on three government-owned properties.

We expect this trend to continue as a range of issuers looks to tap the large pools of Muslim wealth and liquidity around the world and policymakers see the benefits of complementing their financial architecture with Shariah-compliant securities and services.

Tangible progress is being made across the globe to support Islamic finance and further Sukuk issuance. Sixteen governments around the world have issued Sukuk since 2001, and more are likely to follow suit in the next few years. These deals, we believe, will further help to diversify primary market activity and improve secondary market liquidity.

(Gulfnews.Com / 18 October 2014)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com