Lifting of Iran sanctions to fuel Islamic finance growth

The lifting of international sanctions on Iran will boost the country's economy and fuel the growth of Islamic finance, Standard & Poor's Ratings Services said on Tuesday.

For Iran - one of the largest players in the Islamic finance industry contributing to around 40 per cent of global Islamic banking assets - the lifting of sanctions could bring about its eventual economic rebound and help boost Islamic finance.

The ratings agency said in a report that if Iran meets all deliverables, sanctions may start to lift in the first half of 2016.

The World Bank estimates this would help Iran's oil exports rebound to pre-2012 sanction levels within eight to 12 months. Sanctions lifting could also restore Iran's access to the global financial markets. Under this scenario, Iran's GDP growth would hover around six per cent annually in fiscals 2017 and 2018 according to market estimates, compared with less than one per cent in 2015.

"We expect that accessing the sukuk market might help Iran raise funding for its projects and be seen by global Islamic investors as a diversification opportunity. The Islamic financial market could also benefit from volume effects as post-sanction investment projects are reportedly high. This could support market growth in the medium term," S&P said.

The flipside of sanction removals is the possible drop in oil prices. This could intensify pressure on some oil exporting countries that rely heavily on oil revenues, in turn curbing their spending and banking system growth, the report said.

Tehran is aiming to ramp up oil production despite a supply glut that has sent prices down drastically.

Iran, which has the fourth-biggest oil reserves in the world and is pumping about 2.8 million barrels a day, is expected to add between 600,000 and one million barrels to output once sanctions are lifted.

But Iranian authorities are much more bullish and aim for an increase of close to 1.5 million barrels by the end of 2016, taking daily production to 4.2 million.

For banks in the UAE and Lebanon, the opening up of the Iranian economy bodes well with Tehran lining up $100 billion worth of energy deals to kick-start its economy.

Potentially, Western, Chinese and Indian banks also will likely be attracted to Iran's diversified economy and significant trade flows, according to Moody's.

(Khaleej Times / 16 September 2015)

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

Islamic banks to see a significant uptick from post-sanctions Iran

As the Iranian economy opens up for business, regional Islamic banks are likely to benefit most as the country’s banking system is governed by Sharia, according to Moody’s.

Entry into Iran could be easiest for Islamic banks given that Sharia governs the conduct of business and banking regulation in the country. Iran was the first country in the world to fully convert all banking activities to follow Sharia principles with the enactment of the Usury Free Banking Law in 1983. Currently Iranian banking system operates 100 percent according to Islamic banking principles, a unique feature compared to peers globally.

According to the Central Bank of Iran, the country’s banks and other financial institutions held 15,901 trillion Iranian Real ($558 billion) in total assets as of May 2015.

As a result of financial sanctions, the sector has limited links with the global financial system, relying only on domestic funding with limited interbank borrowing. Of the 29 banks operating in the country, three are commercial government-owned banks, five specialized government-owned banks, 19 are private-sector banks and two are special mandate banks.

“Given the sheer size of the banking system and the country’s financing needs, we expect a major boost to sukuk volumes,” said Khalid Howladar — senior credit officer at Moody’s. “However, Sharia harmonization across jurisdictions would likely remain difficult,” he said.

The country’s largest private-sector banks include Bank Saderat Iran, Tejarat Bank and Pasargad Bank, all of which are listed on the Tehran Stock Exchange. In addition, there are more than 6,000 so-called ‘Gharz-al-Hassan’ institutions catering specifically to microfinance, consumer and SME financing.

Its banking sector is the largest contributor to the global total of Islamic banking assets estimated to account for 45 percent of $1.2 trillion market. Some of the largest Islamic banks globally are based in Iran, with two of them — Bank Melli Iran and Mellat Bank — both estimated to have in excess of $65 billion in assets, just behind the world’s largest Islamic Bank Al Rajhi in Saudi Arabia at $87 billion.

(Albawaba Business / 13 September 2015)

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

Philippines: Islamic financing possibilities

ISLAMIC banking and financing as it is introduced in the Philippines opened a lot of inquiries and challenges. Both Muslims and non-Muslims have their own version of apprehension and contesting ideas.

In the previously held Forum on Islamic Banking and Financing by the Mindanao State University–Iligan Institute of Technology, in partnership with Anak Mindanao and National Commission on Muslim Filipinos last September 2 at MSU IIT Campus, Iligan City, participants from different sectors especially the future accountants of the university, both Muslims and non-Muslims, were given the basics of such concepts by the resource persons.

The resource speakers were Ms. Nataliya Mylenko, the Senior Financial Sector Specialist from the World Bank Group, Congresswoman Sitti Djalia A. Tubarin-Hataman of AMIN, Atty. Maisara Dandamun-Latiph, the senior state solicitor of the office of the Solicitor General and Ms. Maharlika Alonto, an expert on Islamic Banking and Finance from University of Reading, United Kingdom.

From the inputs of the resource speakers, many of the usual controversies regarding Islamic Finance were discussed and given further explanations. Among these issues include the concepts of "interest free," "shari’a banking," "no-loan policy," etc.

However, do we really need Islamic Banking and Financing here in the Philippines? Is this for the Muslim communities in the country only?

The answer is No. This is a system that can be adopted by all.

Let us know the basics of Islamic financial system. As a concept, Islamic economic principles offer the individual the freedom to produce and create wealth, while surrounding the individual with an environment controlled, not by human rulers, but by Divine Guidance. The underlying principles that govern Islamic banking are mutual risk and profit sharing between parties, the assurance of fairness for all and that transactions are based on an underlying business activity or asset.

In the website of Islamic Banking and Insurance, the concept was further discussed according to the essential guidance enshrined in the Qur’an and the Sunnahs (practices) of the Prophet Muhammad (pbuh). Among these are "Trusteeship," which introduces a moral and spiritual element as men perform economic engagements, and "Care for others," which introduces the concept of serving others as part of spiritual teachings in Islam.

Another interesting concept is the idea of "productive effort" as a means of serving God. In this concept, Islam requires wealth to be spent in the cause of God. This realization moves Muslims to greater efforts in their economic activities.

Indeed, if Islamic banking and finance will be well established in this country, we will not only be stronger as a nation but we can be at par with other progressive countries around us like Malaysia. This is probably because of the basic practice of mutual risk and profit sharing between parties that assures fairness for all.

In Malaysia, as narrated by one of the resource speakers, the country’s economy became stable because of the Islamic banking and finance system adhered to by most of the country’s banks. There is this Islamic Banking and Takaful in Malaysia that complies with the Islamic law or Shari’a.

They practice the use of various Islamic finance concepts such as ijarah (leasing), mudharabah (profit sharing), musharakah (partnership). As a country of both Muslims (Malays) and non-Muslims (dominantly Chinese), we have witnessed how the country became united on the matters of Islamic banking and financing.

This concept of Islamic Banking and Finance may be new to us Filipinos but it is known already to other countries and is even practiced since the 70’s. Let us give the concept a chance to be understood by laymen and make our people realize that there is advantage in this principle for a better economy.

(Sun Star / 13 September 2015)

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

WIBC Leaderboard 2015: Leading Islamic banks represented in the global financial disclosure rankings

As per the rankings, Malaysian based Hong Leong Islamic Bank lead the global financial disclosure index rankings with a score of 80. Next, on the ranking charts is Al Baraka bank and Venture Capital bank, both based in Bahrain with a score of 69 and 68 respectively.

Middle East Global Advisors, the organisers of the WIBC for the past 22 years, utilises the Financial Disclosure Index as one of the sub-indicators of the WIBC Leaderboard, an industry benchmark that will form the basis of the WIBC Performance Awards 2015. The Ceremony for the Awards will be held at the Gala Dinner of the 22nd Annual World Islamic Banking Conference which is taking place on the 1st, 2nd and 3rd December at Gulf Hotel Bahrain.

The financial disclosure rating measures the extent to which customers and stakeholders are protected through disclosure of ownership and financial information. The index ranges from 0 to 100, with higher values indicating more disclosure.

First in the series of the WIBC Leaderboard performance indicators, the Financial Disclosure Index chart shows the bank’s name (horizontal axis) and Financial Disclosure Index score (vertical axis) of the top 15 Global Islamic banks ranked on the basis of financial disclosure score.

(CPI Financial / 09 September 2015)

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

Islamic finance model to ‘solve income inequality

 The chairman of Turkey's main stock exchange, Borsa Istanbul, said yesterday that the Islamic finance model could solve the issue of income inequality. Speaking at the International Islamic Finance Symposium in Istanbul, Talat Ulussever described the role of Islamic finance in the global economy: "Islamic finance will pave the way for creating a more prosperous and fair world for all." 

Ulussever said the economic term "risk" comes from the Islamic term "rizq," which means livelihood. "So, we can understand the idea of risk sharing as 'rizq' sharing ... Islam encourages people to share their income with others through Islamic customs such as 'sadaqah' [voluntary charity] and 'zakat' [obligatory alms-giving]. All these means of sharing can reduce income inequality around the world," Ulussever said.

This is why the term "Islamic finance" should be changed to "Finance of Islam," Ulussever said. "Instead of a stock market model where only Islamic shares and sukuk - which does not earn interest - are traded, we should develop a system, a model, where all stock market-listed securities could be traded in an Islamic way," Ulussever added. 

The first annual symposium on Islamic finance was organized by the World Bank Group's Global Islamic Finance Development Center, in collaboration with Borsa Istanbul, the Islamic Development Bank, the Islamic Research and Training Institute and the Guidance Financial Group.

The two-day symposium, of which Anadolu Agency (AA) is the media partner, hosted a broad range of participants from academia, policy-making circles and the private sector from both the region and world. Held under the theme "Islamic Finance: A Catalyst for Shared Prosperity," the symposium aims to foster innovation and discussion in Islamic economics and finance.

(Daily Sabah Finance / 09 September 2015)

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

Foreign Appetite for Malaysia Sukuk Narrows Spread

Spreads on 10 year Malaysian sukuk over conventional bonds have more than halved since being added to the Barclays Global Aggregate Index. Malaysia’s Shariah-compliant government investment issues were included in the Barclays Global Aggregate Index on March 31, with a weighting of 0.18 percent.

It was estimated the move would attract at least $2.5 billion to $3 billion of flows into the Malaysian sukuk market. The average yield on 10-year Malaysian sovereign sukuk at the start of the year was 4.23%, compared with 3.93% for non-Islamic notes of the same maturity, according to Bank Negara data.

Sukuk Structure Conflict

At the time of the announcement is was estimated the move would help narrow the premium between the conventional and Islamic note. In an interview with Bloomberg Azidy Daud, head of treasury at Asian Finance Bank Bhd. in Kuala Lumpur, said the move would “Spur growth in the Islamic finance industry, as it will create demand from more conventional banks and investors.” though he added it was unlikely to attract more Islamic funds from the Gulf. Malaysia mainly uses the Bay’ al-inah and Murabaha structures. Bay’ al-inah which  involves the sale and buyback of an asset by the seller, isn’t acceptable in the Gulf, whilst Murabaha, which uses cost plus mark-up transactions between parties, faces restrictions in the Gulf also, Azidy added.

Increased Sukuk Flows in Malaysia

Bloomberg’s Kuala Lumpur Bureau Chief Shamim Adam stated the tightening of spreads is an indication foreign investors have become more comfortable with Malaysian sukuk. Lower yields assist Malaysia in increasing depth of its capital markets which it turn will help it achieve its year 2020 target of having 40% of its banking assets being based on Islamic Finance principles against 26% currently.

(Islamic Finance.Com / 06 September 2015)

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

Germany urges more Islamic finance integration globally

ANKARA: Islamic finance is increasingly important in the global economy and needs to be better integrated into the international financial system, German Finance Minister Wolfgang Schaeuble told a meeting of the Group of 20 leading economies.

“We all have a better understanding of the risks and role of Islamic finance now,” Schaeuble, reporting on the G20’s Investment and Infrastructure Working Group, told G-20 finance ministers and central bankers gathered in Ankara.

The World Bank, Islamic Development Bank and countries including Saudi Arabia and South Africa had shared their practical experiences with asset-backed financing and Islamic finance in particular over the past year, he said.

“Islamic finance is growing in importance for the global economy. It is therefore important that international financial institutions consider questions related to integrating Islamic finance into global finance,” Schaeuble said, according to a text of his speech obtained from the German delegation.

Islamic finance holds systemic importance in countries such as Kuwait and Qatar, and has made wider gains buoyed by support from governments such as Pakistan and Turkey.

The asset-backed nature of Islamic finance should in theory make it ideal to build highway networks, ports and other big projects. 

An estimated $800 billion worth of infrastructure financing will be needed each year in Asia alone over the next decade, according to the Asian Development Bank.

(Arab News / 07 September 2015)

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

Moody’s downgrades Sime Darby’s sukuk and notes

KUALA LUMPUR: Moody’s Investors Service has downgraded the outlook for Sime Darby Bhd’s sukuk and medium-term note (MTN) programme to “negative” as the diversified conglomerate – which is involved in plantations, property and motors – had been impacted across the board.

The international ratings agency said yesterday that Sime Darby was affected by the slower rate of growth in China and most Asia-Pacific economies, lower commodity prices and a weaker ringgit.

“This has seen leverage surge to over four times for the year ended June 30, 2015 from 1.5 times for FY2012,” it said.

In the report, Moody’s affirmed Sime Darby’s A3 issuer rating and A3 senior unsecured debt rating on the sukuk issued by its unit, Sime Darby Global Bhd.

Sime Darby Global’s (P)A3 senior unsecured MTN programme rating has also been affirmed.

However, the rating agency explained the outlook for both ratings was negative.

“The A3 rating is not sustainable at four times leverage but the company, during last week’s results briefing, indicated that over the next six to nine months gearing – as measured by debt/equity – could fall to around 35%-40% from 58% currently.

“On that basis, and given the company’s long track record, the rating action has been limited to a negative outlook at this time,” said Moody’s.

Moody’s vice-president and senior credit officer Alan Greene cautioned that failure to deliver on the de-gearing within six months could lead to further erosion in Sime Darby’s ratings.

(The Star Online / 05 September 2015)

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

Turkiye Finans, Albaraka Turk apply for lira sukuk

Aug 31 Turkish Islamic lenders Turkiye Finans Katilim Bankasi and Albaraka Turk have applied separately to issue Islamic bonds, or sukuk, according to Turkey's Capital Markets Board.

Turkiye Finans, a sharia-compliant lender which has a focus on loans to corporate clients, has applied to raise up to 1.5 billion lira ($513.2 million) through its wholly-owned unit, TF Varlik Kiralama.

No tenor or details of underlying assets were given for the deal, which could be sold as a public offering or to qualified investors.

Last month, sources told Reuters that Turkiye Finans was planning a dollar-denominated sukuk to bolster its supplementary capital.

Albaraka Turk, a unit of Bahrain-based Al Baraka Banking Group, has also applied to raise up to 1 billion lira through its asset-leasing company, Bereket Varlik Kiralama.

Earlier this month, Albaraka Turk mandated banks for an Islamic syndicated loan with a total initial amount of $400 million.

(Reuters / 31 August 2015)

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

Iran boasts $518b banking asset, highest in Islamic world

TEHRAN – Iran’s banking asset amounts to $518 billion, making the country the biggest asset holder in Islamic banks, said Mehdi Razavi, the chairman of Iran Banking Institute. 

Addressing the 26th Annual Islamic Banking Conference in Tehran on Tuesday, Razavi said that the country accounts for 37 percent of the Islamic world’s total banking assets. 

“From 1995 to 2014, Islamic banks and financial institutes have seen an approximately annual growth of 20 percent and their total asset value has increased from $300 million in 2005 to about $2000 billion in 2014”. 

“According to some estimates, the total asset value of Islamic banks will touch $3,400 billion in 2018”, Razavi highlighted. 

According to published statistics, the number of Islamic banks and financial institutes has surpassed 600 across the world. 

Business Monitor has predicted a 21 percent asset growth in 2016 for Iranian banks, amounting to $586.06 billion.  

Although Iranian banks were under western economic sanctions, a 40 percent asset growth was fulfilled. Iranian banks' total assets were estimated to be approximately $301 billion and $403 billion in 2013 and 2014, respectively.  

Furthermore, granted loans by Iranian banks amounted to approximately $153.93 billion in 2014 and the loans were up 19% in 2014, hitting $183.33 billion.  

In regards to deposit attraction by Iranian banks, 22 percent growth has been predicted, amounting to approximately $219.09 billion, the report reveals. The amount had been allegedly about $179.39 billion in 2014.  

(Tehran Times / 02 September 2015)

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