Judge Islamic Structures on their Merit

Speaking to CCTV News Africa, Jeremy Awori, MD Barclays Kenya stated the bank would be expanding its range of Sharia compliant products based on feedback received from customers. He hinted such products would be aimed at business banking customers and would build upon the banks current asset financing strategy within the industrial sector.

Perception Issues

Mr Awori further commented, as Islamic finance structures continue to mature; Sharia compliant products will be seen in the context of the merits of their structure as opposed to being seen from a faith based perspective. He added risk management is easier when dealing with Sharia compliant structures due to core assets being used within the financing framework.

These comments echo those made by Deputy Turkish Prime Minister Ali Babacan who speaking at an IMF discussion emphasised the universality of Islamic finance for all of man-kind irrespective of faith. He added Turkey has been pushing for asset and equity based finance and was happy to see such structures adopted by the United Kingdom, and Luxembourg in the issuances of their respective sovereign sukuk.

Barclays and Islamic Finance

Within the retail-banking environment, Barclays Kenya offers the La Riba Bank account which it started in 2006 to provide Islamic Finance and Banking services for Kenya’s 8 million Muslims who represent 25% of the population. Barclays Kenya is part of the British Barclays Bank group which through its investment-banking arm Barclays Capital has helped arranged a number of high profile sukuk in the UAE and Malaysia.

(Islamic Finance.Com / 16 August 2015)

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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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New markets for Islamic finance emerging

JEDDAH — New markets for Islamic finance are emerging, with African countries launching debut sovereign sukuk and East Asian countries enabling their domestic markets to tap into Islamic financing, a glimpse of the 2015-2016 edition of the ‘State of the Global Islamic Economy’ said ahead of the Global Islamic Economy Summit that will run in Dubai on Oct. 5-6, 2015 said.

The Islamic Development Bank (IDB) and the Bill & Melinda Gates Foundation have formally launched a $500 million grant facility to address poverty and diseases in IDB member countries. Meanwhile, European banks in Russia and Germany, for example, are also investing in Islamic finance through debut sovereign sukuk and Islamic banking windows.

Besides, as the demand for safe, wholesome and humane food grows around the world, producers of halal food who truly adhere to the concepts of ‘halal’ and ‘tayyib’ foods have an opportunity to become the global standard for this segment. 

The report cited Saffron Road as a leading premium US brand in the halal and all-natural market. The company is ranked as the fastest growth brand of natural entrées in the US, among all frozen entrées, not just halal. The brand will achieve over $40 million in retail sales this year, and is expected to grow over 50% next year.

Moreover, there have been many success stories in the ever-burgeoning halal travel sector. HalalBooking.com, a travel search and booking website for halal-conscious travelers, has achieved tremendous success. The website’s booking for Turkey-based hotel clients has exceeded millions per resort, and hopes to reach 10 million per hotel for many of its properties by end 2015 and through 2016. This is in addition to other success stories such as Yamsafer, a hotel booking start-up from Palestine that raised $3.5 million from Global Founders Capital.

Furthermore, the report noted a new frontier in the Islamic economy, that is the digital component. This segment has woven itself into the lives of many Muslims worldwide as an integral part of their lifestyle. From Qur’an and halal travel mobile apps to online Islamic education services and tools for locating the nearest halal restaurants, the Islamic Digital Economy has emerged as a high growth segment. Success stories include Zabihah.com, a leading location-based guide to halal restaurants and markets with a digital reach of 10 million unique users, MuslimPro, a prayer, and the ‘qibla’ tracking mobile app with over 10 million Android downloads in 16 different languages.

In addition,  pharmaceuticals & cosmetics sector offers several success stories and opportunities for growth. The halal cosmetics sector in particular is growing quickly in the Asia Pacific through smaller brands, forcing large companies such as Unilever to start looking at halal cosmetics to ensure they maintain their strong presence in this region. South East Asia is leading the development of halal vaccinations for meningitis, hepatitis and meningococcal for Hajj pilgrims. 

To boot, in stark contrast to the pressures the mainstream fashion industry faces in the aftermath of the global recession, the modest fashion space continues to expand. Muslim fashion e-commerce platforms such as Hijup and Modanisa are receiving further investments to grow their user base, while mainstream fashion players such as Uniqlo, Mango and Tommy Hilfiger are following the lead of haute couture houses such as DKNY in tapping into the modest fashion market, the report said.

The report is released ahead of the Global Islamic Economy Summit 2015, organized by the Dubai Chamber of Commerce, Dubai Islamic Economy Development Centre (DIEDC) and Thomson Reuters.

Abdulla Mohammed Al Awar, CEO of DIEDC, said “the launch of this year’s State of the Global Islamic Economy report reiterates the commitment of Dubai Islamic Economy Development Centre, along with Thomson Reuters and DinarStandard to nurture a knowledge-based Islamic economy within the emirate and wider UAE as part of our continued priority to develop Dubai as the Capital of Islamic Economy. We are confident the report will inspire and empower entrepreneurs, industry leaders and investors from within the Arab world and beyond to evaluate and develop an actionable, practical and high impact market strategy focused on growing the opportunities for Islamic economy in their own geographies.

(Saudi Gazette / 16 August 2015)

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Onshore banking activities, including the possibility of introducing Sharia-compliant banking are being considered for the Seychelles-registered Bank of Muscat International Offshore (BMIO).

The Al Salam Bank of Bahrain, which now owns 50 percent shares in the Seychelles-registered Bank is engaging with the Seychelles authorities on the future of the institution, following the recent approval of BMIO’s reorganization plan.

Al Salam Bank came in as the new shareholder of BMIO after it acquired BMI Bahrain, the former 50 percent shareholder of the bank, earlier in 2014.

It is to be recalled that CBS took control of BMIO in November 2014, following the breakdown of the latter’s foreign correspondent banking relationship the month before.

The reserve bank subsequently announced the restructuring process of the bank with the appointment of a foreign reorganising agent for the job.

The reorganisation plan of BMIO prepared by Huns Biltoo of KPMG Mauritius, received the approval of the Seychelles Supreme Court on June 24, after receiving the go ahead of all relevant stakeholders in line with the Financial Institutions Act 2004 (FIA).

The Governor of the CBS, Caroline Abel has said that it has taken approximately 8 months for this to materialize “counting from the time the issue of BMIO first came to light.”

“The way forward now is to fully implement the plan and hand the institution back over to its shareholders, namely Nouvobanq and Al Salam,” said Abel in an emailed response to SNA.

An Al Salam delegation was in Seychelles from July 22 to 23, to discuss the way forward.

It was then that they discussed plans to consider opportunities to develop onshore banking activities, including the possibility of making the institution a Sharia-compliant bank. This was during meetings they had with the Seychelles President James Michel, the Minister of Finance, Trade and the Blue Economy Jean Paul Adam and CBS Governor Caroline Abel.

Sharia Banking also known as Islamic Finance, basically forbids all forms of interest and works on the basis of risk sharing.

Seychelles is yet to venture into Islamic banking as the country does not currently have legislation which caters for these kinds of banking activities, however, CBS has said that Seychelles government recently commissioned a study into Islamic finance which “has identified the potential for Islamic banking to contribute significantly towards Seychelles’ GDP.”

The reserve bank has also announced plans for CBS to put in place the necessary framework to introduce additional financial services in Seychelles, including Islamic banking as part of the country’s Financial Sector Development Implementation Plan, which was approved by Cabinet in November 2014.

While BMIO’s reorganization plan is being fully implemented and the Bahrain-based Al Salam's proposals for the bank’s future are being studied by the Seychelles authorities, the offshore bank remains under CBS management for the time being while there is a new interim Managing Director in place.

According to a news report aired on the national television, Seychelles Broadcasting Corporation SBC, on Monday, “the new interim MD is Issa Soormally, who is the former Deputy Governor of the Bank of Mauritius” and is replacing the former Managing Director Frank Hoareau “who resigned in March this year.”

The SBC report also confirmed that the Bank of Baroda was BMIO’s new foreign correspondent bank through its branches in New York, London and Frankfurt for dollar, pounds sterling and euro currency transfers.

BMI Offshore was first registered in Seychelles in July 2008 as a joint venture between BMI Bank in Bahrain and Seychelles-based bank Nouvobanq, each with 50 percent shareholdings.

The bank is based in the 'Capital City' office block on Independence Avenue in central Victoria, the capital of the 115-island archipelago.

- See more at: http://www.seychellesnewsagency.com/articles/3480/Islamic+banking+a+possible+option+for+BMIO+as+reorganization+plan+is+implemented#sthash.ymhbRnA5.dpuf
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Islamic Finance expected to grow to 3 trillion by 2018

Islamic finance has been growing rapidly over the past decades, reaching $1.8 trillion in 2014 and is expected to exceed $3 trillion by 2018. In a recent article by BearingPoint Institute, the consulting firm considers the differences between the partnership practice of Islamic banking and the practice ofinterest. The firm also explores the wider challenges faced by both Islamic and western bankinginstitutions as the practice of Islamic banking further expands to meet the needs of up to 1.6 billion potential participants in Islamic financial products and services.

How finance works is somewhat rigidly understood within much of the Western financial world, and while companies are developing potentially disruptive new financial products, as well as creating new platforms on which to access funding, the fundamentals remain relatively similar. Islamic states, such as Saudi Arabia, Qatar and Malaysia, also practice a form of finance, called Islamic finance, which eschews one of Western finances fundamental concepts: interest.

Islamic finance
Interest has the potential to be leveraged punitively, where the need of the beneficiary is taken advantage of by those with means. To prohibit less than ethical practices within finance, Islamic finance seeks to share risk/reward as a key tenet. Banks are required to build a clear understanding of what is being financed, with the agreement between parties more akin to a partnership. The principles of Islamic banking come from the Sharia law that prohibits usury, uncertainty and speculation; rather it requires transparency and necessitates physical presence for money transfers.

As its practices are firmly rooted in ethical constraints on practices, with profit not an above all but state imposition, Islamic banking has quietly enjoyed a growing market share in Saudi Arabia, Qatar and Malaysia, recently reaching 50%. Some of the region’s most powerful banking institutions are engaged in the practice, including Al Rahji Bank and Bank Al Jazira in Saudi Arabia, as well as the Kuwait Finance House.

 

Today Islamic banking is a $1.8 trillion dollar financial structure, with a large number of different segments being served by Islamic banking institutions. The baking practice is growing rapidly, with double digits, and is expected to be worth up to $3 trillion by 2018.

 

One of the main financial instruments in Islamic banking is sukuk, which is roughly equivalent to bonds. Through entering into partnerships with small players, Islamic banks provide a different funding source than government finances, which accounts for 62% of some markets. Furthermore, unlike conventional bonds, sukuk grants the investor a share of an asset, along with cash and risk. The largest part of the total bonds issued in the market has been provided to financial services at 26%, followed by energy & utilities at 25%. Transport comes in at 19% followed by real estate at 8%.

According to BearingPoint, a number of challenges face the form of banking. The main challenge relates to staying within international and national regulations while at the same time making sure that providers keep their reputations and remain within the spirit and the letter of the practice. Finding relevant skills also is an issue for institutions, at both the level of principles and operational practice required in meeting face to face and upholding strong bonds.

Western financial institutions seeking to enter the Islamic financial market face considerable hurdles. According to the researchers, a lack of cultural awareness and a fundamentally wrong intention behind the practice are possible barriers. One way to enter the relevant markets is to create subsidiaries that are their own brands, like ‘Amanah’ created by the HSBC group. As the practice is expanding into new areas, the risk of Western business not fully understanding the way of engaging with partners makes it considerably more difficult to reach out to the Middle East, Africa and Far Eastern countries, such as Malaysia and Indonesia. Banks in these regions are increasingly likely to come across organisations for whom it has a place – customers, partners, suppliers, and governmental and non-governmental organisations.

(Consultancy.UK / 13 August 2015)

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Bearish economic climate to drag down Islamic banks’ profits, S&P warns

Low oil prices and slower economic growth will hit the earnings growth of Islamic banks in the Arabian Gulf this year and next, says Standard & Poor’s.

Earnings growth would fall to “mid-single digits” in 2015 and 2016, said the credit ratings agency yesterday, down from the sector’s average earnings growth of 12.7 per cent last year.

It said the value of collateral assets held by Islamic banks had been hit by government-related entities’ declining appetite for capital expenditure amid lower government spending, economic growth and the falling value of Dubai properties.

These trends would also bolster non-performing Islamic assets over the next few years, said S&P.

“With revenue from crude oil depressed, and likely to stay depressed, financing activity should go down across the board,” said Sanyalaksna Manibhandu, a senior analyst at the National Bank of Abu Dhabi.

“That doesn’t just apply to the real estate market, everything will go down because consumers and businesses have less demand for loans and less income.”

Islamic banks in the UAE are more exposed to real estate than their conventional counterparts. Sharia principles require all transactions to be based on the exchange of real assets, and real estate is commonly used as a form of collateral by customers of Islamic banks.

Property prices in Dubai’s Marina district have plummeted about 18 per cent over the past three months, according to Dubizzle. Rents in the same area have fallen about 7 per cent. Across Dubai, transactions plunged 69 per cent in the second quarter from the same period last year, according to data from Dubai Land Department.

That follows government moves to cool the housing market with an increased tax on house purchases, and limits to the size of a mortgage that bank customers can take out.

A slowdown in oil and gas projects is also likely to hamper credit growth at Islamic banks. S&P forecasts that the UAE’s Islamic lenders will experience an 8 per cent increase in credit this year and next, down from 9.5 per cent last year and 8.8 per cent in 2013.

A worsening macroeconomic picture underpins much of the gloom. The IMF now projects a 3 per cent GDP growth for the UAE this year, down from its forecast last December of 4.5 per cent growth. That is because government spending cuts will cut economic growth by 1 per cent each year to 2020, and the low oil price is affecting consumer demand.

One analyst said government deposits at banks were beginning to decrease, as the macroeconomic environment worsens.

“2016 will be more challenging because everyone’s factoring in a lower oil price for a longer period. That means that government spending, corporate spending and capex are likely to slow down,” said the analyst.

(The National Business / 12 August 2015)

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Saudi's Othaim Malls targets up to 1 bln riyal debut sukuk issue

Aug 10 Saudi Arabia's Al Othaim Real Estate and Investment Co, owner of five shopping malls in the kingdom, is marketing a five-year debut sukuk issue which could raise up to 1 billion riyals ($267 million) for the company, four sources aware of the matter said.

The firm, also known as Othaim Malls, is part of Al Othaim Holding, a family-owned conglomerate which includes listed food retailer Abdullah Al Othaim Markets Co.

Othaim Malls launched the transaction last week, with pricing earmarked at between 165 basis points and 175 basis points over the six-month Saudi interbank offered rate , according to the banking sources who spoke on condition of anonymity as the information isn't public.

A company source, who declined to be named, confirmed the sukuk was being marketed and said part of the proceeds would be used to fund its expansion plans.

Othaim Malls is building five malls, of which three are likely to be completed by end of this year, with the rest finalised by the end of 2016, as well as 16 entertainment centres, the company source added.

Two of the sources said applications from investors wanting to participate in the deal, which is secured against the firm's mall in Al Hofuf in the east of the kingdom, needed to be submitted by Aug. 20.

The deal comes after sources told Reuters in June that Othaim Malls was looking to complete a transaction after the summer, having revived plans which had stalled the previous year.

(Reuters / 10 August 2015)

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UAE needs to boost Islamic finance sector’s stability with more regulations, IMF says

The UAE needs to introduce more regulation to increase the stability of its Islamic finance industry, according to the IMF’s annual report on the country.

It must “tailor [its] regulatory and supervisory frameworks to adequately address Islamic banks’ specific risks”, said the IMF. That means introducing new rules to govern profit-sharing investment accounts and Sharia governance.

The UAE must also continue to develop new Sharia-compliant liquidity management tools for banks, said the IMF.

Islamic assets presently account for 17 per cent of assets and 19 per cent of bank deposits in the UAE, according to the IMF.

The UAE’s Central Bank needs to act as a lender of last resort to the country’s Sharia-compliant lenders, said Jaseem Ahmed, the secretary general of the Islamic Financial Services Board, an independent international institution.

The Islamic finance sector was “systemically important” in the UAE, Qatar, Saudi Arabia, Kuwait and Yemen because Sharia-compliant assets account for more than 15 per cent of total banking system assets in these countries. he said.

The UAE government plans to introduce a unified Sharia authority to act as the country’s ultimate arbiter of jurisprudence on Islamic finance.

The authority will be set up by the end of September, according to Khalid Al Janahi, an adviser to the government-backed Dubai Islamic Economy Development Centre. The centre oversees the emirate’s efforts to transform itself into a centre for Sharia-compliant finance, goods and services.

The next step is for the UAE government to address legal enforcement of contracts governing Sharia-compliant financial products, according to Sayd Farook, who also advises the Dubai Islamic Economy Development Centre, and a former head of Islamic capital markets at Thomson Reuters.

“Who is the ultimate arbiter of the Islamic interpretation of contracts? When parties go to court, who arbitrates whether a contract is Sharia-compliant or not?” said Mr Farook.

“Islamic jurisprudence is an art, and the interpretations are not always uniform,” he said.

When the property developer Nakheel almost defaulted on its US$4 billion sukuk in 2009 when it was owned by Dubai World, the legal difficulties the crisis created were major, said Omar Salah, a senior associate at the De Brauw Blackstone Westbroek law firm, in a paper published when he was a doctoral candidate at Tilburg Law School.

Nakheel had sold assets to a special purpose vehicle, but under Dubai law, creditors had no rights to the assets held by it. The crisis was ultimately resolved, but the lesson stood that the UAE’s legal system did not address key areas of contract law regarding Islamic finance, according to Mr Salah’s paper.

Clarity in dispute resolution over Sharia-compliant assets “is an area where all countries are suffering”, Mr Farook said.

(The National Business / 08 August 2015)

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Legislation gaps slow Sukuk issuance in Nigeria, others – S&P

Legislation gaps are really challenging African countries’ intent to effectively issue the sukuk, an Islamic bond, which could help fund the continent’s huge infrastructure needs, Standard & Poor’s credit rating agency said on Thursday, in a new report.

To date, African sovereigns have issued just about $1 billion of sukuk instruments, compared with global sukuk issuance of an average $100 billion per year over the past five years, says S&P.

In Nigeria, Osun State has issued a N10 billion ($51m) sukuk yielding 14.75 percent, the first and currently the only Islamic bond from the Africa’s largest economy.

The global rating agency, citing experience in South Africa and Senegal, notes that a significant amount of time can elapse between a government’s announcement of intent to issue sukuk and their effective issuance, as governments gauge market interests and try to address the legal hurdles and cost of issuance.

But S&P believes that regulations and fiscal incentives could speed Islamic Finance Development on the continent and that the development of an Islamic finance industry could help Africa fund its huge infrastructure needs.

Meanwhile, widening fiscal deficits and large infrastructure gaps will likely require multibillion-dollar additional financing needs over the next decade.

Infrastructure deficit is huge in Nigeria, and funding is currently a challenge on account of fallen government revenues.

The government has presented $166 billion investment outlay for the first five years implementation of the 30-year National Integrated Infrastructure Master Plan (NIIMP) but is now looking to prioritising projects to package and market to the private sector for investment.

“Legislation gaps are the main causes of delay between a country’s intent to issue and its effective issuance of sukuk,” says S&P’s credit analyst Samira Mensah.

”We believe that a growing interest in Islamic finance could encourage some North African countries, as well as sub-Saharan countries Cote d’Ivoire, Nigeria, and Kenya, which have fairly well developed capital markets by regional standard, to issue sukuk in the future,” says Mensah.

The report suggests that a framework of regulation and fiscal adjustments will be necessary to foster African sukuk markets, provide wider investment options for potential Islamic investors, and attract a pool of Islamic liquidity.

Acceptability of Islamic banking principles is equally an issue particularly in Nigeria, where, for instance, it took almost ten years for Jaiz Bank, the only Sharia-Compliant financial institution in the country to commence operations after obtaining operating licence.

S&P thinks governments will take time to introduce new regulation and fiscal adjustments to foster African sukuk markets, increase investment options for potential investors, and attract a pool of Islamic liquidity.

It cites the success of Malaysia in South-East Asia as a hub for Islamic finance, which among other things, lies in the strong regulatory framework to support the sector’s growth.

Malaysia also moved quickly in 2009 to address the standardization of instruments and interpretation of Sharia law.

“The involvement of major multilateral institutions could accelerate the development of African sukuk issuance, in our view,” it states.

Tax regimes are equally important to consider when encouraging sukuk issuance. Sharia-compliant instruments require equal treatment with conventional instruments for investors to consider them. Malaysia introduced various tax incentives that made Islamic finance a cheaper economic alternative for institutions to raise funding.

S&P notes however that increasing technical assistance by the Islamic Development Bank (IDB) and Islamic Corporation for the Development of the Private Sector (ICD), are gradually facilitating also sovereign sukuk issues.

(Business Day / 07 August 2015)

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PINKOWSKI : ISLAMIC FINANCE DESERVES FAIR SCRUTINY

Paving the way to safer, saner Africa may involve using finance means outside of the traditional international banking sector, says Brian Pinkowski, an expert in post-conflict economicdevelopment. Pinkowski’s team of communication consultants have examined the claims of a Standard & Poors report that include:

• We (S&P) believe the development of an Islamic finance industry could help Africa fund its significant infrastructure needs.
• However, we think governments will take time to introduce new regulation and fiscal adjustments to foster African sukuk markets, increase investment options for potential investors, and attract a pool of Islamic liquidity.
• The involvement of major multilateral institutions could accelerate the development of African sukuk issuance, in our view.

Pinkowski, who recently led an effort to connect Kosovo businesses with Guinea, says the concurrent demands of stability and development make large scale Islamic finance possible, butmore work must be done.

However, a framework of regulation and fiscal adjustments will be necessary to foster African sukuk markets, provide wider investment options for potential Islamic investors, and attract a pool of Islamic liquidity, the report says.

To date, African sovereigns have issued about $1 billion of sukuk instruments, compared with global sukuk issuance of an average $100 billion per year over the past five years. Meanwhile, widening fiscal deficits and large infrastructure gaps will likely require multibillion-dollar additional financing needs over the next decade.

Experience in South Africa and Senegal has shown that a significant amount of time can elapse between a government’s announcement of intent to issue sukuk and their effective issuance, as governments gauge market interests and try to address the legal hurdles and cost of issuance.

“We believe legislation gaps are the main causes of delay between a country’s intent to issue and its effective issuance of sukuk,” said Standard & Poor’s credit analyst Samira Mensah. The success of Malaysia in South-East Asia as a hub for Islamic finance lies, among other things, in the strong regulatory framework to support the sector’s growth. Malaysia also moved quickly in 2009 to address the standardization of instruments and interpretation of Sharia law.

Tax regimes are equally important to consider when encouraging sukuk issuance. Sharia-compliant instruments require equal treatment with conventional instruments for investors to consider them. Malaysia introduced various tax incentives that made Islamic finance a cheaper economic alternative for institutions to raise funding.

However, increasing technical assistance by the Islamic Development Bank (IDB) and Islamic Corporation for the Development of the Private Sector (ICD), are gradually facilitating also sovereign sukuk issues. ”We believe that a growing interest in Islamic finance could encourage some North African countries, as well as sub-Saharan countries Cote d’Ivoire, Nigeria, and Kenya, which have fairly well developed capital markets by regional standard, to issue sukuk in the future,” said Ms. Mensah.

(The Cherrycreeknews.Com / 06 August 2015)

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