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)

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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)

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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)

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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)

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Saudi's Othaim Malls raises 1 bln riyals in debut sukuk -sources

Aug 30 Saudi Arabia's Al Othaim Real Estate and Investment Co, owner of five shopping malls in the kingdom, has raised 1 billion riyals ($267 million) through a debut sukuk issue, two banking sources said on Sunday.

The five-year issue was priced at 170 basis points over the six-month Saudi interbank offered rate, the sources said.

The company, also known as Othaim Malls and part of family owned conglomerate Al Othaim Holding, began marketing the sukuk in early August, earmarking part of the planned proceeds to fund expansion plans.

Othaim Malls is building five shopping centres, three of which are likely to be completed by end of the year, with the rest finalised by the end of 2016.

A company source, who declined to be named, said the sukuk settlement was on Sunday.

The transaction was arranged by the investment banking arms of Banque Saudi Fransi, Gulf International Bank and National Commercial Bank.

(Reuters / 30 August 2015)

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The huge potential in Islamic Finance

SANDTON – Responsible investing is becoming a major theme across the global industry. And one of the most significant areas within this sphere is faith-base dinvesting.

Speaking at the Money Expo 2015 at the Sandton Convention Centre, investment analyst at 27Four Investment Managers Nadir Thokan said that the Islamic Finance industry is still in the early stages of growth, but the potential is significant.

“The conventional financial services industry is more than 400 years old,” Thokan said. “But Islamic finance only dates back 40 years.”

While there has been substantial innovation over that time, the market remains relatively small.

“Currently the global market for Islamic finance is $1.5 trillion and its growing at 30% per annum,” Thokan said. “But penetration levels are still very low. Twenty-six percent of the world’s population is Muslim, but just 1% of banking assets globally are Shari’ah compliant. Given the huge pools of wealth in the Muslim world, this is poised for massive increases over the next few years.”

Thokan believes that the biggest potential for growth is in asset management, which still makes up a very small part of the Islamic finance industry as a whole.

“Of the $1.5 trillion in Shari’ah compliant assets, only $64 billion sits in fund management,” he said. “Only $25 billion of that is in equity mandates. But this is a multi-trillion dollar industry in the conventional asset management space.”

He argued that as penetration of products increases and as more people take a greater interest in Shari’ah compliant finance, this will also be a platform for very attractive returns moving forward. As flows into these products increase, returns will move upward.

In particular, he highlighted the global Sukuk market as one in which 27Four sees huge potential.

In simple terms, Sukuk can be described as a Shari’ah compliant bond product. With a bond, an issuer will receive capital from a pool of investors and in return will pay them an interest coupon over a set period and return their capital to them at the end of it.

Sukuk works in a similar way, but it is structured differently in that it gives ownership in a particular product. It therefore does not pay interest, but rather a share of the issuer’s earnings.

“With a conventional bond you take very little risk because unless the company goes bankrupt you are guaranteed the interest and your money back at the end of the term,” Thokan explained. “With Sukuk, however, you participate in profit and loss of that company. Typically what we’ve seen happening though is that it finances fairly low risk projects where cash flows are reasonably certain.”

Thokan said that there is huge potential in this market as it is tapping into a huge source of potential funding that is looking for good rates of return.

“In the Sukuk market there has always been more demand than supply,” he said. “So people have been willing to pay up. And as the industry grows and more people realise the benefits of issuing Sukuk we are likely to see the depth and liquidity of the market increasing.”

A significant benefit of Sukuk is that it shows very low correlation to other asset classes, including global bonds. It is therefore a great tool for diversification, making it appealing not only to investors looking for Shari’ah compliant products, but any investor looking for alternative sources of return.

The market is already showing signs of expanding out of its traditional base, with increasing numbers of issuers coming from outside of Asia and oil-producing nations. Recently Sukuk has been issued by the likes of investment bank Goldman Sachs, multinational conglomerate General Electric, and the German state of Saxony-Anhalt.

“We are going to continue to see rapid rates of growth because it is an attractive avenue for issuers to look at in terms of diversifying their funding base,” Thokan said. “And as the market gets bigger it will attract larger pools of money, bigger issuers and more attractive returns.”

(Money Web / 25 August 2015)

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Oman’s Islamic banking could achieve 17% of total banking asset in 5 years, Bank Nizwa CEO

MUSCAT: Islamic banking in Oman could achieve around 15 to 17 per cent of the total banking asset within the next five years in normal market conditions with recovery and stability in the oil market, says a bank official.

Speaking to the Times of Oman, Dr Jamil El Jaroudi, chief executive officer of Bank Nizwa, said it is ‘difficult’ to estimate the share of Oman’s Islamic banking operations at this juncture due to the volatility in oil prices, which is affecting the country’s growth.

According to the Central Bank of Oman, the combined assets of Islamic banks and window operations surged ahead by 64.08 per cent to OMR1,832.6 million by end-June 2015, from OMR1,116.9 million for the same period last year, while conventional banks’ total assets moved up by 11.22 per cent to OMR27,391.9 million, over the same period of 2014.

“This is an important variable that would determine the nature of the competition for the banking sector going forward,” El Jaroudi noted.

However, assuming a normal market condition and recovery with some stability in the oil price, it is fair to assume that Islamic banking could achieve a level of around 15 to 17 per cent of the total banking asset within the next five years, he added.

“This level would be similar to the other markets in the region including the United Arab Emirates (UAE) and Bahrain,” said the CEO of Bank Nizwa.

Remarkable growth

Commenting on the performance of Islamic banking in Oman, El Jaroudi said, “If you look at the industry reports, both fully-fledged Islamic banks in Oman and Islamic windows combined saw an average growth rate of over 40 per cent year-on-year, in terms of total assets.”

The average growth for conventional banks on the other hand was around nine per cent for the same period, he added.

“In terms of financing portfolio growth, it is even more remarkable, as we have grown by more than 300 per cent on an average during the same period, compared to the conventional banks’ average of approximately 15 per cent,” the official noted.

Other countries

He added that these figures are in line with the other countries in the region which are experiencing the same challenges in growing their Islamic banking industries.

“For example, the five-year compound annual growth rate (CAGR) in Qatar was 31 per cent which is 1.8 times faster than its conventional banking with $54 billion worth of Islamic assets representing 24 per cent market share,” he said.

In the UAE, it is lower at 14 per cent but still three times faster than its conventional banking sector with $83 billion worth of Islamic assets representing 17 per cent market share, El Jaroudi explained.

He added that in some other countries, the Islamic banking sector has experienced more challenges that curtailed its growth altogether, although it could be due to geo-politics or that Muslims are not the majority in those markets.

“So we have to look at the growth of this growing sector in Oman and appreciate its achievements thus far,” the CEO of Bank Nizwa concluded.

(Times Of Oman / 30 August 2015)

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Islamic finance assets to touch $3.2t by 2020

The islamic finance industry will continue to grow strongly as the value of assets is expected to increase by 80 per cent to reach $3.24 trillion over the next five years, according to initial findings of State of the Global Islamic Economy (SGIE) report.

The report, which is commissioned and supported by Dubai Islamic Economy Development Centre (DIEDC) in partnership with Thomson Reuters, and in collaboration with DinarStandard, will be published ahead of the second Global Islamic Economy Summit (GIES), taking place in Dubai this October.

The 2015 summit, organised by Dubai Chamber, DIEDC and Thomson Reuters, is set to gather over 2,000 policymakers, thinkers and business leaders on October 5 and 6 at Madinat Jumeirah, Dubai.

Islamic finance is considered the most developed sector within the various pillars of the Islamic economy. The growth in the global Shariah-compliant economy is broadly measured by the value of Islamic finance assets.

In 2014, Islamic finance assets had an estimated value of $1.8 trillion, with Islamic banking representing 74 per cent of total Shariah-compliant assets, followed by 16 per cent in outstanding sukuk, based on ICD Thomson Reuters Islamic Finance Development Indicator (IFDI 2015).

According to Thomson Reuters' projections, Islamic finance is expected to grow to reach $3.2 trillion by 2020, with Islamic banking constituting $2.6 trillion of this figure.

The total number of Islamic financial institutions operating globally has reached 1,143, divided between 436 Islamic banks/windows, 308 takaful institutions and 399 other Islamic financial institutions, such as financing and investment companies.

Most of these Islamic finance institutions are located in GCC countries and Southeast Asia, while the others are distributed between other Mena countries, South Asia and other regions. Most Islamic finance assets are held by Saudi Arabia, Iran, Malaysia and the UAE.

As global acceptance of Islamic finance continues to grow, more corporates and non-Muslim sovereigns are announcing Islamic finance initiatives such as ethical or Shariah-compliant regulations, as well as products such as sukuk issuances. This increased appetite demonstrates that the market is attracted to the benefits surrounding the ethical principles of Islamic finance, linking finance to physical assets, productive fiscal activities and real economic growth.

One of the key sessions at GIES 2015 will discuss the importance of the Islamic economy's broader sectors to Islamic finance. It will feature a debate by Tirad Al Mahmoud, Jamal Bin Ghalaita and Dr Adnan Chilwan, the chief executives of leading Islamic banks Abu Dhabi Islamic Bank, Emirates Islamic and Dubai Islamic Bank respectively.

The debate will be followed by one of the key sessions of the summit, covering how Islamic financial institutions have moved from niche to mainstream by being part of the global agenda. The session will discuss whether Islamic financial institutions can meet the needs of people who are financially excluded solely for religious reasons, and whether Islamic finance can act as a financial inclusion mechanism for non-Muslims.

The GIES 2015 is taking place under the patronage of His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai. Featuring more than 60 international speakers across 15 sessions, the summit will offer insights on the seven pillars of Islamic economy: Islamic finance, halal industry, family tourism, Islamic knowledge, Islamic arts and design, Islamic digital economy and Islamic standards.

(Khaleej Times / 30 August 2015)

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Australia's NAB seals maiden Islamic financing deal

Aug 27 National Australia Bank Ltd has closed its first onshore Islamic financing deal, a A$19.9 million ($14.2 million) arrangement to fund a real estate purchase by Sydney-based asset manager Crescent Wealth.

The funding platform designed by NAB, the country's No.4 lender by market value, could help open Australia to Islamic investors from the Gulf and Southeast Asia that seek to adhere to religious principles such as bans on interest and gambling.

Crescent Wealth used the four-year financing for a A$30.75 million commercial property acquisition in South Melbourne, with plans to build a portfolio of commercial assets across the east coast, said Talal Yassine, managing director of Crescent Wealth.

"It marks a significant moment for the industry in Australia as the funding was supported by an Australian retail bank."

Until know, such deals had to be purely funded by equity, but the sharia-compliant structure would help to significantly remove transaction risk, in particular for foreign investors, said Yassine.

"We plan to secure a second asset by year end and again, will be leveraging the existing structure we have with NAB."

Crescent Wealth, established in 2011, currently has over A$100 million in assets under management across five Islamic funds which include cash, real estate and domestic and international equities.

In April, the firm set up an office in Malaysia and is now considering applying for a boutique fund management license.

TAXES

Islamic financing has struggled to gain traction in Australia due in part to tax issues which can penalise the asset-based nature of such transactions.

Structures such as sukuk, or Islamic bonds, can attract double or even triple tax charges because they require multiple transfers of title of the underlying asset.

The Australian Board of Taxation presented an Islamic finance paper to the government in June 2011 aiming to address such issues, but Canberra has yet to give a response or release the final review.

In the meantime, Britain, Luxembourg, South Africa and Hong Kong have all passed tax amendments to facilitate such transactions. All have issued sukuk over the past year.

The NAB used a structure known as wakala, where one party acts as an agent for another to manage a pool of assets. Wakala is widely used overseas, with Hong Kong using the format for its second issuance of sukuk in May, a $1 billion deal.

(Reuters / 27 August 2015)

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Kremlin moves to attract Islamic funds

Russia may amend its financial regulations to allow Islamic banking in abid to attract funds from Muslim countries, as its economy struggles with a recession and Western sanctions.

The move comes as economists, including those at the International Monetary Fund, say U.S. and European sanctions are having a significant negative impact on the Russian economy by blocking important Russian companies from accessing global financial markets.

Officials have created a task force charged with implementing Islamic banking in the country, including amending the country’s banking laws, said Dmitry Savelyev, deputy chairman of the State Duma Committee on Financial Markets and the leader of the task group, the TASS news agency reported.

Islamic law, known as Sharia, places restrictions on certain types of financial transactions, such as interest payments. Over the years, a sophisticated field of banking practices compliant with Sharia has arisen to facilitate financial activity among pious Muslims, including the issuance of Islamic bonds, known as “sukuk.”

The market for Islamic finance is expanding rapidly and should reach a total size of $2.6 trillion by 2017, according to a report by global consulting firm PricewaterhouseCoopers. Another estimate by the IMF said totalglobal Islamic assets would reach $3.4 trillion by the end of 2015.

Russia has a significant Muslim minority, estimated at about 15% of the population, which could make the practice attractive here.

Konstantin Baymukhashev, an attorney at UFS IC, said the changes in Russian legislation should help attract investment into the Russian economy from Arab countries.

Attracting Islamic assets

Rustam Minnikhanov, the president of Tatarstan, one of Russia’s predominantly Muslim regions, has been one of the most vocal proponents for bringing Islamic finance to Russia.

“The Muslim countries have not taken part in the attempts to isolate ourcountry on the international stage, and the latest developments in the world economy have shown that Islamic banks can withstand variousglobal crises and complement the global financial system,” Mr. Minnikhanov said in a speech in June at the KazanSummit Economic Forum.

Islamic finance will help Russian companies compensate for the lack of funding caused by the recent deterioration of relations between Russia and the West, he argued.

In July, Mr. Minnikhanov concluded a cooperation agreement with the president of Russia’s largest lender, state-owned retail banking giant Sberbank, involving the development of Islamic banking in Tatarstan.

Ahmed Mohammed Ali Al-Madani of the Islamic Development Bank, a multilateral Islamic lending organization based in Saudi Arabia, told RIR that Sharia-compliant bonds have also been issued by entities based in non-Muslim countries, including the United Kingdom, and that the worldwide amount of such assets has reached $120 billion.

“The republic of Tatarstan could be promoted as an Islamic finance hub within Russia,” Mr. Al-Madani said. Tatarstan’s largest bank, AK Bark, has already attracted some funds based on Islamic investment. Furthermore, in January 2015, local insurance operator Alliance began selling a specialized insurance product called“Halal Invest” that is compliant with Islamic norms.

“This kind of business is gaining momentum around the world, and by developing it in this country, we will diversify sources of funding and increase confidence in the banking system,” said Semyon Nemtsov, an analyst at Russ-Invest investment company.

However, analysts said Russia is unlikely to see a sudden surge of investment from Islamic countries.

“Islamic banking is first and foremost a religious and ideological concept. Its actual financial significance is secondary. This is why there are in fact a great deal of obstacles that hamper its implementation within Russia’s legal and financial system,” said Konstantin Korishchenko, deputy director of the Department of Capital Markets and Financial Engineering at the Russian Presidential Academy of National Economy and Public Administration.

According to Mr. Korishchenko, there are numerous factors that will significantly complicate the alignment of Islamic finance and standardized Western banking, including the facts that Islamic regulations require that assets be sorted according to their source and deny explicit interest payments or futures transactions.

Moreover, Russia is likely to have more difficulties introducing Islamic finance than do common law countries like the UK. The introduction of Islamic banking will require deep, fundamental changes to Russian law.

According to Mr. Baymukhashev, Islamic and Russian banking systems are radically different from each other. “Islamic banks do not provide their clients with loans in the classical sense, but rather sell actual products or act as partners (co-investors) in some kind of a project, thus bearing all the associated risks with the client,” Mr. Baymukhashev explains, adding that Islamic banking also precludes the financing of companies that produce or sell alcoholic drinks.

“The difference between those two financial systems is significant. Amending the law is only a part of the ground we will have to cover while implementing Islamic banking in Russia,” says Mr. Baymukhashev.

(Russia And India Report / 23 August 2015)

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