KUALA LUMPUR (May 29, 2013): London-based Kuwaiti-owned Gatehouse Bank Plc, a syariah-compliant investment bank, is looking to secure principal banking licences in Malaysia after opening a representative office here yesterday, said its senior executive.
The bank is exploring licences in universal banking, investment banking and wealth management.
Its chief representative in Malaysia, Richard Thomas, said the bank will work closely with the local regulators to see what would be the most appropriate licence(s) for the bank here.
"The representative office is very much a first step and it's our intention to develop the bank here," he told reporters at the opening ceremony yesterday, adding that the bank aims to expand its operations here over the next two years.
He said the bank also intends to use its Malaysian office as springboard into other Asian markets such as Singapore and Brunei.
On its targets for the Malaysian market this year, Thomas said it is in the midst of building its key performance indicators.
"Our core strength is in real estate but we are also looking at the sukuk market and Malaysia is of course the largest global sukuk market.
"Cross border reach between London and Kuala Lumpur for developing capital markets is also important for us and wealth management services as well," he added.
He noted that Gatehouse Bank has been approached by two or three parties, but the bank has yet to profile their risk appetites.
He said the Malaysian office would also help global investors understand the Asian market better, especially its global clients who are interested in investing here.
Meanwhile, Gatehouse Bank chairman and interim CEO Fahed Boodai said Malaysia will be a hub for the bank to diversify its client base that are mostly from the Gulf region.
"Our international clients are looking for investment opportunities that promote wealth preservation in mature and stable markets, and responding to their needs on an on going basis remains a core priority for the bank.
"Expanding our global footprint so that the bank can act as a gateway between the Islamic finance markets in Europe, the Gulf Cooperation Council and now Asia is fundamental to achieving this objective and establishing a new base in Malaysia is not only an exciting development for the bank but one that will help to deliver significant longer term value on behalf of our clients," he added.
Fahed also said there is a strong trend among Malaysian investors actively buying in the UK including both institutional and private investors.
The bank expects to make two billion pounds worth of real estate acquisitions in the US and UK markets this year.
Gatehouse Bank specialises in originating, structuring and funding investments in a syariah-compliant manner driven by a real estate strategy. Since its inception in 2008, the bank has established a global portfolio worth in excess of US$1.5 billion spread across real estate assets, capital investments and term deposits.
Earlier this year Sheikh Mohammed bin Rashid Al Maktoum, the UAE’s vice president and prime minister, and ruler of Dubai, claimed that the country has what it takes to become a world hub for Islamic finance.
Indeed, Dubai has launched a drive to develop its Islamic business sector, while Qatar looks to establish an international Islamic Bank, Oman has raised the operating standards of its own Islamic banking rules, and world renowned Saudi investment firm Kingdom Holding has formed its own sharia board of scholars in a bid to raise more of its funds through Islamic finance.
Islamic banking is on the rise, gaining in popularity among Muslims and non-Muslims at a rapid rate with an Ernst & Young report estimating that Islamic banks now command a 25 percent share of the banking market in the Gulf Cooperation Council (GCC) countries.
But for many people Islamic finance is still a concept which is mired in unfamiliar terms and principles, leading to confusion and hesitancy.
To those without an Islamic or banking education, concepts such as riba, mudarabah and sukuk require a lot of explanation, but more and more people are taking the time to understand their meaning. The same Ernst & Young report projects that by 2015 the MENA Islamic banking industry will be worth US$990bn as the take up of Islamic banking surges, more than double the 2010 figure of US$416bn.
Islamic banking is set up in accordance with the principles of sharia – the moral code and religious law of Islam – and many of its rules have been particularly laid out with business and trade in mind, something which attracts many small and medium sized enterprises.
Tooran Asif, senior vice president, head of personal banking at Mashreq Bank explains the main concepts of Islamic banking.
“The basic principle which differs between Islamic finance and conventional finance is that there’s no element of riba – which is interest.
“The other differing principle is that is that it works on asset backed transactions, and then there are other things related to the element of trade. Some sectors are a definite no-no. There’s also a profit and loss sharing aspect between the two parties as well.”
Mashreq Al Islami, the Islamic banking division of Mashreq, recently underlined its commitment towards its Islamic offering by announcing the launch of Islamic Gold – a new product which offers a full range of retail banking services.
Asif explains the growth in the bank’s services mirrors that of the sector itself, and that people from outside Islam are signing up thanks to the comprehensive range of services now on offer.
“Islamic finance has grown in the past 30 years,” he says.
“Different sorts and groups of people have taken it either on their beliefs or because they find it competitive. We’ve reached a point where it’s not just about the ethical side of things. It’s also competitive in rates, returns, and services. It’s moved beyond what it used to be.
“If you look at Islamic banking ten years back it was all about basic deposit accounts. Now we’re offering everything. It’s well developed now.”
Advocates of Islamic banking cite the notion that the strict structure and rules make it fairer for those who use it as one of the main attractions, particularly the ban on riba.
Riba can be translated as interest, usury, excess, increase or addition, and is seen in Islam as unjust and exploitative.
Other principles which are viewed as beneficial to the individuals and businesses rather than to the bank include mudarabah, which is profit sharing between partners, and musharakah, which is a relationship between two or more parties that divides the profit and loss fairly depending on each party’s contribution.
When Islamic banking was first developed in the 1970s in the Persian Gulf states, its Stomers were almost exclusively observant Muslims who wanted a banking system that complied with their religious values. These include prohibitions against lending money with interest, which is defined as usury, and investing in businesses deemed morally harmful, such as alcohol or pornography.
But today, Islamic banking is getting wider attention, including among non-Muslims. That is because Islamic banks, which are open to people of all faiths, have largely survived the global economic crisis intact. So far, none has had to receive substantial bailouts to keep them afloat, suggesting that they somehow offer a safer haven to savers than conventional banks.
Mohammed Amin, a London-based Islamic finance consultant, says that perception is partly true, and partly not.
In practice, he says, Islamic banks are often more conservative in their commercial activities than ordinary banks. Their prohibitions against interest-bearing loans, for example, meant they did not buy up the large quantities of bad consumer debt that now burdens Western banks and has threatened many with collapse.
But individual Islamic banks -- like any savings institution -- can still expose their customers to risk. And that is because, while they shun interest-bearing transactions, they still do many of the same things conventional banks do, only by different means.
Amin cites payments on savings accounts as one example. In conventional banks, a saver receives a guaranteed interest payment of, for instance, 5 percent in exchange for keeping money in the institution. In Islamic banks, savers can earn the same amount but instead of receiving it as interest, they do so by sharing in the profits of the bank:
"You put your money into that Islamic bank," says Amin. "It pools that money with all the rest of the money it has. It uses it to run its business, which is providing money to other customers. And at the end of the year it will reckon up its results and the likelihood is that it will pay you [for example] 5 percent, maybe a little bit more or a little bit less, unless the bank has had a really bad year."
He notes that in a bad year, the Islamic bank might not pay a profit share, whereas a conventional bank is contractually bound to pay customers the promised interest rate.
Like conventional banks, Islamic banks make their profits by loaning money to customers. But whereas a bank loans with interest, Islamic banks do so through buy-and-sell transactions.
"An Islamic bank will say, 'You tell us which car you want, tell us which showroom it is in, we will go and buy that car and we will resell it to you,'" Amin says. "So, an Islamic bank will buy that particular car for, say, $1,000 and sell it to the customer and they will sell it to the customer for say $1,150 payable in 36 months' time. So, the Islamic bank is making a gain on the sale of the car. It is not lending money; the contract is the sale of the car for $1,150."
Still Plenty Of Risks
However, just as with conventional banking, there is nothing about Islamic banking that by itself guarantees that its commercial transactions are risk-free.
Banks can still face problems when the parties to whom they provide money are unable to fully pay back the sums. And, if an individual Islamic bank's owners are high risk-takers, they can still make bad investment choices, which can end in bankruptcy for the institution.
Many Islamic banks try to guard against such pitfalls by setting formal limits on how much risk they take.
According to Sahar Ata at the London School of Business and Finance, that mindset comes from Islam's prohibition of "gharar," which roughly translates as "excessive risk taking." She notes that Islamic banks usually try to limit the amount of debt they will assume in amassing their own capital to no more than 30 percent. At the same time, individual Islamic banks report to councils of Shari'a experts, who monitor the bank's operations and advise when its activities stray from underlining principles.
Still, the fact that Islamic banks duplicate many of the operations of conventional interest-based banks causes some Islamic scholars to criticize them as disingenuous. They argue that the current model of Islamic banks will inevitably place them on the same trajectory Western banks have followed in assuming ever greater risks to make higher profits.
Tarek El Diwany of London-based Zest Advisory, an Islamic banking and investment consultancy, suggests that what the critics would prefer is to see Islamic banks eschew all forms of debt-based finance, where one person seeks to profit from another’s debt.
"An alternative to the current Islamic banking model would be a true profit-sharing model, more akin to an investment fund, where I invest in your business, you make a profit, I share it, if you make a loss I share it," he says. "Whereas what tends to happen in debt-based finance is I give you $100 of capital and whether you make a loss or a profit I want $110 back at the end of the year. That is seen as fundamentally unjust, why should I benefit if you don't?"
However, other Islamic scholars defend the existing Islamic banking system as being reasonably compliant with Islam's prohibitions on usury and, so far, the controversy has remained largely under the surface.
Today, Islamic banking still accounts for only a tiny fraction of the global banking industry. The amount of money held in Islamic banks totals about $1 trillion, or less than 1 percent of global financial assets. But in many countries Islamic banking is growing rapidly.
In the last seven or eight years, the United Kingdom has licensed five fully Islamic banks, Islamic financial institutions are operating in the United States, and there are plans to open others in Western Europe. That is in addition to the many that already exist in the Middle East and Southeast Asia.
Bahrain-based Al Baraka Islamic Bank has launched a new financing product in the local market to fund the services under the umbrella of Taqseet finance.
This is in addition to other facilities provided by the product Taqseet to finance purchasing of cars, boats, other goods and real estate.
The idea of the new product is based on the Sharia principle of Ijara to finance various services where the bank will lease the client a particular service that will exist in the future as forward Ijara for a specific period of time.
Customers can take advantage of this product to finance their needs of education, medical treatment, travel and tourism, marriage, Haj and Umrah.
Al Baraka Islamic Bank chief executive Mohammed Al Mataweh said the product is in line with the bank's strategies in providing innovative new products.
The sales to the world’s 1.8 billion Muslim shoppers, a market likely to grow by 35% by 2030. But stereotypes of joyless zealotry are as misleading as the idea that the Muslim market involves only interest-free finance and hand-slaughtered meat.Sharia law forbids meat such as pork and birds of prey, plus blood and carrion. But views on what else is prohibited differ. Inglot, for example, is a nail varnish made in Poland which markets itself as Muslim-friendly because the lacquer is permeable, so it does not need to be removed before Islamic washing rituals. The Koran is silent on such issues; sceptics doubt they matter.
It is not just manufactured products. Services such as halal holidays are booming, too. Crescent Tours, a London-based travel agent, books clients into hotels in Turkey that have separate swimming pools for men and women, no-alcohol policies and halal restaurants, and rents out private holiday villas with high walls. “It’s more relaxing because it fits with their sensibilities,” says the founder, Elnur Seyidli. Other more austere agencies offer holidays with no music, or trips that include tours of religious sites. Mr Seyidli says most of his customers are moderate professionals who want: “a leisure holiday with morals”. His offerings attract conservative Christians, too.
Stretching the book
Other entrepreneurs spy profits in the religious injunction to behave ethically. Wardah, an Indonesian firm, sells make-up which counts as halal because it is not tested on animals. Saffron Road Foods, an American business with products ranging from cooking sauces to frozen hors d’oeuvres, markets itself primarily as offering healthy and ethical options; halal comes second. This reduces the danger of being seen to pander to Muslim tastes, which has caused problems elsewhere. The Quick hamburger chain in France drew flak when in 2010 it considered removing pork from its menu.
The benefits may outweigh the potential backlash. Australia, Brazil, New Zealand and other meat exporters have long profited from the halal trade. Malaysia was the first country to realise the broader potential. In 2011 its halal exports—including aspirin, chocolate and mouthwash—amounted to 35.4 billion ringgits ($11.57 billion), or 5% of total exports. Dubai is trying to become the hub for Islamic trade in the Middle East. In 2008 it launched an annual halal trade fair featuring products ranging from halal cosmetics to Islamic loans.
Trends used to be set by majority-Muslim countries in the Middle East and South-East Asia. Now they come as much from the Muslim minorities in the West. Nestlé, which decades ago was one of the first Western firms to spy the potential, has since the 1980s made 20% of its factories fully halal, for products including Kit Kats and Nescafé. It uses Malaysia as a manufacturing hub. Gohalal.co.uk is one of many online directories allowing Muslims in Britain to search for restaurants that comply with sharia law. Joohi Tahir of Crescent Foods, a Chicago-based chicken producer, says mainstream American superstores are increasingly placing orders for its halal poultry. Walmart started to stock the company’s products in 2008 and today offers them in 77 stores. Halal food is served in a growing number of fast-food chains, including McDonald’s.
A new opening may come with sharia-compliant transport systems. Abdalhamid Evans, of Imarat Consultants, a London-based market research specialist, points to Rotterdam’s port, which has dedicated warehouses to make sure products avoid contact with banned substances such as pork and alcohol. But it is still far from the “halal gateway” once grandly proclaimed.
Ventures like El-Asira also highlight the elastic nature (and lucrative potential) of the traditional boundaries between what Islam allows (halal) and prohibits (haram). “Very little is actually banned,” says Mr Evans. “Many of these new products and services are about marketing and playing on consumer preferences—the commercialised version of being holier than thou. Muslim concerns vary greatly by community.” Fatima Zemmoure, a customer of El-Asira, agrees: “Halal food is the only thing I feel obliged to buy…I’m curious about new halal products, but I won’t buy unless it’s better than the normal thing.”
For those in search of religious certainty as well as profit, this can be a headache. Halal certification is regulated by state authorities in Malaysia and Brunei; in other countries, where states are wary of wading into religious matters, defining authenticity is left to the companies themselves, to trade bodies, or to private certifiers. But consumers may not trust their designations. Standards vary between countries. Among so many logos it can be hard to spot fraudulent ones. Muslim consumers, especially the more liberal-minded ones, can wince at, or enjoy, the uncertainty of what is permitted by Islamic law—just as the companies seeking to woo them do.
SHAH ALAM: Syarikat Takaful Malaysia Bhd will maintain its 15 per cent 'no claim rebate' and increase its value added service delivery amidst tougher competition.
Takaful Malaysia is the first and sole Takaful company in the country to offer an additional 15 per cent no claim rebate to all its participants in the general and selected family takaful products.
"Demand for Takaful products is good, the growth rate is 20 per cent and their value proposition is the 15 per cent no claim rebate," Group managing director Datuk Mohamed Hassan Kamil told Bernama.
It was reported that Takaful Malaysia is confident of disbursing about RM35 million in no claim rebate this year to its customers given the positive growth in its General Takaful portfolio.
Mohamed Hassan said Takaful Malaysia has sufficient surplus to sustain its 15 per cent no claim rebate in the future.
"The projection is made due to the company's prudent underwriting policy, efficient claim management and the investments which the company undertakes," he said.
Mohamed Hassan said last year, Takaful Malaysia paid out a record RM31 million in no claim rebate to its customers, adding it is optimistic on capturing a more than 50 per cent market share from the current 40 per cent.
The Islamic Development Bank Group has decided to
increase its authorized capital from $ 45 billion (30 billion Islamic dinars)
to $ 150 billion (100 billion dinars) on the recommendation of the two
extraordinary Islamic summits held in Makkah.
The capital increase will enable IDB to meet the
growing development requirements of its 56 member countries and carry out its
development mission in a more efficient manner, an official statement said.
The decision was taken by IDB’s board of
governors at their meeting in Tajikistan’s capital Dushanbe. Minister of
Finance Ibrahim Al-Assaf chaired the meeting.
The meeting also increased the bank’s subscribed
capital from 18 billion Islamic dinars to 50 billion Islamic dinars. The
decision reflects the bank’s strong financial position.
At its annual meeting in Dushanbe, IDB also
announced it would immediately tap the financial market with a $ 1 billion
offering of sukuk or Shariah-compliant bonds.
The five-year offering is rated Triple A by each
of the three major rating agencies (Standard & Poor’s, Moody’s and Fitch),
and will be dually listed on the London Stock Exchange and Bursa Malaysia.
The benchmark $ 1 billion offering comes amid
strong demand and limited supply of the highest quality fixed-income
securities, in part because a number of large governments have recently lost
their Triple A status. There has also been growing demand for Shariah-compliant
"The tenets of Islamic banking have stood
the test of time," said Ahmad Mohamed Ali, president of the IDB Group.
"Our emphasis on equity, risk-sharing and partnership enforces discipline
on the financial system, allowing us to lift more of our people out of
The IDB has been designated as a zero-risk
weighted multilateral development bank by the Basel Committee on Banking
Supervision and the Commission of the European Communities.
Saudi Arabia, which holds 23.6 percent of
capital, has the largest stake in the Jeddah-based bank, followed by Libya with
9.5 percent, Iran 8.3 percent, Nigeria with 7.7 percent and the UAE 7.5
percent. The next four biggest holders are Qatar (7.2 percent), Egypt (7.1
percent), Turkey (6.5 percent), and Kuwait (5.5 percent).
IDB provides project financing to diverse
regions of the world, including a number of less developed countries. Although
energy, transportation, and water and sanitation projects make up about 60
percent of the bank’s portfolio, it recently stepped up its commitments in
agriculture, education, health and other social services.
Meanwhile, Thomson Reuters, the world’s major
provider of intelligent information for businesses and professionals, and the
Islamic Corporation for the Development of the Private Sector (ICD), the
private sector development arm of the IDB yesterday announced the joint
development of the Islamic Finance Development Indicator — a single, composite
numerical measure representing the overall health and growth of the Islamic
finance industry worldwide — on the sidelines of the the IDB annual meetings
The ICD Thomson Reuters Islamic Finance
Development Indicator expands the scope of Thomson Reuters’ universe of Islamic
finance content, research and news analysis to develop a much needed unbiased
and reliable multi-dimensional barometer of the development of the Islamic
Russell Haworth, managing director, Middle East
and North Africa, Thomson Reuters, said: "Thomson Reuters has been at the
forefront of some of the major market moving measures in the world, including
the Thomson Reuters/University of Michigan surveys of US consumers, and the
Times Higher Education (THE) rankings of universities. We are proud to continue
providing our expertise in developing high impact indicators to measure the
development of the Islamic finance industry."
Khaled Al-Aboodi, chief executive officer, ICD,
said: "As the leading Islamic finance institution supporting private
sector development across the Islamic world, we recognize that the industry
requires effective holistic measures to focus our efforts to facilitate and
ensure inclusive financial sector development. The ICD is proud to be at the
forefront of innovation, along with Thomson Reuters to facilitate such a
significant milestone for the development of the Islamic financial services
Sayd Farook, global head, Islamic Capital
Markets, said: "There is no one unique indicator representing the health
of the Islamic finance industry in aggregate, including its socio-ethical
objectives. As a result, professionals, mass media and consumers rely for their
information on misrepresentative or worse, one-dimensional proxies such as the
size of Islamic banking assets or sukuk.
The State Bank of Pakistan (SBP), on Wednesday, issued a circular to all Islamic banking institutions about the Islamic Export Refinance Scheme (IERS) and eligibility of Ijara Sukuk (Islamic bonds to be included in the Musharaka pool.
According to SBP rules, every Islamic bank is obligated to create a Musharaka pool consisting of financing blue chip companies on Islamic modes.
The Musharaka pool is supposed to have a minimum of ten companies with diversified lines of businesses to avoid concentration in sectors.
The circular listed the conditions that will make the Government of Pakistan Ijara Sukuk eligible to be included in the pool, created under the IERS.
The conditions said that the maximum limit for investment in the Ijara Sukuk by Islamic bank institutions in the pool will be 50% of their total share of financing in the Musharaka pool.
The value of Ijara Sukuk held cannot be counted for meeting the bank’s statutory liquidity ratio requirement – an amount that every bank is bound to maintain either in gold or government approved securities before providing credit to its customers.
In the scenario where the Government of Pakistan issued Ijara Sukuk are included in the Musharaka pool, they will be eligible to counted towards calculating the concentration limit on holding of Islamic bonds.
The Sukuk should also be appropriately reported in the appendix when the institutions release its statements under the heading ‘GoP Ijara Sukuk’. Moreover, it should also be verified or certified as over and above the liquidity requirement’s eligible limit by the Islamic banking institutions’ internal audit department.
According to the SBP instructions, the Islamic banking institutions are also required to maintain records of Sukuk issues and the amount it allocated to its respective Musharaka pool.
Thomson Reuters, the world's leading provider of intelligent information for businesses and professionals, launched an Islamic Finance Development Indicator in collaboration with the Islamic Corporation for the Development of the Private Sector (ICD), the private sector development arm of the Islamic Development Bank (IDB).
The indicator is a numerical measure representing the overall health and growth of the Islamic finance industry worldwide.
The indicator expands the scope of Thomson Reuters' universe of Islamic finance content, research and news analysis to develop a much needed unbiased and reliable multi-dimensional barometer of the development of the Islamic finance industry. The indicator measures five key components - quantitative development, governance, social responsibility, knowledge and awareness.
Russell Haworth, managing director, Middle East and North Africa, Thomson Reuters, said: "Thomson Reuters has been at the forefront of some of the major market moving measures in the world. This initiative confirms our commitment to develop high impact indicators that measure the growth of Islamic Finance services."
Khaled Al-Aboodi, Chief Executive Officer, Islamic Corporation for the Development of the Private Sector, said: "This step meets the growing global demand for transparent and accurate industry information across global Islamic finance markets. We recognise that the industry requires effective holistic measures and we are delighted to collaborate with Thomson Reuters to facilitate this significant milestone that will support the development of the Islamic financial services industry."
Sayd Farook, Global Head Islamic Capital Markets, said: "There is no one unique indicator representing the health of the Islamic finance industry in aggregate. As a result, professionals, mass media and consumers rely for their information on misrepresentative or worse, one-dimensional proxies such as the size of Islamic banking assets or sukuk."
Farook concluded: "The Islamic Finance Development Indicator is a unified benchmark that measures the industry's growth and covers several elements including governance and social responsibility.
It is time for Islamic investment funds to start offering some real value addition to investors beyond just Shariah compliancy. Islamic investing so far has by and large been concerned with assurance of Shariah compliancy by screening out forbidden activities (such as gambling, interest-based financial services, liquor, pork and adult entertainment); it also excludes some other activities deemed undesirable for social responsibility or political correctness (like tobacco and arms).
In addition, it also ensures that balance sheets of the companies chosen are in compliance with Shariah. There is, however, a growing need for a detailed set of rules and regulations to be developed to categorise Islamic investment funds into merely Shariah-compliant and purely Islamic funds.
As a starting point in this direction, a fund may be called a Shariah-compliant fund if:
1. It does not invest in the companies involved in production, distribution, marketing and sale of Shariah repugnant goods and services; and
2. It does not get involved in Shariah-repugnant activities to conduct its finances (both in raising and deploying funds).
A fund may be categorised as an Islamic fund if:
1. It is Shariah-compliant in its product offering and in terms of its finances and operations, and;
2. It promotes any or all of the broader objectives of Shariah, which include promotion of the well-being of all mankind in terms of safeguarding faith, life and self-esteem, intellect and human capital, and posterity and wealth.
The term Islamic Shariah funds industry can be used for both Shariah-compliant and Islamic funds.
While a Shariah-compliant fund may not take a political view on its investments, it is important that an Islamic fund ensures that its investment strategy promotes at least one of the objectives of Shariah.
Thus, prohibition of investing in companies that support movements and ideologies against Islam and Muslims may fall under screening of Islamic funds. On a company level, while a stock like Starbucks Corp can be included in a Shariah-compliant fund (if it comes out of the chosen Shariah screens successfully), it must not be included in the portfolio of an Islamic fund, because Starbucks publicly supports an ideology blameworthy for the killing of innocent people including women and children in the West Bank and Palestine.
It is also important for the Islamic financial services industry to start taking a view on the Islamicity of the fund manager.
After all, if an ethical fund manager is not committed to the ethical values, its credibility as an ethical fund manager must be questioned. Similarly, an Islamic fund manager must demonstrate its full commitment to the objectives of Shariah (as outlined above).
The above proposals are not meant to bring a hostile investing culture in the Islamic Shariah funds industry; rather they simply point to the need for developing this industry on the pattern of investors activism.
This is important for the very sustainability of the Islamic financial services industry as a whole.
It is also important to emphasise that the proposed Islamic Shariah funds industry should not be a platform for political Islam. What is being suggested here is that the Islamic fund managers must accommodate the Islamic political views in their investment strategies and processes to win business from the Shariah sensitive investors who have strong political views on some international issues and phenomena that are deemed anti-Islamic.
One may like to argue that this will help the radical Islamic movements. On the contrary, this will provide the Shariah sensitive Islamic investors an opportunity to express their preferences in financial markets to influence some of the phenomena and activities in light of their faith and political views.
At this early stage of development of Islamic banking and finance, it is absolutely important that the Islamic Shariah funds industry remains completely independent of the political movements and parties. Failing to do so may adversely affect the industry in its infancy.
It is critical that the Islamic financial services industry enjoys government support and patronage, in the absence of which it will be almost impossible for it to grow substantially.
Although Islamic banking and finance is a demand-driven phenomenon, it has taken off only in those countries where the governments have supported and promoted it. Malaysia provides the best example in this respect. Needless to say, that the future of Islamic Shariah fund industry and Islamic banking and finance as a whole relies on the government support.
Therefore, the non-political nature of Islamic banking and finance must be retained and further developed. Furthermore, it is definitely the right time to start looking into creating alliances with the Western ethical and socially responsible investments movements to learn effective tools of investors activism and shareholders advocacy in the Islamic Shariah funds industry.
Combining the Shariah principles articulated hitherto as well as garnering the support of governments and alliances with ethical movements will lead to a dynamic and vibrant Islamic funds industry.
KUALA LUMPUR: Tenaga Nasional Bhd's (TNB) wholly owned subsidiary TNB Northern Energy Bhd (TNB NE) has proposed to issue RM1.625bil in nominal value sukuk based on the syariah principles of ijarah and wakalah.
In a filing with Bursa Malaysia yesterday, TNB said the proposed sukuk TNB NE will be issued in one lump sum and will consist of 39 series with tenors ranging from four years to 23 years from the date of issuance.
The proposed sukuk TNB NE will be issued on May 29.
Malaysian Rating Corporation Bhd (MARC) has assigned a final rating ofAAAIS to the sukuk TNB NE.
“The proceeds to be raised from the proposed sukuk will be utilised for the construction and delivery and working capital requirement for the 1071.43 MW combined cycle gas-fired power plant in Prai, Pulau Pinang,” TNB said.
Upon issuance of the proposed sukuk TNB NE, TNB's consolidated borrowings will increase by RM1.625bil.
Based on TNB's audited consolidated balance sheet for the financial year ended Aug 31, 2012, TNB's consolidated gearing would then increase from 0.39 times to 0.40 times.
The proposed sukuk TNB NE will not have any impact on the earnings and earnings per share and net assets per share of TNB for the current financial year.
HSBC Amanah Malaysia Bhd and KAF Investment Bank Bhd are the joint lead arrangers and the joint lead managers for the sukuk issue.
HSBC Amanah also acted as the Shariah Adviser for the sukuk Issue while HSBC Bank Malaysia Bhd acted as the financial adviser for the project financing.
ISTANBUL — With the international economic crisis continuing to bite, the Turkish government has announced it will be seeking to tap into the $1 trillion Islamic financial industry.
Although Turkey is a secular state, it is overwhelmingly Muslim. Under the decade-long rule of the country's Islamist rooted AK Party, Muslim-compliant businesses have flourished.
Thee government move into Islamic finance is a smart strategy, said Attila Yesilada, an Istanbul-based political analyst with Global Source Partners, a political consultancy firm.
"There were people and institutions who refused to take interest and these people kept their money in non-interest safe deposits," he said."They suffered huge losses just because they genuinely believed interest is sinful as defined by the Koran. So there is a lot of demand for Islamic banking products in Turkey -- both from...devout Islamic client base as well as from the Gulf kingdoms."
Islamic banks operate in compliance with Islamic financial rules which ban interest. But Islamic banking firms use Islamic-compliant financial instruments to generate income. In the past decade, that sector has rapidly grown into an estimated $1 trillion industry.
Most of that growth has happened in the energy rich Gulf states and North Africa. In Turkey, the growth has been less impressive, with only four institutions currently offering Islamic finance, though these banks have seen some growth.
Omer Bolat, the CEO of the conglomerate Albayrak and former head of the Islamic business confederation Musiad, said the government's decision to enter the Islamic finance market provides an important political guarantee given that previous Turkish governments, which were staunchly secular, viewed it with suspicion.
"Before this [present] government came to power, the outgoing governments were not sympathetic to Islamic banking sector and the government could shut them down with a decree or law easily," Bolat said. "And depositors feared if these banks were shut down [they] might have to lost their deposits."
Stronger Islamic banks would enable Turkey to attract more cash from the Gulf and Asia, where the appetite for Sharia-compliant products far outstrips the existing supply, according to observers.
This could potentially make Istanbul a regional financial hub, said Inan Demir, chief economist at Istanbul-based Finansbank.
"If the government and economic administration has ambitions of being a regional financial center, then that financial center will have to take in the Middle Eastern and North African regions as well, where Islamic practices dominate," Demir said. "So in that sense, it could have some response with the Middle Eastern and North Africa markets."
For now, Europe still accounts for the lion's share of trade with Turkey's financial institutions and wider economy. But with Europe still in the grip of financial woes, the Turkish economy is diversifying and looking at alternative markets in the Middle East or North Africa. The development of Islamic finance could become an increasingly useful instrument in that strategy.
The global credit squeeze and recession have made many countries turn to the Islamic Development Bank more than ever to seek help in their development projects, says its President Ahmed Mohammed Ali.
"Islamic banking is a fast-growing global industry. This is due to the integration with the real activity," he said.
"It is to be noted that Islamic banking is not confined to Muslim communities. Many social sectors participate in it," the president said in an interview.
Can you tell us about the size of the bank's assets since its establishment? What is the growth rate achieved last year? What are your growth prospects for next year?
IDB's assets are estimated at US$ 17 billion. Operational assets are estimated at $ 10 billion. Last year's loans ratio was about 13 percent, totaling $ 7.9 billion.
These include project finance and trade operations. We expect that the bank's operations will grow by 15 percent this year. The bank decided to increase its annual total operations by 30 percent, during the period 2009-11, in order to help member states to weather the effects of the world financial crisis.
Starting from 2013, the bank's financing went back to its earlier growth rates, estimated at 15 percent.
In addition to the above, insurance commitments issued by the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) until the end of 2012 are estimated at $ 17 billion.
What is the impact of the global crisis on IDB? How much are the bank's earnings for last year? What are the expected earnings for this year?
The global crisis led to an increase of the financing activity in the member states. As a result of the crisis, the global credit squeeze and recession made many countries turn to the bank more than ever to seek help in their development projects.
The annual growth rate of financing operations was increased from 15 percent in 2009 to 30 percent by the end of 2011. Thus the growth in the bank's operations during these three years was 90 percent.
Although IDB is an international development institution that complies with the Shariah rules in all its transactions, the bank's annual earnings were around 5 percent. We do not distribute dividends. We allocate them to the various operations and to shore up the bank's reserves. The bank's profits in 2012 were $ 175 million, with an expected growth rate similar to the previous years.
How much did the bank's group finance economic and social development?
Since its establishment and until November 2012, the group allocated around $ 90 billion for the member countries, which were channeled to economic and social development. This was warmly welcomed by many interested circles and by the international rating agencies. Thanks to the generous support of the member countries, IDB for the eleventh year in a row, got a triple-A rating with a positive outlook from the major rating agencies, Standard and Poor's, Moody's, and Fitch.
What do you think of the activities of the Islamic banks? Do they cooperate and achieve harmony amongst themselves?
Islamic banking is a fast-growing global industry. This is due to the integration with the real activity. There are now around 300 Islamic banks all over the globe. In addition, Islamic banking windows in international European banks stand now at 30, and are expected to rise.
It is to be noted that Islamic banking is not confined to Muslim communities. Many social sectors participate in it.
Islamic banking now can boast a solid infrastructure and this will surely help it to push forward in international banking operations. I believe now is the right time to invigorate the industry to transform the quality of its products and services in order to better serve the world's aspirations for safer and more creative banking.
Can you tell us about the Islamic International Finance Market (IIFM)?
IIFM was established in Bahrain in 2002 to address the lack of Islamic investment financial instruments, as well as address the problem of liquidity at Islamic banks, since Islamic banks transactions deal mostly with commodities.
But of course there are other investment instruments available for these banks, like Islamic sukuk, leasing sukuk which have gained currency recently.
How are Islamic banks rated internationally?
Islamic International Rating Agency (IIRA) was established in Bahrain in 2004. It was the first agency that gives ratings to Islamic banks and financial institutions. Before IIRA was established, they used to rely on the traditional international agencies for rating. IIRA helped Islamic institutions offer their securities in international markets by giving them an international rating. It also helps increase transparency in the operations of these institutions, and enables them to assess operating risks.
How do you see Islamic banks in terms of anti-corruption and governance?
Islamic banking, by its very nature, complies with the Shariah rules. Not only do these rules supervene on financial transactions and contracts, but also on every aspect of any transaction with the shareholders, investors, and depositors. Therefore governance in Islamic banks is more stringent than in traditional banks. But of course the people working in these institutions are human after all, and they can make mistakes. But since the very concept of Islamic banking is asset-based, there can be less chances for corruption, and this imposes a solid framework for governance.
How does the bank handle financing operations with the non-Islamic international institutions?
We can have cooperative financing. In principle, Islamic contracts do not generate interest but they can give guarantees similar to interest-generating loans. For example, financing through leasing gives the investor more guarantees that mortgaging assets. This is so because the assets in the leasing arrangement are registered the assets in the name of the financier, not the person who got the loan.
As I can see it, there is nothing that stops traditional banks from using Islamic contracts, like the Istisn'a contract, where you can get a letter guaranteeing execution for an Islamic bank, so that the financier does not become vulnerable to unacceptable risks.
Does IDB work toward creating a common Islamic market?
We need to increase intra-country trade among Islamic nations. This is a strategic objective and a necessity imposed by the global economic developments.
The volume of intra-country trade is 18 percent, which is not enough to warrant the establishment of a common Islamic market. That project is a dream we want to come true. It would facilitate our adaption to a globalized economy and our response to the external challenges in commerce, productivity, and technology. It would also increase our competitiveness in international markets and help achieve social and economic growth in Islamic nations.
The Islamic Development Bank (IDB), a Jeddah-based multilateral institution, has called for the creation of a global sharia advisory board that can offer greater uniformity for the Islamic finance industry, its president said on Thursday.
A centralised format to the supervision of sharia-compliant banking products is gaining favour across the globe, as regulators seek to standardise industry practices and improve consumer perceptions.
"IDB and IFSB (Islamic Financial Services Board) should study ways for creating globally acceptable references for the industry for the benefit of all," IDB president Ahmad Mohamed Ali said at a conference in Kuala Lumpur.
"This could include striving for the concept of a globally accepted sharia committee or body, which would be able to assist all Islamic financial institutions and bring them in line with a uniform standard."
Malaysia pioneered the country-level sharia board and in recent months several countries have introduced central boards of their own, including Dubai, Oman, Pakistan and Nigeria.
Countries like Oman have gone as far as imposing term limits on the sharia scholars who are members of these boards, while also requiring they abide by a code of conduct.
Islamic scholars are experts in financial and religious law, but they are not certified or accredited like other professions, so regulators are increasingly developing ways to ensure the hiring of experienced and financially literate scholars.
A global sharia board would also allow the industry to address low penetration rates in majority Muslim countries such as Pakistan, Indonesia, Turkey and Egypt where the industry's share of banking assets remains below 10 percent.
A global sharia board would provide a more structured approach to the industry, which has its core markets in the Gulf and Southeast Asia.
"This is very important as it gives a much needed structure to the industry, thus enabling it to be more stable and allowing it to grow further," Ali added.
Ali also called for the IFSB to assist the IDB and its member countries in providing technical assistance, while urging the industry to focus on Islamic microfinance and youth employment.
The IFSB is one of the main bodies setting standards globally for Islamic finance, although national financial regulators have the final say on their implementation and enforcement.