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Wednesday 30 December 2015

IDX Recorded 53 Bond and Sukuk Emissions in 2015

TEMPO.CO, Jakarta - The Indonesia Stock Exchange (IDX) recorded a total of Rp 61.87 trillion (US$4.4 billion) in bond and sukuk emissions in 2015.
Data from the IDX, as quoted by Bisnis.com on Sunday, December 27, 2015, the stock authority recoded a total of 53 bond and sukuk emissions issued by 38 companies. Cumulatively speaking, a total of 103 companies issued as many as 281 bond and sukuk emissions at the IDX.
The outstanding nominal values currently stand at Rp 250.72 trillion (US$17.9 billion) and US$100 million.
“Meanwhile, there are a total of 92 series of state bonds (SBN) with a value of Rp 1,418.99 trillion (US$101.4 billion) and US$1.04 billion. In addition, the value of asset-backed security stands at Rp 2.45 trillion (US$175.7 million),” the IDX management said in a press release.
Over the last week, the IDX also recorded three bond emissions, namely Continuous Bond II worth Rp600 billion (US$42.9 million) issued by PT Tunas Mandiri on December 21, 2015; Continuous Bond I worth Rp 150 billion (US$10.7 million) issued by Bima Multi Finance; and Continuous Bond I worth Rp 600 billion (US$42.9 million) issued by Wahana Ottomitral Multiartha (WOM).
 (Tempo.CO / 30 December 2015)
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Realising a vision for Islamic finance

THE basic objective of Islam is to emancipate people from every kind of material and doctrinal slavery and uphold social justice.
In the economic field, and with particular regards to finance, Islam has also paid due attention to all the factors that restrict the freedom of action, and those that lead to material and intellectual bondage (Behechti & Bahonar, 1990).
In this regard, the Quran has formulated rules, including one that has been deemed as part of the vision of the Quran itself, and has become the main thrust of Islamic economics and finance — the prohibition of riba (usury).
This rule is clearly outlined in the Quran. The following verses prove that Islam is very serious when it comes to riba: “Those who swallow down usury cannot arise except as one whom Satan has prostrated by (his) touch does rise. That is because they say, trading is only like usury; and Allah has allowed trading and forbidden usury. Allah does not bless usury, and He causes charitable deeds to prosper, and Allah does not love any ungrateful sinner.”
To show that riba has very bad implications on human welfare, Allah has declared war against those who refuse to stop practising riba.
Verses 278 and 279 of Surah Al-Baqarah state: “O you who believe! Be careful of (your duty to) Allah and relinquish what remains (due) from usury, if you are believers. But if you do (it) not, then be apprised of war from Allah and His Apostle.”
In one of his hadith, the Prophet mentions: “The wrath of Allah is on the taker ofriba, its giver, its writer and its two witnesses.”
In regard to financial transactions, riba is defined as any contractual increment in a loan or debt due to a time element.
We know this today as interest (Kahf, 2006). To understand why riba violates the principles of property rights in Islam, we need to revisit the basic concept of debt.
According to Kahf, a debt is an inter-personal relation that is a liability on one party and an abstract asset to the other.
By its nature and in real life, a debt is not liable to increase or decrease; it is not able to produce increments because it has no intrinsic utility other than being an ingredient of wealth.
The amount of an increment in a debt is also assumptive; it depends on the conditions and externalities in the imaginary market that we create for debts.
Interest-based debt contracts have two major characteristics. First, they are instruments of risk shifting, risk shredding and risk transfer.
The second characteristic of interest-based contracts is that upon entering into such a contract, the creditor attains a property rights claim on the debtor, equivalent to the principal plus interest and whatever collateral may be involved, without losing the property rights claim to the money lent.
Therefore, it is very obvious that the practice of charging of riba is an act of injustice because it violates Islamic property rights principles.
The Islamic finance industry is still far from realising its founding fathers’ vision of uplifting society through the concept of justice, social equity, brotherhood, charity and cooperation.
As a matter of fact, the Islamic banking and finance industry (IBF), which is deemed as the only manifestation of an Islamic alternative to mainstream economics, seems to have grown as part of the conventional financial sector (Zaman & Asutay, 2009).
Most Islamic economists highlight two major points about the IBF’s failure. First, they say the IBF is economically not feasible because it is more costly and less accessible to those in need.
In fact, very little of the large amounts of wealth associated with it has actually reached the most needy in Muslim societies. Instead, the funds circulate amongst large corporate interests in oil-rich states (Zaman & Asutay, 2009).
Second, they also criticise the process of reengineering financial products to make them Shariah-compliant, whereby only the actual validity of the fiqh(jurisprudence) is involved.
Some sceptics, such as El-Gamal (2006), have expressed unease at the fact that Shariah scholars who authenticate such contracts are themselves employed by the industry, while others, like Zaman & Asutay, have claimed that such contracts are designed to circumvent Shariah laws and so violate broader principles, ormaqasid, associated with the prohibition of riba.
The reason for the IBF’s failure is rooted in the proposed multi-dimensional andtawhidi development process.
This is because by solely relying on the prohibition of riba and at the same time operating on a conventional system framework, the Islamic finance industry – instead of growing as an establishment that promotes justice and equity – would only converge and become part of its mainstream counterpart.
As asserted by Zaman and Asutay, only an Islamic political economy can respond to this failure, not neutral Islamic finance or even Islamic economics.
For any system to be fully realised, it must have elements, such as a framework paradigm, a value system, foundational axioms, operational principles, specific methodologies and functional institutions.
As such, the actualisation and realisation of the objective of the Islamic finance industry depends to some extent on the identification, support and propagation of the specific indigenous institutions of Islam associated with the original vision underlined by the Quran.
Muhammad Hisyam Mohamad is a Fellow at Ikim’s Centre for Economics and Social Studies. The views expressed here are entirely his own.
(The Star Online / 29 December 2015)
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Sunday 27 December 2015

Malaysia: Samalaju Port’s $219m sukuk; Sasbadi’s $7.34m in private placement

Port operator Samalaju Industrial Port looks to raise $219.5 million through bonds while Sasbadi raises funds through private placement, in Malaysian corporate fundraising news over the week leading up to Christmas.

Samalaju Industrial Port seeks $219.5m funds via Islamic bond issuance

Samalaju Industrial Port Sdn Bhd is looking to raise up to MYR950 million ($219.5 million) via sukuk issuance to finance the construction of its 156 ha deep-sea Samalaju Port in Sarawak.
RAM Ratings said, Samalaju will be the operator of the MYR1.9 billion Samalaju Port upon its expected completion by the fourth quarter of financial year 2016, under a 40-year contract.
The construction of the port will also be financed with a government grant of MYR500 million, and an equity injection from Samalaju’s parent company Bintulu Port Holdings Bhd of MYR600 million.
The ratings agency has assigned an AA1(s)/stable rating to Samalaju’s proposed Sukuk Murabahah programme.
“In view of Bintulu Port’s solid relationship with the Malaysian government — given the latter’s shareholdings in Bintulu Port through various government agencies, the Sarawak government and Petronas (Petroliam Nasional Bhd) — the state is seen as having an incentive to provide the company with financial assistance, which includes subscribing to a portion of the proposed sukuk, if necessary,” the statement said.

Sasbadi to raise $7.34m through private placement

Sasbadi Holdings Bhd has proposed to undertake a private placement to raise up to MYR31.75 million ($7.34 million), to part finance future acquisition of publishing, education, education-related business(es) or intellectual property rights, to repay bank borrowings and for working capital.
Based on an indicative issue price of MYR2.50 per placement share, Sasbadi said, in a Bursa Malaysia filing, the proposed private placement will involve the issuance of up to 12.7 million new shares or 10 per cent of the issued share capital of Sasbadi. The issue price will be determined and announced later.
The education book publisher Sasbadi said the placement shares shall be priced at not more than 10 per cent to the five-day volume weighted average market price of Sasbadi, but not lower than the par value of Sasbadi shares of MYR0.50 each.
“The board of directors is of the view that the proposed private placement is the most appropriate avenue of fund raising as it enables Sasbadi to raise funds to partly pare down its borrowings, which would give rise to interest savings of MYR500,000 per year,” the group said in the announcement.
It also noted that it would be able to raise additional funds without incurring interest expenses or service principal repayments compared with conventional bank borrowings or the issuance of debt securities.
“This would allow Sasbadi to preserve cash flow for reinvestment and/or operational purposes,” it added.
The group is also proposing a share split involving the subdivision of every one existing share of 50 sen each in Sasbadi into two shares of 25 sen each on an entitlement date to be determined and announced later, to enhance the stock’s marketability and trading liquidity.
(Deal Street Asia / 25 December 2015)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Demand for Islamic finance gaining ground in Mideast

Islamic finance is gaining popularity in key markets, including the personal loan sector, and there has been a marked increase in the amount of UAE residents choosing an Islamic finance loan over a conventional loan
Compareit4me group has noticed an increase of 53 per cent of consumers searching for Islamic finance products.
The increase in popularity is across the board and research by Morgan McKinley found a surge in the global value of Islamic banking assets is forecasted for the next few years. Figures are predicted to reach $6.5 trillion by 2020, a huge leap compared to of $150 billion in the mid-1990s.
In the UAE alone, total Islamic banking assets accrued in 2013 was $95 billion (compared to $83 billion in 2012), and it is showing no signs of slowing down, with the Dubai Chamber of Commerce and Industry predicting that the annual growth rate will reach 17 per cent until 2018.
The increase has been with all consumers, with a recent study from Bloomberg concluding that in the UAE, Islamic finance has also gained popularity among non-Muslim expats.
The sector is still growing at an incredible rate; in some markets it is growing up to 50 per cent faster than traditional banking and it looks to be a trend that's set to continue. This is predominantly thanks to an impressive increase in competition, product development and better customer value.
For a while Islamic banks slipped behind conventional banking in terms of educating customers about what they offer, how they are different and why they are an appealing alternative - but they have stepped up. Now the awareness is much greater, the products available are much wider and these efforts are paying off, as the spikes on compareit4me.com, a Middle East finance comparison website, indicate.
While UAE Islamic banks including ADIB, Emirates Islamic, Dubai Islamic and ADNIF are continuing to offer competitive products, with flat rates on loans as low as 2.36 per cent, non-Islamic banks are also increasingly offering attractive Shariah-compliant products. Commercial Bank of Dubai and Noor are offering flat rates as low as 2.75 per cent, in comparison to other banks that are offering up to seven percent.
The research by compareit4me.com found that 74 per cent of consumers are looking for personal loans and credit cards; nine per cent for home loans; five per cent for auto loans; and 12 per cent for other products, such as different types of bank accounts and business loans.
Jon Richards, chief executive officer of compareit4me.com, said: "Once they might not have been, but now Islamic finance products are most definitely viewed side by side with conventional bank products. Given the trends we've seen on the site, we've become aware that most users are blind to the fact a certain product is Islamic, they just simply want a good rate. Therefore, the main attraction for customers seeking new banking products is the transparent fees and rates which come with the Shariah offerings."
(Khaleej Times / 25 December 2015)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Friday 25 December 2015

Tax Season Canada poised to be hub of Islamic finance


Islamic banking is being touted as the next big thing for Canada's financial services sector, but experts say it's up to the new federal government to demonstrate that it welcomes Shariah-compliant investments.

"It's absolutely fundamental that the Canadian government signal that, in fact, it is open to Islamic finance," says Walid Hejazi, an associate professor at the University of Toronto's Rotman School of Management.

They could do so either by issuing sukuk – Islamic bonds – or by making a public statement, Hejazi says, noting that the previous government was on record as saying it welcomed such investments.



"If there is a risk that a change in government is going to change its view on that kind of investment, that spooks investors," he said. "So the government must be clear to say . . . 'We're open to Islamic finance, we welcome it,"' Islamic finance – which bans interest payments and investments in gambling, pornography, weapons, alcohol, tobacco and pork – is a fast-growing niche in the financial services industry.

A study released earlier this month by the Toronto Financial Services Alliance and Thomson Reuters says Canada has a number of advantages – including a growing Muslim population, a stable banking system and a favourable regulatory environment – that make it well positioned to become a North American hub for Islamic banking.

"Islamic finance is one of the fastest growing kinds of finance in the world," said Janet Ecker, president and CEO of the TFSA.

"There are opportunities here which should be explored. Toronto is an international financial centre. ... This is another way to keep our reputation and our capabilities growing."

Hejazi says the Islamic ban on interest doesn't mean consumers borrow money for free – it just requires loans to be structured more like partnerships between financial institutions and borrowers.

"The whole idea or the concept is to avoid people becoming buried in debt because, back in the days of the Prophet, ... when people weren't able to pay their debt they were enslaved or exploited," he said.

In the case of commercial loans, that means both the bank and the borrower must have a vested interest in the success of the underlying business.

"If the underlying business does well, they share in the profit," Hejazi says. "If it does poorly, they share in the losses. That's the fundamental difference; this idea of shared risks, and nobody can have a guaranteed return."

The report commissioned by TFSA says there are a number of opportunities for Islamic banking to expand in Canada. Some Muslim Canadians desire Shariah-compliant solutions to their personal finance needs, including mortgages, insurance and investment opportunities.

The Canadian government could also issue sukuk, or Islamic bonds, which are structured in such a way that they generate returns without the use of interest payments, to help fund its planned infrastructure spending, according to the report.

"The new federal government has an opportunity to demonstrate Canada's openness to foreign investment from markets in the Middle East and Southeast Asia by encouraging investments either in a conventional or an Islamic-compliant manner," said Jeffrey Graham, partner and the head of the financial services regulatory group at Borden Ladner Gervais LLP.

"Other governments who have been seeking to do the same thing have issued sovereign sukuks, or Islamic bonds, to help promote their financial sectors."

However, a spokesman for the Department of Finance appeared to throw cold water that idea, saying in an email that "there continues to be very strong demand for regular 'plain vanilla' Government of Canada securities."

Meanwhile, one of the obstacles to the growth of Islamic finance in Canada is the lack of what Hejazi calls "human capital."

"We need to have people across the country that understand Islamic finance, which we don't have," said Hejazi, who teaches a course onIslamic finance, now in its fifth year, at Rotman. Last year the course was full, with 40 students on the waiting list.

"I get so many e-mails from people downtown, from the banks, the accounting firms, consulting firms, saying 'Could I sit in on your class?"' says Hejazi. "There's a lot of interest. People really want to learn more."



(CBC.News Business / 23 December 2015)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Zakat Foundation of America tours project sites


Mr Kemal Ali Berru, Programme Director of Zakat Foundation of America, a Chicago-based Islamic charity organisation, has toured some of its project sites in Ghana.

Mr Berru told journalists that the local office of the Foundation is in Kumasi, working in the areas of education, health, livelihood empowerment and humanitarian assistance in the Brong-Ahafo, Northern and Upper East Regions.

Mr Selia Alhassan, the Country Representative, disclosed that the organisation is currently implementing a livelihood programme at Jugboi in the Bole District in the Northern Region, where it had set up a cassava processing plant to help women farmers to process the crop to earn a living.

The Foundation has also established two other vocational training centres in Kumasi and Bole equipping beneficiaries with machines to be self-employed.

Mr Salia also spoke about other interventions of the Foundation, which includes the provision of medical supplies to four hospitals and 32 water wells across Bole, Bawku and Binduri.

He said the interventions are helping to transform lives, and pledged to improve on them to touch more lives.

Mr Birru expressed gratitude to all partners, including the district assemblies, for their collaboration to ensure the delivery of the projects.



(Ghana Web / 20 December 2015)
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Monday 21 December 2015

Zakat Foundation of America tours project sites


Mr Kemal Ali Berru, Programme Director of Zakat Foundation of America, a Chicago-based Islamic charity organisation, has toured some of its project sites in Ghana.

Mr Berru told journalists that the local office of the Foundation is in Kumasi, working in the areas of education, health, livelihood empowerment and humanitarian assistance in the Brong-Ahafo, Northern and Upper East Regions.

Mr Selia Alhassan, the Country Representative, disclosed that the organisation is currently implementing a livelihood programme at Jugboi in the Bole District in the Northern Region, where it had set up a cassava processing plant to help women farmers to process the crop to earn a living.

The Foundation has also established two other vocational training centres in Kumasi and Bole equipping beneficiaries with machines to be self-employed.

Mr Salia also spoke about other interventions of the Foundation, which includes the provision of medical supplies to four hospitals and 32 water wells across Bole, Bawku and Binduri.

He said the interventions are helping to transform lives, and pledged to improve on them to touch more lives.

Mr Birru expressed gratitude to all partners, including the district assemblies, for their collaboration to ensure the delivery of the projects.


(Ghana Web / 20 December 2015)

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Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Sukuk has potential to be a key financing instrument in Europe

Dubai: Huge demand for long term funding from the European corporate sector in the context of rising regulatory capital requirements faced by banks and financial institutions, there is a huge opportunity for sukuk to emerge as an alternate funding source, according to recent study by Deloitte.
While European corporates are looking for viable long term funding source, Asian and Middle Eastern investors are on lookout for western asset classes suitable for their portfolios. Experts say the complementarity of demand for and supply of such instruments makes sukuk an ideal financing solution.
“The need from European corporate to finance long-term projects that require large capital upfront is challenged by the scarcity of debt finance. At the same time, there is a need from Middle Eastern and Asian investors with funding capacity for Sharia-complaint assets in maturing economies. This correlation between the needs of European corporates and investors in the Middle East and Asia points to strong potential for initiation of Sukuk products and market,” said Joe Al Fadl, partner and Financial Services Industry leader at Deloitte Middle East.
While the global financial crisis has exposed market vulnerabilities such as high volatility and lack of liquidity in capital markets, it also has increased the call for alternative financing asset classes which will have balanced risk and return characteristics that enhance regulatory capital and equity buffers in the financial industry.
“Responding to several global forces, financial services institutions are now required to comply with fundamental regulatory capital changes. The Basel III requirement emphasises on capital quality and the need for improvement of common equity. Basel IV emerged to supplement these requirements and addresses the importance of capital instruments and debt exposures not only in the banking institutions but also in the corporate world. It further proposes the revision for credit risk,” said Dr. Hatim Al Tahir, Leader, the Deloitte ME, Islamic Finance Knowledge Center.
While progress has been made on the regulatory front, the Islamic capital market has introduced innovative equity and debt instruments which are seen to have strengthened the capitalisation and liquidity positions of Institutions offering Islamic Financial Services (IIFS). The development of High Quality Liquidity Asset (HQLA) sukuk, hybrid and perpetual sukuk are examples.
On the corporate debt front, different project financing structures have been introduced in recent years and are used by government and private sectors. Key markets such as include the GCC, Malaysia, Turkey, Pakistan, Indonesia and Europe use these structures.
Experts say Islamic capital market is uniquely advantaged in the current climate to create innovative Sharia-compliant debt and equity instruments that will address the increased demand for funding infrastructure projects in both developing and maturing economies. Currently, developing countries spend about $1 trillion a year on infrastructure and an additional $1-1.5 trillion will be needed through 2020 in areas such as water, power and transportation projects, according to the World Bank.
Although there are clear sings of new opportunities, experts say future depends on a number of factors. “This is subject to the existence of the right regulatory and legal frameworks to ensure protection to investors, and apply the right governance and risk management over deployed funds, thus creating an opportunity to let it develop and grow in a market that is active and liquid,” said El Fadl.
A number of European states have introduced laws and regulations to facilitate the growth of the sukuk market. The most prominent issue in Europe to date took place in Britain and raised £200 million. It was significantly oversubscribed by 10 times the amount raised, attracting investors from the UK, Middle East and Asia.
The Deloitte study provides a number of case studies of possible scenarios in which sukuk could be applicable to certain industries in European countries. Sukuk are used to finance specifically designated socially responsible investment and holdings of sukuk securities are regarded as ethical investments. Germany’s renewable energy sector is one such industry that fits the ethical investment category and whose need for high collateral upfront makes alternative financing such as Sukuk a possible solution.
(Gulf News Banking / 21 December 2015)
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Favourable regulation key to Islamic finance growth: Expert

Muscat: Developing an enabling and empowering environment, including the necessary legislative and regulatory framework, is needed to support the growth of Islamic economy, according to an expert.

This can be done by working on several key strategic pillars, Abdulla Mohammed Al Awar, chief executive officer of Dubai Islamic Economy Development Centre (DIEDC), said at the 2nd Islamic Banking Knowledge Forum hosted recently by Bank Nizwa in Muscat.

DIEDC was established in 2013 with a vision to position Dubai as the ‘capital of the Islamic economy’ and with a mission to implement a comprehensive strategy with practical programmes and initiatives to achieve this goal.

Al Awar noted that the centre is founded on the seven pillars of finance, the ‘halal’ industry, tourism, digital infrastructure, art, knowledge and Islamic standards.

Islamic economies

He explained that the Islamic economies of the world represent more than $7 trillion in the gross domestic product (GDP).

Islamic financial assets are estimated at $1.81 trillion and are expected to reach 3.25 trillion by 2020, the expert said, adding that the 1.7 billion Muslim population is growing at twice the rate of the global population.

According to him, fast growing and relatively young population of Muslims is increasingly asserting its Islamic sensitivities in the marketplace to products as varied as food, banking, and finance extending all the way to fashion, cosmetics, travel and healthcare.

Islamic finance

On DIEDC’s strategy regarding Islamic finance, Al Awar said that the centre works with both public and private sector partners and reaches out within the Middle East and beyond to build the international bridges essential for the global success of Islamic finance.

The centre also works with the Islamic finance industry to develop the regulatory framework that will enable the sector to flourish and become a global alternative to conventional finance, he added.

Halal industry

Commenting on the halal industry pillar, he said that the centre pursues national halal regulations, standards and auditing processes and works with public and private sector stakeholders to consolidate and unify halal certification standards globally.

He added that the centre’s other strategies in this regard include driving the development of the ‘Halal Park’ concept to enable halal sector companies to set up in Dubai and receive globally recognized halal certification as well as creating a knowledge base accessible to stakeholders, especially potential entrants to the sector.

Tourism

On the pillar of tourism, Al Awar said that Muslims globally spent around $142 billion on tourism in 2014, which accounted for 11 per cent of global expenditure, and is expected to reach $233 billion in 2020. He clarified that the data excludes Haj/Umrah pilgrimage.

He noted that the centre’s strategy is to attract investment in this sector, create awareness and consolidate family friendly tourism travel guidelines and certification standards to protect consumers and ensure sector integrity.

Digital economy

Digital economy is another pillar that DIEDC is seeking to promote through supporting digital start-ups among Muslim entrepreneurs, encouraging technology companies to create Arabic and Sharia-compliant content or products and working with the digital media industry to develop the regulatory framework that will enable the sector to flourish.

Art and design

Al Awar said that in order to promote Islamic fashion, arts and design landscape, the centre strives to establish an enabling environment for a modest fashion incubation platform to develop sector talent.

According to him, DIEDC also encourage film festivals to establish dedicated awards for Islamic heritage films and promotes the adoption of architecture that reflects Islamic lifestyles and values.

In addition, the expert said that the centre works with stakeholders to align academia with government and industry to address skill shortages within the Islamic economy and conducts studies and specialised research on the Islamic economy to create a global knowledge resource.

Standards

Commenting on the standards and certification pillar, Al Awar said that, as part of its efforts, the centre works with stakeholders to develop a framework for certifying halal products and services that is globally acceptable.


(Times Of Oman / 20 December 2015)

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Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Sunday 20 December 2015

Gulf banks set to dominate global Islamic banking sector by 2020

Islamic banking assets of commercial banks based in Qatar, Indonesia, Saudi Arabia, Malaysia, the UAE and Turkey (known as QISMUT) are set to exceed $801 billion in 2015, according to EY's World Islamic Banking Competitiveness Report 2016.
The report said this will represent 80 percent of international Islamic banking assets which are set to exceed $920 billion this year.
It added that In terms of banking market share, Saudi Arabia, Kuwait, Bahrain and Qatar are expected to be the major players by 2020.

Saudi Arabia continues to dominate the share of the global Islamic banking market with 33 percent, followed by Malaysia (15.5 percent) and the UAE (15.4 percent), the report said, adding that Islamic banks in Bahrain have also been steadily gaining market share over traditional banks.

(Arabian Business.Com  19 December 2015)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Thursday 17 December 2015

Zakat: The best welfare system

Islam was born in the sandy deserts of Arabia with profound implications for the world. Its impact is still found around the globe due to its contacts with other religions and communities. Today Islam is almost associated with terrorism which is nothing but the “manufactured perception” by media and some interested groups to control the resources of the Muslim world. The tag of terrorism to any Islamic country gives them an excuse to invade the country and destroy its history, culture and society. Some big multinational companies are involved in this process as well as for the world it is necessary to control the markets and provide a readymade supply of raw materials. By any standards, Islam is nothing but peace and it has come to world to establish a just and fair system. It just takes a rational man without the prejudices to understand the implications of this system. This has been even realised by European intellectuals as well. It is disastrous for the honour of the Muslims that they have to resort to writing of European intellectuals to justify good in Islam rather than simply relaying on its tenants and principles. Even though there is a sense of ‘Political Islam” emerging which has totally overshadowed the other sub systems that are present in Islam which could relieve humanity from poverty, misery and destitution. The social welfare system in Islam is based on the concept of Zakat.
Modern governments are based on the concept of welfare system. These take care of the health, education and other basic necessities and needs. The type of the welfare system will be in line depending on the types of governments whether it is capitalist, communist or dictator.  There is some difference between these. However all these aim at the promotion of the peace, prosperity of their respective countries. However there is a serious question whether the policies have worked or not. Globally, there are still more than 1 billion population that lives in extreme conditions. This is a starving line where people don’t possess enough food to eat. Much of the world’s poverty of this type is concentrated in Asia and Africa. Millions of dollars are spend on the welfare systems around the world, billions are spend by NGO’s yet there is no solution to the looming crisis that has engulfed humanity. The reason, being, that today’s welfare system is based on the Political necessities and Macavalian policies. The governments have billions to spend on weapons and wars but not to feed the starving mouths around the world. It will take just 15% of the global spending on wars to feed the billions that die and provide them education. There will be more left to spend on the scientific knowledge and progress of humanity. However it seems crazy to believe that after spending so much, the welfare system of the world is unsustainable. It becomes even more unsustainable when there is depression and recession in the economy. The recession of 1930’s, recession of 2008 and Greek debt crisis saw deep cuts in the welfare expenditure around the world. It forced many millions to resort to violence on the streets. However, the economy is to be seen in light of the “whole” system. The governments in the recession resorts to tricky measures, to cool the temperature, by resorting to borrowing from banks and other entities. Many few realise the borrowing will cost them in future. They will have to pay back the money and with due interest rates. It is no secret that millions of people are under debt even in developed countries. It is exactly what happened in Greece. Similarly, in recession the rich demand cuts in income taxes and all to keep the economy afloat which again impacts the welfare system. In recession banks don’t lend to poor and those who lost their jobs due to income credibility problems. If it lends, it lends these at higher charges. It puts them in trap of banking system that creates money out of nothing. The recession is the best opportunity for the banks to keep governments in check and control economic resources.  And when these institutions turn in on these poor flocks, they have no mercy.
Zakat is significantly different from the other systems. The first principle of the zakat is that it is exclusively left for the poor. This principle takes away the interference from political parties tempering into the welfare system. Whether the money is less or more, it has to be spent on the poor people. However since the poverty is a relative term, the poverty line can always be adjusted to keep spending on the poor in a country and when everyone is rich, the money can be given to other nations to feed their poor flock. Islam doesn’t make a difference between poor persons living in different countries. However the modern government’s welfare system does. The zakat can be stored in the boom times to meet the basic necessities when the economy is in recession and when it is expected that poverty ratio will increase. One more important fact about zakat system is that it is provided to poor free of interests and governments have not to borrow it from the people. It is religious obligation on the rich to provide some amount of the money to poor. This way there is no inter-generational debt problems. The present consumption by the poor doesn’t lead to an increase in income taxes for the next generation. This is all what economics strives for. However since there is bias about Islamic institutions these are really taken seriously. One misconception about zakat system is that it will breed poverty among the society as people will choose to be poor as the society will take care of them. So there is no incentive for hard work. However human nature is against being at the bottom. There is a lot of evidence in economics that suggests that men or women if given enough space will try to achieve a good life for them and their children. Zakat has more profound implication on the evils of the society like theft, kidnaping etc. since zakat will take care of the basic needs of the poor, and they are unlikely to indulge in social evils. It has a positive externality for the society as social evils will come down rapidly. It strikes at the root of class war which Marks, the false prophet, proposed. However the zakat system has to be seen as a sub system of the Islamic economic system. Since the society will make resources available money for the poor, the creation of better relations is a necessary implication for it. In fact zakat is a guarantee for peace and development. This helps in more growth and equality distribution.

 It is necessary that the prejudices against Islamic economic system must be removed. Its fundamentals will remove the defects of the present economic systems throughout the world. The welfare system of the world has cracked down and the poverty is increasing so is the inequality. It is a great time for the economists to give serious thoughts to zakat system so that poverty, hunger and destitution will be removed throughout the world.
(Kashmir Images / 17 December 2015)
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Oil-Squeezed Malaysia Seen Selling Sukuk as $1.2 Billion Matures

Malaysia will face pressure to sell global sukuk next year as $1.2 billion of Islamic debt matures in July and plunging oil prices erode fiscal revenue and currency reserves.
RHB Investment Bank Bhd. and Union Investment Privatfonds GmbH see demand for a new Islamic bond holding up because of a scarcity of dollar sukuk and longer-term prospects for Malaysia’s finances. The ringgit has rebounded 1.8 percent this quarter, paring its losses to 19 percent for 2015, a year in which reserves slid below $100 billion for the first time since 2010.
Prime Minister Najib Razak repeated a warning last week that government revenue for Asia’s only major net oil exporter could fall short of the official target by the equivalent of about $7 billion next year. The yield on the sovereign U.S. currency Shariah-compliant notes that are maturing has climbed 21 basis points in 2015 to 1.58 percent, the highest in more than two years.

“Despite some problems in its sovereign credit, Malaysia will easily sell $1 billion to $1.5 billion,” said Sergey Dergachev, a senior money manager who helps oversee $13 billion at Union Investment, which is “market weight” on the debt. “I assume many emerging-market sovereigns and corporates would like to make use of this cheap opportunity to still lock in low rates.
Dergachev said he’ll consider buying the bonds if valuations are good, and estimated a 20 to 25 basis-point premium over Malaysia’s existing 2021 dollar Islamic notes assuming it’s a five-year maturity. The 4.646 percent debt yielded 3 percent on Wednesday. He said the government may tap investors early next year.
Angus Salim Amran, Kuala Lumpur-based head of financial markets at RHB Investment Bank, said a Malaysian 10-year sukuk may pay 160 basis points more than U.S. Treasuries, which he put around 3.80 percent when he was interviewed on Tuesday.
Global issuance of Shariah-compliant bonds has dropped 29 percent in 2015 to $34.2 billion, the poorest showing since 2010, according to data compiled by Bloomberg. Malaysia sold global Islamic bonds this year for the first time since 2011, and has a total of four foreign-currency sukuk outstanding and no conventional notes.
Overseas investors also seem optimistic, after raising holdings of the nation’s sovereign and corporate ringgit debt to a seven-month high of 213.6 billion ringgit ($49.5 billion) in November. They increased the proportion of government Islamic notes to a record 11.7 billion ringgit.
The recovery in foreign demand “may be an indication of the interest that investors are expected to exhibit in any sukuk offering by the government,” said Helmi Abdul Jabar, head of project finance with the global investment banking division of OCBC Bank (Malaysia) Bhd. in Kuala Lumpur.

Brighter Picture

Asset sales by a debt-ridden state investment company may also help. 1Malaysia Development Bhd. struck a deal last month to sell its power assets to China General Nuclear Power Corp. for 9.83 billion ringgit. The firm had drawn criticism from lawmakers due to its 42 billion ringgit of debt and spooked investors when it almost defaulted on a loan in 2015. The government provided a 950 million ringgit credit facility in March to shore up its finances.
As the central bank sought to prop up the ringgit, Malaysia’s foreign-exchange reserves sank 18 percent this year to $94.6 billion. The currency’s rebound and 1MDB’s progress in winding down its operations also brought down the cost to insure the nation’s sovereign bonds from non-payment to 182 basis points from a six-year high of 247 in September.
Standard & Poor’s analyst Kim Eng Tan said Wednesday that the company’s stable outlook on its credit rating for Malaysia was unchanged despite the domestic and global developments. It rates the nation A-, the fourth-lowest investment grade.
“Fundamentally, investors are still positive on the longer-term prospects,” said RHB’s Angus. “I expect buyers to be made up mainly of structural investors who take a longer-term outlook on the sovereign rather than focus on current market weakness.
(Bloomberg Business / 17 December 2015)
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Tuesday 15 December 2015

HSBC Amanah chief to head CIMB Islamic banking arm

Dec 14 CIMB Group Holdings Bhd , Malaysia's second-biggest bank by assets, said on Monday it had hired the former head of HSBC's Islamic arm to lead its Islamic banking operations.
Mohamed Rafe bin Mohamed Haneef, who was heading HSBC Amanah Malaysia Bhd, was appointed chief executive of CIMB Islamic Bank Bhd and the Group Islamic Banking Division effective Jan. 4 2016, CIMB Group Holdings said in a statement to the bourse.
The move sees Haneef, a 15 year Islamic finance vereran, taking the helm of one of the largest arrangers of sukuk or Islamic bonds at a time when the market seeks to expand into new markets and attract a wider range of issuers.
Haneef will replace Badlisyah Abdul Ghani who resigned from CIMB Islamic in July, and CIMB Group has been looking for a suitable replacement since the resignation.

The lender, the region's fifth-largest by assets, reported net interest income of 2.42 billion ringgit ($574.55 million) for the third quarter through September - its highest since December 2013 - driven by growth in operating income.

(Reuters / 14 December 2015)
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Sunday 13 December 2015

Malaysia: Insurance, Takaful sector will remain stable in 2016

KUALA LUMPUR: The insurance and takaful sector in Malaysia will remain stable in 2016, underpinned by the industry's solid capitalisation, says Fitch Ratings. M&A (mergers and acquisition) activities are likely to pick up following a quiet 2015.

The rating agency said solid capitalisation in Malaysia will also support the sector's premium growth and potential underwriting volatility as economic growth decelerates.

Malaysia's robust regulatory framework and capital practices comes from a series of regulatory reforms implemented in recent years ahead of full liberalisation and economic integration with other south-east Asian economies.

The industry's consolidated risk-based capital ratio was strong at 239 per cent in the first half of the year, well beyond the regulatory minimum of 130 per cent.

Premium growth was slower in the first half on the back of lower automotive sales and private consumption as consumers adjust to the Goods and Services Tax implemented in April.

"Stable domestic demand and low insurance penetration will continue to support the general insurance and takaful sector, “said analyst Thomas Ng, in a report.

Fitch Ratings also said the growth in investment-linked policies is likely to stay strong given the low interest rates. "We expect life insurers to increasingly tap on health-related and retirement products as the population ages and medical costs rise."

High claims from the compulsory motor class will continue to pressure general insurers' profitability but this will be partly offset by healthy underwriting margins from fire and non-motor classes.

"We believe the deregulation of tariff rates in 2016 to have a mixed impact: motor insurers are likely to benefit from greater flexibility in pricing their risks adequately, but it could trigger competitive pricing among fire insurers and erode bottom-line profitability.

 On the M&A, it said it will be driven by the regulatory requirement for composites to split their life and non-life operations within five years from 2013.

There are currently eight takaful and four insurance composites that have yet to split their operations.

(News Straits Times Online / 03 December 2015)
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Friday 11 December 2015

Bank of England joins IFSB Islamic finance body

The Bank of England has joined the Islamic Financial Services Board (IFSB), one of the main standard-setting bodies for Islamic finance, the second Western regulator to do so after Luxembourg.
The BoE joins as an associate member, the 65th regulatory body to join the Kuala Lumpur-based body, bringing total membership to 189, the IFSB said in a statement.
Britain's government has been keen to make London a centre for Islamic finance. In June of last year it became the first Western country to issue Islamic bonds (sukuk).
The move comes at a key time for Britain's domestic Islamic banks, as the BoE works to grow the number of sharia-compliant assets they can use in their liquidity buffers, with progress expected by the turn of the year.
Currently, sukuk issued by the AAA-rated Islamic Development Bank are the only assets that meet the BoE's criteria for use in the liquidity buffers of the 22 Islamic financial institutions operating in Britain.
The BoE could expand this by allowing use of sukuk issued by sovereigns with lower credit ratings and other non-financial issuers, according to a consultation paper released last year.
Islamic finance follows religious principles such as bans on interest and pure monetary speculation, limiting the range of financial tools that banks can use to manage short-term funding needs.
The IFSB has also admitted the central bank of Kyrgyzstan and the Securities and Exchange Commission of Pakistan as observer members.

The central bank of Kazakhstan has also been upgraded to a full member, becoming the 23rd member of the IFSB Council, its highest governing body.

(Reuters / 09 December 2015)
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