Promising prospects for greater growth of Takaful in the UAE

Dubai: The recent 11th Annual World Takaful Conference in Dubai was an eye opener with regards to the growing number of Takaful operators, and the intense interest in building the Takaful industry and ensuring greater options and benefits for customers.

The Takaful sector is at a promising stage in its development. Although its growth has been fast, there are several challenges and opportunities that the industry as a whole must address, or take advantage of. A key challenge for Takaful companies has been differentiating their product offerings from conventional insurers - which has eroded the value of Takaful operators in an already fiercely competitive market.

In essence, Takaful is based on the concept of mutual indemnification - an agreement that helps all parties involved in cases of loss of health, life or property. Based on ‘risk sharing’, this concept is an alternative method to the more popular ‘risk transfer’ principle used in the conventional insurance space. Takaful is based on the mutual help and cooperation of all the owners of the participant fund, which is basically a risk pool that is made up of participant contributions. In addition, it does not engage in interest-based activities and invests the contributions made by the participants and shareholders in Shari’a compliant securities.

Within the UAE, Takaful products are sold mainly through broker and agency/ advisor distribution channels. In contrast, in Malaysia, Islamic banks are being utilised for their existing customer base to provide a whole new distribution channel to Takaful operators known as bancatakaful. As a result, Takaful operators within the UAE are now quickly catching on to leverage bank distribution for Takaful products. Noor Takaful, for example, has leveraged on its relationship with Islamic banks and led the market with unique new products such as ‘Smart Save Plus’ and a ‘Single Pay Jumbo Plan’ which are sold mainly through the bancatakaful distribution channel.

So far, Middle Eastern Takaful operators have concentrated almost 90 per cent of their takaful activities in the non-life sector of Islamic insurance, whereas in Malaysia, that number is a complete reciprocal, building almost 75% of their activity from within the life sector of Takaful. According to the Dubai Center for Islamic Banking and Finance (DCIBF), only 5 out of the 16 Takaful operators produced a surplus in 2014 in the GCC region. In Asia, that number is even lower - sitting at just 10% of 56 Takaful operators who have produced positive results between 2011- 2013.

In order for Takaful companies to grow, they must focus on customer centricity, the innovation of new products/services, adhering to the customer’s needs, and the implementation of technological enhancements within the organisation - that allows for accurate assessment of risks, while at the same time maintaining the core Islamic values on which Takaful is built.

With readily available information now online, customers are more aware of their needs today than ever before. These buyers have an abundance of options to select from when it comes to Takaful products/services, and Takaful companies need to make more information and products available through online access.

Although both Islamic Takaful and Islamic Banking started at the same point in time in history - around the 1970’s – according to the same DCIBF report, the banking sector has taken off to a massive global revenue size of 1 trillion dollars, whereas the Takaful sector has yet to reach the 50 billion dollar mark from a revenue perspective.

With its relatively new entry into the region as compared to its conventional counterpart, the challenge for the Takaful industry and specifically the Takaful operators to achieve full potential, is to bring new products and technologies to customers, and offer a reasonable pricing of risks alongside efficient business processes.

There is significant potential for consolidation among regional Takaful operators. Countries like Indonesia and Malaysia, for example, with significantly larger populations that the GCC, have achieved deeper penetration with fewer Takaful operators.

Consolidation of Takaful companies in the future may boost growth prospects by instilling greater confidence among customers. Fewer and larger Takaful companies, with larger financial resources will lead to greater financial stability and better ability to compete while focusing on improved risk pricing. In addition, customer trust must be promoted by focusing on corporate governance and ensuring adherence to new regulatory standards. For example, with the recent regulatory changes, new opportunities to demonstrate customer value are opening up, such as mandatory medical insurance and better customer service and response times, all of which point to prospects for greater growth for Takaful companies, especially in the UAE.

The writer is the CEO of Noor Takaful. Views expressed in the column are the writer’s own and do not reflect that of the newspaper.

(Gulf News Banking / 25 April 2016)

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UAE emirate Sharjah plans sukuk issue in Q1 - sources

DUBAI, Jan 5 The emirate of Sharjah is planning to raise funds through a dollar-denominated Islamic bond, sources aware of the matter said on Tuesday, in what could be the first sovereign sukuk issuance from the Gulf region this year.

The sources said the issue would be of "benchmark size", traditionally understood to mean in excess of $500 million.

Six local and international banks have been mandated to arrange the sukuk including HSBC, which is leading the transaction, two of the sources said, speaking on condition of anonymity as the information isn't public.

The sovereign is aiming to issue the sukuk in the first quarter of the year and could announce investor meetings for the deal as early as this month, the sources added.

However, the diplomatic spat between Saudi Arabia and Iran could disrupt the timing of the issuance if it hits confidence among international investors.

An official at the department of finance in Sharjah, the third largest emirate of seven in the United Arab Emirates (UAE), declined to comment.

A successful offering could help Sharjah narrow its budget deficit and pave the way for other Gulf issuers to access the bond market.

As well as banks - seeking cash as local liquidity is squeezed - and companies, Gulf sovereigns are expected to make rare forays into international debt markets this year to cover budget shortfalls, including Qatar, Kuwait and Saudi Arabia.

Sharjah has coped comparatively well with low oil prices thanks to its diversified economy, according to credit ratings agency Standard & Poor's (S&P), which rates it as A.

In November, S&P said it expected Sharjah's government deficit to narrow towards 1 percent of GDP in 2018 from a peak of 2.7 percent in 2014. It added the calculations were made without access to Sharjah's GDP data, which is not made public.

Total expenditures in Sharjah's 2015 budget were forecast to be around 17.7 billion dirhams ($4.8 billion).

Sharjah's government budget is small relative to GDP, largely because the UAE federal budget covers a large share of public services in the emirate.

Any sukuk issue would be only its second ever offering after it sold a $750 million 10-year Islamic bond in 2014. The deal attracted significant interest from investors, who pledged orders worth 10 times its final size.

(Reuters / 05 January 2016)

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Malaysia, Bahrain and UAE lead growth in Islamic finance

Among the GCC countries, Bahrain maintained its second position globally, while the UAE switched positions with Oman to come third, with the latter dropping to fourth. Saudi Arabia, which is the world's second biggest jurisdiction in terms of Islamic finance assets, jumped to sixth from ninth overall, said the report released by Thomson Reuters and Islamic Corporation for the Development of the Private Sector.

The report, which was released for the third consecutive year, examines the key statistics and trends across five indicators that are deemed to be significant for measuring the development of the $1.8 trillion Islamic finance industry. These include Quantitative Development, Knowledge, Governance, Corporate Social Responsibility and Awareness. These indicators are tracked across 108 countries, which had contributions in all or some of these indicators.

Pakistan, Jordan, Hong Kong, India, Botswana and Ivory Coast are some of the countries that have demonstrated positive movements in the IFDI 2015 ranking.

"As the leading Islamic finance institution supporting private sector development across the Islamic world, we recognise that the industry requires effective holistic measures to focus our efforts to facilitate and ensure inclusive financial sector development," said Khaled Al Aboodi, CEO of ICD.

In 2014, global Islamic finance assets climbed to $1.814 trillion, representing a 9.4 per cent rise from $1.66 trillion in 2013.  This increase was driven by strong growth in all sectors - Islamic banking, takaful, sukuk and Islamic funds. The value of assets in the Islamic finance sector is expected to increase by 10 per cent per annum over the next five years, reaching $3.24 trillion by 2020.

"The Islamic finance industry has demonstrated tremendous growth over the last few years. We have seen the industry develop a conducive eco-system that made it possible for many countries to enter this space. Currently, there are more than 1,000 Islamic financial institutions most of which are located in the GCC and Southeast Asia and we expect this  number to increase significantly in the next decade," said Nadim Najjar, Managing Director, Middle East & North Africa, Thomson Reuters

The number of Islamic finance degrees and courses as well as research papers increased in 2014, with 2013 leaders Malaysia, Bahrain, and Jordan retaining their leadership positions on the Knowledge Indicator for 2014.

Some 378 institutions offered Islamic finance education in 2014. Malaysia and UK lead 36 countries that offer Islamic finance degrees, with 141 institutions offering Islamic finance courses.

Bahrain and Malaysia maintained their respective first and second positions on the overall Governance indicator, which considers three factors: Regulations, Corporate Governance, and Shariah Governance. There remains a huge gap between the two leaders and the rest of the countries.

Bahrain, Malaysia, Pakistan, Nigeria, and Indonesia are the jurisdictions with the most complete set of Islamic finance regulations. These are the jurisdictions providing best practice models for Islamic finance governance, and which are considered as models by new markets such as France, Germany, Ghana, and Russia.

(Khaleej Times / 04 December 2015)

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UAE, Malaysia show willingness to issue green sukuk

Kuala Lumpur: Countries such as the UAE and Malaysia have shown the willingness to issue green sukuks, and advisers such as Climate Bonds Initiative hope to have at least one [issued] in 2016, the chief executive officer of the advisory firm told Gulf News.

“Dewa (Dubai Electricity and Water Authority) has said that they are considering issuing a green sukuk for clean energy,” said Sean Kidney, chief executive officer of Climate Bonds Initiative. The firm has a sukuk advisory group in the UAE, trying to promote issuance.

The world is heading for up to seven degrees of global warming, according to the International Energy Agency (IEA), which may make many of the parts of the earth uninhabitable, impacting the rich and the poor alike, and Kidney feels the solutions are investible without impacting the government budgets.

“The world is full of money and there’s no shortage of capital, we just have to get our government settings in place,” Kidney said, adding “green bonds are a way to make it simple for people to invest in them.”

“One of the reasons that I like this idea of green sukuk is that it marries the idea of protecting the environment, and it makes sure that our financial system is designed around a social cause and not around making money for billionaires in New York,” he said.

Currently, there is a $65.9 billion (Dh242 billion) of outstanding in labelled green bonds, with transport and energy remaining the dominant themes. The development banks and corporations contribute to the 80 per cent of the issuers. Kidney expects an issuance of another $50 billion bonds next year.

“We need to have the right kind of industrial planning and economic planning that provides transition to the green economy,” he added.

Dubai as an example

Saudi Arabia’s oil minister, Ali Al Nuaimi, had recently said that the largest exporter of crude oil wants to be a solar energy exporter, indicating the extent of the solar ambitions.

“The truth is that oil remains a finite resource,” Kidney said.

Climate Bonds Initiative considers Dubai as an example which has made considerable efforts in developing solar energy.

“The Gulf needs to follow Dubai’s economic model, rather than depend on fossil fuel, as quickly as possible,” Kidney said, adding, “use the wealth now to diversify your economy and diversify the risk”.

“We need to be aware that oil is a sunset industry and we need to quickly move [on with] the transition,” he added.

(Gulf News Market / 05 November 2015)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(The National Business / 08 August 2015)

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Abu Dhabi Islamic Bank Exploring Expansion Into SEA Asia, Africa

Abu Dhabi Islamic Bank PJSC, the United Arab Emirates’ second-biggest shariah-compliant lender, is considering entering markets in South East Asia and Africa to tap demand in countries with a large Muslim population.

The bank has “looked closely” at Indonesia and Malaysia as well as Algeria, Morocco and Jordan, Chief Executive Officer Tirad Mahmoud, told reporters late on Sunday. “We are actively visiting locations where we may be planting a flag” and may consider an acquisition next year as part of the plan, he said.

Banks in the U.A.E. are seeking to expand to diversify revenue and boost growth, which is restricted by the small size of their home market. ADIB, as the bank controlled by Abu Dhabi’s ruling family is known, is present in countries including Saudi Arabia, Qatar, Iraq, Egypt, Sudan and the U.K.

ADIB in 2014 acquired the retail banking business of Barclays Plc in the U.A.E. for 650 million dirhams ($177 million). The bank was also among lenders that bid to buy the retail banking assets of Citigroup Inc. in Egypt this year, losing out to Commercial International Bank Egypt SAE last month.

“We will be looking to do deals in 2016,” Mahmoud said. “If it’s a retail business, it’s going to be acquisitions, if it’s going to be a corporate business it will be greenfield.”

ADIB expects lending to grow by four percent to six percent this year, slower than expected industry loan growth in the “high single digit,” Mahmoud said. A slowdown in property transactions, competition and ample cash at banks is hurting growth, he said.

ADIB would like its return-on-equity to be at the higher end of 15 percent to 18 percent, the range for most U.A.E. banks, Mahmoud said. The bank has no plans to sell Islamic bonds or sukuk in the next three months and will evaluate its capital position every quarter depending on growth, he said.

(Bloomberg Business / 06 July 2015)

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Aafaq in tie-up to promote Islamic finance

UAE-based Aafaq Islamic Finance recently entered into a strategic agreement with Emirates College of Technology (ECT) to promote Islamic banking and finance.

Under the Memorandum of Understanding (MoU), Aafaq’s ‘Institute of Finance and Management’ will implement occupational training programmes focusing on the Islamic economy, its theories and applications, as well as topics that support banking and financial establishments in general.

The MoU lays the foundation for strong cooperation in terms of human resource development, research and consultancy in the field of Islamic finance.

Aafaq’s CEO Dr Mahmoud Abdelaal and ECT’s president Prof Bruce Douglas Taylor signed the MoU that also enjoins both sides to identify other areas of collaboration to further boost their strengths and attain their respective goals.

Prof Taylor said: “In order for us to be recognized as one of the UAE’s leading private universities, we make important investments to ensure that we provide only top quality teaching, research and community services to all our stakeholders.”

“We put a high premium on the skills of our people in accordance with our commitment to the country’s shift towards a knowledge-based economy. Our agreement with Aafaq, which is known for its expertise in Islamic finance, is a big leap towards the realization of our vision and mission. The MoU will pave the way for us to establish mutually beneficial initiatives that will serve our best interests. We look forward to working closely with Aafaq to explore more fruitful development avenues,” he added.

Dr Abdelaal said: “Our partnership with ECT is yet another valuable opportunity for us to reinforce knowledge and human capital capabilities in the field of Islamic banking and finance.”

“We are confident that the scientific research and consultancy components of our MoU will further drive growth in this sector, thus bringing us closer to our main objective of helping establish Dubai as the capital of the international Islamic economy.

“Our expertise, skills and resources to undertake education, training and research in Islamic banking and finance and other related areas strongly complement ECT’s initiatives aimed at investing in employee development and promoting a research environment as part of its contributions to society. We welcome our partnership with them as both parties are fully committed to producing relevant and meaningful results that will ultimately help in the UAE’s advancement and progress,” he concluded. 

(Trade-Arabia / 07 July 2015)
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UAE Fatwa Q&As: How much zakat should I pay?

 You should not sever the relationship with your brother. Aside from the command of Allah in this regard, it is always mutually beneficial to keepcontact with him because it would allow you to advise him and potentially change his behaviour. Muslims have a duty to communicate with their blood relatives even if they have been treated badly by them.

Abu Hurayra (may Allah be pleased with him) reported that a person said to the Prophet Mohammed: “O Messenger of Allah, I have relatives with whom I try to have a relationship, but they sever (this relation). I treat them well, but they treat me badly. I am kind to them but they are harsh towards me.”

The Prophet replied: “If the matter is as you have said, then it is as if hot ashes are being thrown in their faces and there will always remain with you on behalf of Allah support with regards to them as long as you adhere to this (path of patience).”

Q: I am confused as to what amount I need to pay as zakat. I recently earned Dh180,000 and invested it in the stock market. I also have about Dh2,500 in a current account and am paying off an interest-free loan of about Dh18,000. I know that zakat is usually 2.5 per cent of a Muslim’s total wealth. So to which amount would this be applied?

A: Zakat is of paramount importance in our religion for, as the name implies, it is a purification of one’s wealth that has many spiritual benefits for giver and recipient.

To ascertain the amount of zakat you pay, calculate the remaining assets after deducting any debts you owe and then determine whether they exceed the nisab threshold of 85 grams of gold, as per its value on that same day. Provided your net worth is more than the nisab threshold, you would then need to pay zakat at a rate of 2.5 per cent on all assets.

To answer your question specifically, on the relevant zakat payment date you would need to add the financial value of your shares and any free cash. Provided you do not own other fixed assets such as property, you may deduct the amount of interest-free debt that you owe from this amount. If the resultant amount is above the financial value of 85 grams of gold then you would need to pay zakat at a rate of 2.5 per cent on all assets.

If the shares were purchased with the intention for resale then the entire holding, as per their market value on the nisab date, would be subject to zakat.

(The National UAE / 11 June 2015)

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New liquidity initiatives benefit Bahrain, UAE Islamic banks

Dubai: The recent launch of one-week Sharia-compliant contracts with the central bank will benefit Bahrain’s Islamic banks because they broaden the range of options available for short-term liquidity management, said Bashar Al Natoor, Global Head of Islamic Finance at Fitch Ratings.

In a recent move the UAE Central Bank started accepting a wide range of sukuk as collateral for banks to access its special lending facility from April 1, 2015. “This will help the UAE’s Islamic banks, which often hold these securities,” said Al Natoor.

Bahrain’s one-week facility is based on a wakalah contract, where the regulator invests cash on behalf of the lender.

Most Islamic Bank liquidity management instruments consist of low-profitability assets, such as cash and central bank deposits. Sukuks are primarily offered as over-the-counter instruments and only a limited amount of them are listed on developed and liquid exchanges.

It is widely expected that the implementation of Basel III and its new liquidity coverage ratio LCR will increase offerings of liquidity management instruments while issuers are likely to list more of their sukuk on exchanges and that some regulators will start to accept sukuk as collateral for liquidity provisions.

Bahrain and UAE-based Islamic banks have so far held excess liquidity either in cash or monthly offerings of central bank sukuk, with maturities between three and six months. This placed them at a disadvantage to conventional banks, which have a wide range of interest-earning liquidity management options available.

“Efforts to develop Sharia-compliant liquidity tools are picking up in several Gulf countries, notably Oman. These tools will be important for Islamic banks to boost their competitive positions, all the more so as the pace of growth in Islamic financial services is outstripping conventional banking growth in the region,” said Al Natoor.

Islamic finance is set to expand as large numbers of relatively under-banked Muslims seek banking services in line with economic development in their home countries, and some countries with large Muslim populations seek to invest their wealth in Sharia-compliant instruments.

The UAE’s Islamic banking assets total $100 billion, the fourth-biggest in the world after Iran, Malaysia and Saudi Arabia, according to Dubai government data. Bahrain has $43 billion. In the UAE, the central bank has expanded the list of eligible collateral for its Sharia-compliant overnight facility to include assets other than the regulator’s Islamic certificates of deposit.

“Regulatory and tax limitations could hold back the development of Islamic banking, as could a lack of workable tools that accommodate Sharia rules. Bahrain and the UAE’s introduction of new liquidity management tools marks a small but important step towards overcoming some of these challenges,” he said.

(Gulf News Banking / 13 April 2015)

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UAE Islamic banking sector to achieve $263 billion assets by 2019

DUBAI: Islamic banking is growing at more than twice the rate of conventional banking in the UAE and the sector is on track to achieve $263 billion of Sharia- compliant assets by 2019, according to a report.

The UAE Islamic financial sector, estimated to be worth $127 billion in 2014, is the third largest Islamic banking market by value after the Saudi Arabian and Malaysian markets, said the World Islamic Banking Competitiveness (WIBC) report compiled by the Ernst & Young Global Limited (EY), a UK-based multinational firm.

The report released on Sunday said Sharia-compliant assets, which meet all the requirements of Shariah law and the principles articulated for Islamic finance, in the UAE crossed the $100 billion milestone for the first time.

The current penetration of Islamic banking in the region stands at 21.4 per cent and represents a 14.6 per cent share of the global market.

The industry in the UAE is growing at more than twice the rate of conventional banking. Due to high demand, there is increased pressure on efficiency as more Islamic banks attempt to go mainstream, it said.

"Islamic banks in the UAE, are eyeing revenue growth through experience-led transformation of their domestic business. Looking at the positive performance of Islamic banks in the UAE, the country is expected to be one of the main markets that drive the future internationalisation of the Islamic banking industry," said Ashar Nazim, Global Islamic Finance Leader at EY.

The company monitored 55,884 Islamic banking customer sentiments in the UAE on social media as part of a wider study, which looked at 2.2 million customer sentiments dispersed across various online sources in nine key markets (Saudi Arabia, Bahrain, Kuwait, the UAE, Malaysia, Indonesia, Turkey, Qatar and Oman).

The study of social media comments has revealed an improvement opportunity for Sharia-compliant banks with respect to products and services, which were ranked the lowest in terms of customer satisfaction.

"The call to action for Islamic banks in the UAE is to build rich insights into customers' delight and pain points, and break operational silos," Ashar said.

"Regulatory intervention on product design can help to both attract and protect consumers. The reputations of Islamic banks today will depend on the way banks engage with their customers," he said.

(Times Of India / 30 March 2015)

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UAE set to be the first to offer green-energy sukuk

The UAE is expected to issue the world’s first Sharia-compliant bond aimed at financing green energy projects this year, possibly as early as next month, according to industry experts.

“We are going to get one, possibly two [green sukuk], in the UAE in April,” said Sean Kidney, the chief executive and co-founder of the London-based Climate Bonds Initiative (CBI).

Green bond issuance reached US$36.6 billion globally last year, more than triple the previous year’s total. Mr Kidney said that at least $50bn of green bonds are forecast to be issued this year, but he expects numbers to be even higher.

“We have a reasonable shot at seeing $100bn of [green bond] issuance this year,” he said.

CBI has helped to create international standards for this type of ethically responsible financial security, from which capital raised is used for projects such as solar and wind schemes as well as developing energy efficiency initiatives such as LED lighting.

“I am optimistic that we will see the first green issuance out of the region and into the region during this year,” said Andy Cairns, the managing director of debt origination and distribution at National Bank of Abu Dhabi (NBAD). The bank is currently in discussions with potential issuers, he said.

Mr Cairns said that there were multiple benefits to be gained from the rise of ethically responsible financing mechanisms such as the “halo effect of positive publicity and the associated feel-good factor”.

NBAD helped to issue an ethically responsible sukuk in November. The $500 million Vaccine Sukuk uses the funds raised to buy vaccines to deploy in the developing world.

“They are attractive to issuers by targeting dedicated socially responsible buyers, those funds with a specific mandate to put money to work in socially responsible projects, while also appealing to the broad universe of conventional investors,” said Mr Cairns.

Nasser Saidi, chairman of the Clean Energy Business Council, said that the council has been in discussions with the Dubai Supreme Council of Energy (DSCE) about the issuance of green sukuk, which oversees energy planning in Dubai. DSCE’s members include Dubai Electricity and Water Authority (Dewa).

“That’s why a Dewa sukuk would be a perfect opportunity, and it would be highly supported by the global financial market,” said Mr Saidi.

In January, Dewa said it would increase its target for solar power to account for 15 per cent of total capacity by 2030, up from 5 per cent previously.

Lee Irvine, an associate in the Latham & Watkins law office in Dubai, said the green sukuk first mover would have the greatest advantage to corner the market. The firm is working with the Clean Energy Business Council, the Gulf Sukuk and Bond Association and the Climate Bonds Initiative to promote green sukuk.

“[The first issuer of the green sukuk] will open up the market regionally, and that will allow smaller corporations and enterprises to pursue the financial vehicle,” he said.

(The National Business / 11 March 2015)

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UAE's Sharjah Islamic Bank prices $500 mln 5-yr sukuk

Sharjah Islamic Bank (SIB) priced a $500 million sukuk of five years duration on Tuesday, a document from lead managers showed.

The Islamic bond was priced at a spread of 110 basis points over midswaps and carried a profit rate of 2.843 percent, the document said.

The final spread was at the tight end of price guidance issued earlier in the day of 115 bps, plus or minus 5 bps, over the benchmark. The order book was worth around $3 billion, the earlier update from lead managers showed.

SIB's sukuk was arranged by Abu Dhabi Islamic Bank , Al Hilal Bank, Dubai Islamic Bank, Emirates NBD, HSBC, KFH Investment and Standard Chartered and was sold after a series of investor meetings in Asia and Europe. 

(Reuters / 10 March 2015)

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Opportune time for corporates to issue sukuks in UAE

Dubai: Corporates in the UAE and the wider GCC region may prefer a bond issue as tumbling oil prices could crimp liquidity in the banking system.

Banks have been struggling to match the rates that sukuk markets provide. Senior sukuk yields are at 1.5-2 per cent currently as against bank loans that cost 2.7-3 per cent, Jaap Meijer, managing director at Arqaam Capital told Gulf News.

“It is more attractive to issue Islamic bonds than borrow from banks, given the strong investors’ interest. Already sukuks continue to be popular and banks can’t really match the rates the market provides,” said Meijer.

Sukuk issuance globally reached $116.4 billion in 2014 compared with $111.3 billion in 2013, and industry participants see more issuances this year.

The major driver would be crude oil, which fell more than 50 per cent in 2014, the biggest drop since 2008 financial crisis after the Organisation of Petroleum Exporting Countries (Opec) kept the output steady to counter US shale gas, triggering.

“The fall in oil prices could prompt governments to reduce their deposits held at the commercial banks, and this could reduce the availability of credit over time,” said Meijer.

“Though this may appear as the most liquid option for the government to tap into, it does have further reaching impact on the economy as lower deposits should translate into tighter liquidity, wider credit spreads, curbing bank lending and hence putting further pressure on GDP growth versus decreasing international reserves held elsewhere that does not have the same magnitude of an effect on the economy,” Meijer said.

A senior official at the Gulf Bonds and Sukuk Association also agreed. “If liquidity would tighten some what, that would drive more potential sukuk issuers to capital markets. I’m fairly bullish on more sukuk issuances. We may even see newer issuers coming to the market, said Micheal P. Grifferty, president of The Gulf Bonds and Sukuk Association.

Meanwhile, a Thomson Reuters survey of 44 lead arrangers and 106 investors had shown considerable confidence in the market about Sukuk issuances in 2015, with forecast figures ranging from $150-175 billion globally.

Successful reception

“Government that choose the path of sukuk issue would find it successful reception,” said Grifferty.

Saudi Arabia, and Oman budgeted a deficit for 2015 while increasing its spending, which analysts expect may give rise to more sukuk issuances from the governments.

“One of the silver lining of lower oil prices is that there could be more sukuk issuances as countries run budget deficits, they need to finance that. Also we would see tangible progress on subsidy reforms,” Mohieddine Kronfol, chief investment officer global sukuk and Mena (Middle East and North Africa) fixed income, at Franklin Templeton said on January 14.

The GCC region produces about $200 billion of debt a year, out of which $40-50 comes to capital market, said Franklin Templeton.

“So far the governments haven’t cut back spending at all in announced budgets. Only if the oil price stays this low for a prolonged period, would we see austerity measures being announced, affecting the private sector growth. We do not expect drastic fiscal austerity in GCC, despite double digit fiscal deficits in Saudi Arabia, Oman and Bahrain, though Oman and Bahrain are most vulnerable. We find that the UAE is very comfortable in terms of reserves,” said Meijer.

(Gulf News.Com / 22 January 2014)

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U.A.E. Margin Trade Crackdown Fans Shariah Push: Islamic Finance

Brokerages in the United Arab Emirates, where the market regulator last month vowed it may create new rules to control so-called margin trading, are increasingly offering Shariah-compliant versions of the service.

Mena Corp. Financial Services LLC, an Abu Dhabi-based investment firm, signed a 50 million-dirham ($13.6 million) accord last week with Dubai-based Aafaq-Islamic Finance Company to offer Shariah-compliant margin trading, where banks and brokers lend money to investors to trade. Al Safwa Islamic Financial Services was one of five firms accredited to provide margin trading this month, the Dubai Financial Market announced Aug. 5.

“You have more and more firms acquiring licenses,” Abu Dhabi-based Fathi Ben Grira, chief executive officer of Mena Corp., said by phone yesterday. “We’re pretty convinced there will be a strong appetite.” The deal with Aafaq may grow to as much as 350 million dirhams by year-end, he said.

The practice contributed to stock market volatility in the country this year that sent Dubai’s benchmark index from a bull market into a bear and back again in less than a month. The U.A.E. said it may amend the rules governing lending against shares after reviewing the price swings. Increased monitoring by the central bank and Securities & Commodities Authority is creating more clarity for investors and is fueling client demand, Grira said.

Limited Supply

Shares of Shariah-compliant companies globally advanced 5.2 percent this year through yesterday, according to the Dow Jones Islamic Market World Index. Dubai’s gauge jumped 42 percent in the period and is the best-performing index in dollar terms among more than 90 tracked by Bloomberg. Abu Dhabi’s measure added 17 percent.

Islamic margin trading allows investors, predominantly high-net-worth individuals, to borrow cash according to terms that adhere to the religion’s ban on interest to trade shares, Grira said.

“We’re giving interest-free loans, others offer Murabaha,” Sherif Zohdy, head of brokerage at Al Safwa said by phone from Sharjah yesterday. In a Murabaha contract, goods are bought and then resold with a pre-agreed mark-up to allow lenders to cater for customers who want to lock in payments in the future.

“I have lots of clients who need margin trading, but I cannot offer it,” Zohdy said. “Our capital is 130 million dirhams. Only banks can deal with margin trading on a big scale.”

Total margin accounts at Dubai Islamic Bank PJSC (DIB) rose almost 30 percent to 291.5 million dirhams in the second quarter from the end of last year, according to its latest financial statement.

New Rules

The benchmark DFM General Index soared into a bull market July 15, about three weeks after entering a bear rout fueled by speculation over the ownership structure at Arabtec Holding Co. (ARTC), the U.A.E.’s largest publicly traded construction company. Banks and brokerages exacerbated the selloff as they offloaded stocks to pay back some of the money that was borrowed to buy them.

Representatives of the SCA, the central bank and the country’s two main stock exchanges met to consider the volatility, and said they will make changes to lending regulations if necessary, the SCA said July 7.

Further regulation will help boost the total volume of Islamic margin trading, according to Mena Corp.’s Grira. “We’re for regulation,” he said. “The market has been hurt in the past.”

(Bloomberg / 18 August 2014)

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Emirates Zakat Fights Cancer

DUBAI – Reviving Islamic spirits of helping those in need, an Emirates-based organization is leading a fundraising campaign to collect Zakat, alms, for needy Muslim cancer patients in the rich gulf emirate.

“Zakat has been a tremendous source of hope for thousands of cancer patients in the UAE who need support to get through this life-changing illness,” the Friends of Cancer Patients Society (FoCP) founding member Ameerah Bin Karam told Gulf News on Monday, June 2.

“We are eternally grateful for the significant contributions received, and are appreciative of the concerned individuals and corporate houses for their generous donations to the zakat campaign, allowing us to save more lives.”

The new idea of using Zakat money was suggested by FoCP to provide funds for all major types of cancer.

The collected Zakat money will be allocated for treating patients of breast cancer, leukaemia, lung cancer, prostate and brain cancer.

The campaign also aims to provide funds for “medication – mainly chemotherapy and radiation costs, the cost of procedures done abroad, and the provision of prosthetic limbs and other medical equipment,” the NGO said.

To ensure the effectiveness of the initiative, patients will be reviewed and approved according to FoCP regulations and zakat rules.

Offering cancer-specific help to UAE residents for years, FoCP could provide funds for 169 patients in 2013.

The Emirati NGO has supported nearly one thousand cancer patients over the past 15 years.

Zakat, the third pillar of Islam, is obligatory upon every (capable) Muslim.

According to Islamic Shari`ah, a capable Muslim pays 2.5 percent mandatory payment and spend it to help the poor and the needy.

(On Islam / 03 June 2014)

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SCA cuts sukuk floor to Dh10m

The UAE’s financial market regulator has set new rules for Islamic and corporate bonds to encourage trading in them, and amended rules on securities lending and borrowing to make it easier for foreign institutions to operate.

The changes are part of plans to introduce at least two new rules covering the stock exchanges every year, in an effort to have the Arab world's second biggest economy upgraded to developed market status in 2018, said Abdullah Salem Al Turifi, chief executive of the Securities and Commodities Authority.

UAE equity markets are expected to see more participation by foreign investors after late May, when international index compiler MSCI will raise the country to emerging market from frontier market status.

"We have a very ambitious plan to be upgraded to developed market within five years. I don't want to be over-optimistic, but this is our target and we are working towards that," Turifi said at a conference on Sunday.

"What is needed is a new set of rules and regulations that are being studied and will be introduced, hopefully two or three every year, including options, futures, depositary receipts, fund administrators, nominee accounts and many others."

The new rules for sukuk spell out standards for their issuance, listing and trading, treating them "as an ownership tool and not a debt one" - a key principle in Islamic finance, which stresses the importance of investors sharing profits and losses.

This is in line with Dubai's drive to develop as an Islamic financial centre, the SCA said in a statement on its website.

The rules ease requirements in some areas; the minimum size of a sukuk listing is now Dh10 million ($2.7 million), down from Dh50 million previously.

But strict requirements are specified in other areas. Sukuk issues must be approved by the Shariah committee of the applicant for listing, or by a Shariah committee accredited by the regulator of the issue. While listed sukuk may be traded outside the market, the trading must follow market procedures.

The new corporate bond rules include a requirement for a joint stock company's general assembly to approve any issuance of bonds.

A change to rules for lending and borrowing securities will facilitate borrowing, the SCA said; if brokerages fail to deliver securities under Delivery versus Payment procedures, they can borrow the securities they need without necessarily having to seek SCA approval. This may reduce the risk of investors' trades not being completed.

The amendment also allows foreign institutions to lend and borrow securities between themselves through direct clearance, which will encourage them to operate in UAE markets, the regulator added.

Turifi said a new framework allowing shares in private joint stock companies to trade on a "second market" of the stock exchanges would be introduced in the third or fourth quarter. It will aim to encourage trade in shares of small and medium-sized enterprises. 

(Emirates News / 30 April 2014)

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