West Africa moves towards the introduction of Islamic finance

The review, completed by the international consultancy IFAAS (Islamic Finance Advisory & Assurance Services –www.ifaas.com), was commissioned by the Senegal Ministry of Finance with the full support of the Islamic Development Bank (IDB), based in Jeddah, Saudi Arabia.

IFAAS, with the support of local taxation and legal experts, undertook a comprehensive review of the entire region’s financial sector and the regulations pertaining to the banking, insurance, microfinance, securities and capital markets industries.  Senegalese tax laws were also reviewed to identify potential barriers that may impede the development of Islamic finance in Senegal and the UEMOA region.

The review was completed by IFAAS in close consultation with the relevant local and regional authorities and the findings were presented last week at a two-day workshop in the Senegalese capital, Dakar.  Over 80 senior officials from various authorities of the UEMOA member countries attended the workshop organised by the Senegalese Ministry of Economy and Finance and supported by Islamic development Bank.

During the workshop, IFAAS set out a roadmap of the regulatory changes required to facilitate the introduction of Islamic financial services across the region.  With similar experience in several other regions, IFAAS has recommended a phased implementation of the required changes.  This is to be supported by a pragmatic and progressive approach in order to avoid destabilising the existing financial system.  The proposed approach also aims to ensure a level playing field for Islamic finance providers across all eight of the UEMOA countries.

Mrs. Oulimata Diop, Director of the Money and Credit Directorate of the Ministry of Economy and Finance of Senegal, thanked IFAAS for their high quality of work in her address during the closing ceremony and stated that “The integration of Islamic finance into the regional financial system is very much possible on the basis of the current legislation.  […]This finding is highly reassuring for the stakeholders that the implementation of Islamic finance in the region will not require highly complex reforms. IFAAS recommendations are very pragmatic and simple to follow.”   The representatives of the relevant authorities from different countries of the UEMOA region also expressed their satisfaction with the results and recommendations presented by IFAAS.

Farrukh Raza, Managing Director of IFAAS said, “It is an honour for us to have led this exceptional project. We are convinced that our report will provide a solid platform for establishing a sound Islamic financial industry in the region, providing innovative solutions to the public and the states of the West African union.”

*Members of the West African Economic and Monetary Union (also known by its French acronym, UEMOA) are Benin, Burkina Faso, Cote d'Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo.

(C.P.I Financial / 09 July 2012)

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Pakistan: Developing an Islamic monetary policy

SUSSEX: 

Despite tremendous growth in Islamic banking and finance globally, it is not easy to convince Pakistani bureaucrats and policymakers that this new form of banking and financial business can potentially be used to run economic and financial matters of the Pakistan economy in a Shariah compliant way.

In fact, a number of sceptics of Islamic banking & finance argue that Islamic financial products are in essence similar to their conventional counterparts and that Islamic banks do nothing but mimic conventional banks. This observation has some merit. Islamic financial products seem to mimic conventional products in terms of pricing and their financial behaviour and economic characteristics. This is primarily because financial regulators treat Islamic products similar to the conventional products and emphasise that the two sets of financial products must not differ much in terms of their risk return profiles and financial characteristics.

Moreover, there is no Islamic-finance-enabling infrastructure in most of the countries where Islamic banking exists. In particular, there are no well-developed Islamic money market operations, except in Malaysia where a number of Islamic money market instruments are developed to allow Islamic banks to have access to liquidity management tools. But even there, a distinct Islamic monetary policy has yet to emerge. This lack of enabling infrastructure is a main reason for mimicking of conventional products in Islamic banking & finance.

It is argued that attempts to develop an Islamic monetary policy may pave way for creating the first vibrant Islamic money markets in the countries where Islamic banking is significant. Pakistan is one such country where Islamic banking is reaching 8% of the banking sector, yet there is huge dissatisfaction with the current Islamic product offerings, especially by the more conservative religious class that argues for a purist model of Islamic banking. Development of an Islamic monetary policy by the State Bank of Pakistan and implementing it along with its conventional monetary management may give rise to a dual monetary system – something that some people contend to be consistent with the dual banking system as it allows for the parallel operations of Islamic and conventional banks in a country.

It must be emphasised that the suggestion of a dual monetary system is not a far-fetched idea. In fact, there are living examples wherein a country has multiple currencies. In the UK, for example, apart from Bank of England, Bank of Scotland, Royal Bank of Scotland and some other banks issue their own pounds. Malaysia also provides another example, where apart from the main currency Ringgit issued by Bank Negara Malaysia (the central bank), the State of Kalantan also issues gold coins for some of its employees that may wish to be paid in this alternative currency. In fact, any country that allows holding of multiple currencies (as in the form of foreign currency accounts) is technically a multiple currency regime.

The open market operation in monetary management is based on the interest rate mechanism, which makes it clearly and unambiguously Shariah repugnant. Hence, there is a definite and clear-cut need for developing a monetary policy that is in line with the practice of Islamic banking and finance. This will require developing money market instruments that are not based on the interest rate mechanism but rather are based on the Shariah compliant principles and are consistent with the product offerings by Islamic banks. On a more philosophical level, this may lead to a need for creating an asset-based money rather than the current debt-based money.

THE WRITER IS AN ECONOMIST AND A PHD FROM CAMBRIDGE UNIVERSITY.

(The Express Tribune / 09 July 2012)

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Pakistan: ‘Islamic banking should be enforced under SC order

KARACHI: Islamic banking in Pakistan is being practiced on the basis of supply and demand and not as mandatory by the government, said Jamiatur Rasheed Education Director Abdul Aziz Raja. 

Addressing at a seminar on a case study on ‘A Blend of Contemporary and Religious Education’, held at Korangi Association of Trade and Industry (KATI), Raja said that banking ordinance was introduced in 1974 but tabled in the House in 1984, under which the Islamic banking in Pakistan should be mandatory and not the optional. 

He said that under Supreme Court’s order Islamic banking should be enforced. “Islam is a complete code of life and not just for a few rituals and gives complete economic system,” said Raja adding that in order to implement Islamic banking and Islamic financial system only 5.0 percent work has been done in the country so far while 95 percent work is yet to be done. 

He said that Jamiatur Rasheed has introduced various courses on Islamic financial system and economic principles and offer graduate and post graduate courses on banking and finance, accounting, book-keeping, supply chain and marketing, etc, and the campus constructed in Ahsanabad is most modern and equipped with all required facilities. 

He pointed out that interest free banking is being practiced in Japan and a number of western countries while Pakistan’s businessmen are being charged with double-digit interest. He said that at this juncture when religious institutions have forgotten modern and technical education, Jamiatur Rasheed, which is imparting most modern education is an asset to the nation. He advised that like Jamiatur Rasheed other religious institutions should also impart technical and other modern education to their students.

(Daily Times / 08 July 2012)

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Will India accept Islamic banking?

NEW MODEL: Experts weigh its pros and cons while critics say it goes against the nation's secular fabric

BY holding the first-ever meeting in India this week of its International Advisory Panel (IAP), the World Islamic Economic Forum (WIEF) Foundation promoted its agenda of "building bridges through business" in a country where it sees big potential.

Foundation chairman Tun Musa Hitam emphasised the need to "solidify the partnerships and work towards concrete initiatives based on changing trends and new opportunities in the global economic scene".

The Malaysian-led initiative sought to establish rapport between political leaders and officials, inviting Indian Planning Commission deputy chairman Dr Montek Singh Ahluwalia, a key aide of Prime Minister Manmohan Singh, to attend the 8th WIEF meet in Johor Baru in December.

Foundation secretary-general Tan Sri Ahmad Fuzi Abdul Razak said he expected a score of Indian businessmen-delegates to be at the forum, which would discuss issues, including the promoting of private sector partnerships among a host of Muslim and non-Muslim nations.

While this is a welcome move, one of the forum's thrust areas -- the introduction of Islamic banking in India -- may have to await a policy decision on a complex issue. It is part of an ongoing debate and a decision is unlikely any time soon.

Ahluwalia raised the issue at the meeting with the delegation. Ahmad Fuzi explained: "India is a non-Muslim country with a huge Muslim population. But we do not want to confine Islamic banking to Muslims. We are optimistic that India will come up with a policy decision to enable Islamic banking in the country."

Indian Law Minister Salman Khurshid, who is also in charge of minority affairs, did not dwell on it during his address. But asked by media on the sidelines, he called it "a good idea" but admitted that it was "difficult" to fit in Islamic banking with the existing regulations, as the very concept of debt and equity was different in Islamic banking.

"Non-banking financial institutions are prevalent now and are accepted, but some ambiguities have to be addressed before they can take up Islamic finance."

He had written to the Planning Commission and the Reserve Bank of India (RBI) on the issue and was "quite hopeful" that they would "look at the issue afresh".

"Sooner or later, the RBI will come up with a final view. Let me say at this point of time that Islamic banking is an interesting idea, compelling idea, if you look at what France, Germany and the United Kingdom are doing. It's an attractive idea if you look at the sovereign wealth funds of the Gulf region and the fact that we need much more money to finance our infrastructure needs." Both Khurshid and Ahluwalia left it to the experts. The crux, however, lies in a political decision.

On March 27, Parliament was informed that Islamic banking was "not legally feasible" under RBI's existing statutory and regulatory framework.

Minister of State for Finance Namo Narain Meena told Rajya Sabha, the upper house, that the RBI had received references from the Indian Centre for Islamic Finance for introducing interest-free banking in the country "in order to ensure inclusive growth with innovation".

The centre cited recommendations of the Raghuram Rajan Committee that scrutinised the working of India's banking sector.

In 2010, the government opposed before the Kerala High Court the setting up of an Islamic banking institution in that state.

The National Minorities Commission has asked the government to allow Islamic banking. Its chairman, Wajahat Habibullah, said in an NDTV debate that such a bank network could cater to many sections in need of funds, like farmers.

A large number of them have committed suicide for lack of funds or inability to repay loans and interest. Like lawyer Zafaryab Jilani, he said India could develop its own model.

But critics say it goes against India's secular fabric. NDTV asked: "Will it open up a Pandora's box?"

Economist and right-wing politician Subramanian Swamy called the concept of loan without interest "a fraud". The 1947 Partition was essentially a Hindu-Muslim division. Hence, religion was best kept out of economic activity. He expressed the fear that if introduced, Islamic banking could be misused for "certain activities". He did not elaborate.

Left-leaning N. Ram of The Hindu newspaper called the introduction of tenets of any particular faith into the economic system "backward".

"Don't fear the word Islamic. See how non-Muslims are being benefited," said a senior Malaysian official at the conference.

(New Straits Times / 07 Julai 2012)

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Sudan sells $160 million worth of sukuk

Sudan's latest issue of Islamic "sukuk" bonds was fully subscribed and raised the Sudanese pound equivalent of about $160 million, and two more such issues are planned this year to help make up for the loss of oil revenue, a debt official said. 

Sudan also hopes to sell $758 million of dollar-denominated sukuk, an offer which has already been partly subscribed, said Osama Saeed, head of the research and statistics section at Sudan Financial Services Company, which issues Islamic bonds on behalf of the government. 

Sudan's economy has been struggling since South Sudan declared independence a year ago under a peace deal, taking control of about three-quarters of the country's crude output. 

Oil brought in most of Sudan's state revenues and foreign currency, so the loss of the oil led to a budget deficit, a depreciation in the pound on the black market and a high rate of inflation for food and other goods, many of which are imported. 

(Business Recorder / 09 July 2012)

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Turkey to mandate banks for sukuk sale

* Treasury looking to raise $1 billion

* Turkey looking to tap new pool of investors (Adds quote, details, background)

ISTANBUL, July 5 (Reuters) - Turkey is set to mandate HSBC, Citi and Deutsche Bank to manage the sale of its first sukuk, or Islamic bond, banking sources told Reuters on Thursday.

The move by the Treasury, overcoming sensitivities about Islamic finance in the secular republic, should give Turkey access to a wider pool of investors via a global sukuk market estimated at more than $100 billion.

One banker said a size of $1 billion was being targeted, but that the sale amount was still unclear.

"The Treasury is about to finalise meetings about its first sukuk issue, and their choice (for the mandate) will be HSBC, Citi and Deutsche," said one senior banking source in London.

A sovereign sukuk from an economy regarded as one of the Muslim world's most progressive and successful would signal intent on Turkey's part to play a bigger role in Islamic finance.

Deputy Prime Minister Ali Babacan said earlier this year the Treasury might launch a sukuk issue within a few months, using legislation already in place. A sovereign deal would set a benchmark for future sukuk issues by banks and companies.

The general manager of Turkish Islamic bank Turkiye Finans, majority owned by Saudi Arabia's National Commercial Bank , told Reuters late on Wednesday it planned a $300 million sukuk issue in the next six to nine months.

Despite espousing Islamic values, Turkish Prime Minister Tayyip Erdogan's government shied away from launching a sukuk issue during its first decade in power. It feared giving ammunition to critics who accuse his ruling AK Party of seeking to roll back state secularism by stealth.

Because Islamic law bans the payment of interest, investors in a sharia-compliant sukuk acquire partial ownership of an underlying asset and share in its returns rather than receiving a stream of coupon payments.

Because of secular sensitivities, Islamic banks are called "participation banks" in Turkey and sukuk are referred to as "participation certificates".

The country has used Islamic finance methods since the late 1980s through private financial institutions that were recognised as participation banks in 2006.

There are four participation banks now operating in Turkey: Albaraka Turk, Bank Asya, Kuveyt Turk and Turkiye Finans. Kuveyt Turk, a unit of Kuwait Finance House , issued the country's first sukuk in 2010. 

(By Nevzat Devranoglu / Reuters / 05 July 2012)

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Nigeria: Shareholder Bishop Supports Islamic Banking

A Bishop in the Dioceses of Chris Temple Ministry International, Bishop Goodluck Akpore, yesterday said opponents of Islamic Banking in Nigeria are ignorant of the products the bank offers as it is not against Christians in the country.

Speaking at the Annual General Meeting of Jaiz Bank Plc in Abuja, the Bishop who is also the Chairman of Onitsha zone shareholder association said he was going to preach to his congregation to buy into the bank.

He said: "I will preach tomorrow in the church and let everybody in this country come and hear me," he said.

The Christian Association of Nigeria has kicked against the operation of Islamic Banking in Nigeria saying it would Islamised the country.

But the Bishop said CAN statement does not represent the views of every Christian.

He said: "Let me tell you, people can go personal and we have gone to meetings several times and we have told them that look don't talk for me, what you have in your mind cannot be for me, I have my own opinion, business is a personal issue, let Christian go and open their own Christian Bank if it is possible.

Asked if he was not going to be looked at as a sell out among his Christian brothers, Akpore said, "Those who know me know that I cannot be bought over.

(All Africa / 05 July 2012)

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