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Thursday, 23 May 2013

Pakistan: SBP issues guidelines for sukuk

KARACHI: 
The State Bank of Pakistan (SBP), on Wednesday, issued a circular to all Islamic banking institutions about the Islamic Export Refinance Scheme (IERS) and eligibility of Ijara Sukuk (Islamic bonds to be included in the Musharaka pool.

According to SBP rules, every Islamic bank is obligated to create a Musharaka pool consisting of financing blue chip companies on Islamic modes.
The Musharaka pool is supposed to have a minimum of ten companies with diversified lines of businesses to avoid concentration in sectors.
The circular listed the conditions that will make the Government of Pakistan Ijara Sukuk eligible to be included in the pool, created under the IERS.
The conditions said that the maximum limit for investment in the Ijara Sukuk by Islamic bank institutions in the pool will be 50% of their total share of financing in the Musharaka pool.
The value of Ijara Sukuk held cannot be counted for meeting the bank’s statutory liquidity ratio requirement – an amount that every bank is bound to maintain either in gold or government approved securities before providing credit to its customers.
In the scenario where the Government of Pakistan issued Ijara Sukuk are included in the Musharaka pool, they will be eligible to counted towards calculating the concentration limit on holding of Islamic bonds.
The Sukuk should also be appropriately reported in the appendix when the institutions release its statements under the heading ‘GoP Ijara Sukuk’. Moreover, it should also be verified or certified as over and above the liquidity requirement’s eligible limit by the Islamic banking institutions’ internal audit department.
According to the SBP instructions, the Islamic banking institutions are also required to maintain records of Sukuk issues and the amount it allocated to its respective Musharaka pool.

(The Express Tribune / 22 May 2013)

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Thomson Reuters launches Islamic Finance Indicator With The Islamic Corporation for the Development Of the private sector

Thomson Reuters, the world's leading provider of intelligent information for businesses and professionals, launched an Islamic Finance Development Indicator in collaboration with the Islamic Corporation for the Development of the Private Sector (ICD), the private sector development arm of the Islamic Development Bank (IDB).


The indicator is a numerical measure representing the overall health and growth of the Islamic finance industry worldwide.

The indicator expands the scope of Thomson Reuters' universe of Islamic finance content, research and news analysis to develop a much needed unbiased and reliable multi-dimensional barometer of the development of the Islamic finance industry. The indicator measures five key components - quantitative development, governance, social responsibility, knowledge and awareness.

Russell Haworth, managing director, Middle East and North Africa, Thomson Reuters, said: "Thomson Reuters has been at the forefront of some of the major market moving measures in the world. This initiative confirms our commitment to develop high impact indicators that measure the growth of Islamic Finance services."

Khaled Al-Aboodi, Chief Executive Officer, Islamic Corporation for the Development of the Private Sector, said: "This step meets the growing global demand for transparent and accurate industry information across global Islamic finance markets. We recognise that the industry requires effective holistic measures and we are delighted to collaborate with Thomson Reuters to facilitate this significant milestone that will support the development of the Islamic financial services industry." 

Sayd Farook, Global Head Islamic Capital Markets, said: "There is no one unique indicator representing the health of the Islamic finance industry in aggregate. As a result, professionals, mass media and consumers rely for their information on misrepresentative or worse, one-dimensional proxies such as the size of Islamic banking assets or sukuk."

Farook concluded: "The Islamic Finance Development Indicator is a unified benchmark that measures the industry's growth and covers several elements including governance and social responsibility.


(Ameinfo.Com / 23 May 2013)

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Wednesday, 22 May 2013

New proposal for Islamic investment funds



It is time for Islamic investment funds to start offering some real value addition to investors beyond just Shariah compliancy. Islamic investing so far has by and large been concerned with assurance of Shariah compliancy by screening out forbidden activities (such as gambling, interest-based financial services, liquor, pork and adult entertainment); it also excludes some other activities deemed undesirable for social responsibility or political correctness (like tobacco and arms).

In addition, it also ensures that balance sheets of the companies chosen are in compliance with Shariah. There is, however, a growing need for a detailed set of rules and regulations to be developed to categorise Islamic investment funds into merely Shariah-compliant and purely Islamic funds.

As a starting point in this direction, a fund may be called a Shariah-compliant fund if:

1. It does not invest in the companies involved in production, distribution, marketing and sale of Shariah repugnant goods and services; and

2. It does not get involved in Shariah-repugnant activities to conduct its finances (both in raising and deploying funds).

A fund may be categorised as an Islamic fund if:

1. It is Shariah-compliant in its product offering and in terms of its finances and operations, and;

2. It promotes any or all of the broader objectives of Shariah, which include promotion of the well-being of all mankind in terms of safeguarding faith, life and self-esteem, intellect and human capital, and posterity and wealth.

The term Islamic Shariah funds industry can be used for both Shariah-compliant and Islamic funds.

While a Shariah-compliant fund may not take a political view on its investments, it is important that an Islamic fund ensures that its investment strategy promotes at least one of the objectives of Shariah.

Thus, prohibition of investing in companies that support movements and ideologies against Islam and Muslims may fall under screening of Islamic funds. On a company level, while a stock like Starbucks Corp can be included in a Shariah-compliant fund (if it comes out of the chosen Shariah screens successfully), it must not be included in the portfolio of an Islamic fund, because Starbucks publicly supports an ideology blameworthy for the killing of innocent people including women and children in the West Bank and Palestine.

It is also important for the Islamic financial services industry to start taking a view on the Islamicity of the fund manager.

After all, if an ethical fund manager is not committed to the ethical values, its credibility as an ethical fund manager must be questioned. Similarly, an Islamic fund manager must demonstrate its full commitment to the objectives of Shariah (as outlined above).

The above proposals are not meant to bring a hostile investing culture in the Islamic Shariah funds industry; rather they simply point to the need for developing this industry on the pattern of investors activism.

This is important for the very sustainability of the Islamic financial services industry as a whole.

It is also important to emphasise that the proposed Islamic Shariah funds industry should not be a platform for political Islam. What is being suggested here is that the Islamic fund managers must accommodate the Islamic political views in their investment strategies and processes to win business from the Shariah sensitive investors who have strong political views on some international issues and phenomena that are deemed anti-Islamic.

One may like to argue that this will help the radical Islamic movements. On the contrary, this will provide the Shariah sensitive Islamic investors an opportunity to express their preferences in financial markets to influence some of the phenomena and activities in light of their faith and political views.

At this early stage of development of Islamic banking and finance, it is absolutely important that the Islamic Shariah funds industry remains completely independent of the political movements and parties. Failing to do so may adversely affect the industry in its infancy.

It is critical that the Islamic financial services industry enjoys government support and patronage, in the absence of which it will be almost impossible for it to grow substantially.

Although Islamic banking and finance is a demand-driven phenomenon, it has taken off only in those countries where the governments have supported and promoted it. Malaysia provides the best example in this respect. Needless to say, that the future of Islamic Shariah fund industry and Islamic banking and finance as a whole relies on the government support.

Therefore, the non-political nature of Islamic banking and finance must be retained and further developed. Furthermore, it is definitely the right time to start looking into creating alliances with the Western ethical and socially responsible investments movements to learn effective tools of investors activism and shareholders advocacy in the Islamic Shariah funds industry.

Combining the Shariah principles articulated hitherto as well as garnering the support of governments and alliances with ethical movements will lead to a dynamic and vibrant Islamic funds industry.


(The Malaysian Reserve / 20 May 2013)


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Malaysia: RM1.6b sukuk proposal by for gas-fired power plant in Penang



KUALA LUMPUR: Tenaga Nasional Bhd's (TNB) wholly owned subsidiary TNB Northern Energy Bhd (TNB NE) has proposed to issue RM1.625bil in nominal value sukuk based on the syariah principles of ijarah and wakalah.
In a filing with Bursa Malaysia yesterday, TNB said the proposed sukuk TNB NE will be issued in one lump sum and will consist of 39 series with tenors ranging from four years to 23 years from the date of issuance.
The proposed sukuk TNB NE will be issued on May 29.
Malaysian Rating Corporation Bhd (MARC) has assigned a final rating ofAAAIS to the sukuk TNB NE.
“The proceeds to be raised from the proposed sukuk will be utilised for the construction and delivery and working capital requirement for the 1071.43 MW combined cycle gas-fired power plant in Prai, Pulau Pinang,” TNB said.
Upon issuance of the proposed sukuk TNB NE, TNB's consolidated borrowings will increase by RM1.625bil.
Based on TNB's audited consolidated balance sheet for the financial year ended Aug 31, 2012, TNB's consolidated gearing would then increase from 0.39 times to 0.40 times.
The proposed sukuk TNB NE will not have any impact on the earnings and earnings per share and net assets per share of TNB for the current financial year.
HSBC Amanah Malaysia Bhd and KAF Investment Bank Bhd are the joint lead arrangers and the joint lead managers for the sukuk issue.
HSBC Amanah also acted as the Shariah Adviser for the sukuk Issue while HSBC Bank Malaysia Bhd acted as the financial adviser for the project financing.

(The Star Online / 21 May 2013)


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Turkey Seeks to Benefit From Islamic Banking Sector



ISTANBUL — With the international economic crisis continuing to bite, the Turkish government has announced it will be seeking to tap into the $1 trillion Islamic financial industry.

Although Turkey is a secular state, it is overwhelmingly Muslim. Under the decade-long rule of the country's Islamist rooted AK Party, Muslim-compliant businesses have flourished.

Thee government move into Islamic finance is a smart strategy, said Attila Yesilada, an Istanbul-based political analyst with Global Source Partners, a political consultancy firm.

"There were people and institutions who refused to take interest and these people kept their money in non-interest safe deposits," he said."They suffered huge losses just because they genuinely believed interest is sinful as defined by the Koran. So there is a lot of demand for Islamic banking products in Turkey --  both from...devout Islamic client base as well as from the Gulf kingdoms."

Islamic banks operate in compliance with Islamic financial rules which ban interest. But Islamic banking firms use Islamic-compliant financial instruments to generate income. In the past decade, that sector has rapidly grown into an estimated $1 trillion industry.

Most of that growth has happened in the energy rich Gulf states and North Africa. In Turkey, the growth has been less impressive, with only four institutions currently offering Islamic finance, though these banks have seen some growth.

Omer Bolat, the CEO of the conglomerate Albayrak and former head of the Islamic business confederation Musiad, said the government's decision to enter the Islamic finance market provides an important political guarantee given that previous Turkish governments, which were staunchly secular, viewed it with suspicion.

"Before this [present] government came to power, the outgoing governments were not sympathetic to Islamic banking sector and the government could shut them down with a decree or law easily," Bolat said. "And depositors feared if these banks were shut down [they] might have to lost their deposits."

Stronger Islamic banks would enable Turkey to attract more cash from the Gulf and Asia, where the appetite for Sharia-compliant products far outstrips the existing supply, according to observers.

This could potentially make Istanbul a regional financial hub, said Inan Demir, chief economist at Istanbul-based Finansbank.

"If the government and economic administration has ambitions of being a regional financial center, then that financial center will have to take in the Middle Eastern and North African regions as well, where Islamic practices dominate," Demir said.  "So in that sense, it could have some response with the Middle Eastern and North Africa markets."

For now, Europe still accounts for the lion's share of trade with Turkey's financial institutions and wider economy. But with Europe still in the grip of financial woes, the Turkish economy is diversifying and looking at alternative markets in the Middle East or North Africa. The development of Islamic finance could become an increasingly useful instrument in that strategy.


(Voice Of Amarica / 21 May 2013)


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Tuesday, 21 May 2013

IDB chief: Islamic banking not confined to Muslim communities


The global credit squeeze and recession have made many countries turn to the Islamic Development Bank more than ever to seek help in their development projects, says its President Ahmed Mohammed Ali.
"Islamic banking is a fast-growing global industry. This is due to the integration with the real activity," he said.
"It is to be noted that Islamic banking is not confined to Muslim communities. Many social sectors participate in it," the president said in an interview.
Can you tell us about the size of the bank's assets since its establishment? What is the growth rate achieved last year? What are your growth prospects for next year?
IDB's assets are estimated at US$ 17 billion. Operational assets are estimated at $ 10 billion. Last year's loans ratio was about 13 percent, totaling $ 7.9 billion.

These include project finance and trade operations. We expect that the bank's operations will grow by 15 percent this year. The bank decided to increase its annual total operations by 30 percent, during the period 2009-11, in order to help member states to weather the effects of the world financial crisis.

Starting from 2013, the bank's financing went back to its earlier growth rates, estimated at 15 percent.

In addition to the above, insurance commitments issued by the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) until the end of 2012 are estimated at $ 17 billion.


What is the impact of the global crisis on IDB? How much are the bank's earnings for last year? What are the expected earnings for this year?
The global crisis led to an increase of the financing activity in the member states. As a result of the crisis, the global credit squeeze and recession made many countries turn to the bank more than ever to seek help in their development projects.

The annual growth rate of financing operations was increased from 15 percent in 2009 to 30 percent by the end of 2011. Thus the growth in the bank's operations during these three years was 90 percent.

Although IDB is an international development institution that complies with the Shariah rules in all its transactions, the bank's annual earnings were around 5 percent. We do not distribute dividends. We allocate them to the various operations and to shore up the bank's reserves. The bank's profits in 2012 were $ 175 million, with an expected growth rate similar to the previous years.


How much did the bank's group finance economic and social development?
Since its establishment and until November 2012, the group allocated around $ 90 billion for the member countries, which were channeled to economic and social development. This was warmly welcomed by many interested circles and by the international rating agencies. Thanks to the generous support of the member countries, IDB for the eleventh year in a row, got a triple-A rating with a positive outlook from the major rating agencies, Standard and Poor's, Moody's, and Fitch.
What do you think of the activities of the Islamic banks? Do they cooperate and achieve harmony amongst themselves?
Islamic banking is a fast-growing global industry. This is due to the integration with the real activity. There are now around 300 Islamic banks all over the globe. In addition, Islamic banking windows in international European banks stand now at 30, and are expected to rise.
It is to be noted that Islamic banking is not confined to Muslim communities. Many social sectors participate in it.

Islamic banking now can boast a solid infrastructure and this will surely help it to push forward in international banking operations. I believe now is the right time to invigorate the industry to transform the quality of its products and services in order to better serve the world's aspirations for safer and more creative banking.


Can you tell us about the Islamic International Finance Market (IIFM)?
IIFM was established in Bahrain in 2002 to address the lack of Islamic investment financial instruments, as well as address the problem of liquidity at Islamic banks, since Islamic banks transactions deal mostly with commodities.
But of course there are other investment instruments available for these banks, like Islamic sukuk, leasing sukuk which have gained currency recently.
How are Islamic banks rated internationally?
Islamic International Rating Agency (IIRA) was established in Bahrain in 2004. It was the first agency that gives ratings to Islamic banks and financial institutions. Before IIRA was established, they used to rely on the traditional international agencies for rating.
IIRA helped Islamic institutions offer their securities in international markets by giving them an international rating. It also helps increase transparency in the operations of these institutions, and enables them to assess operating risks.
How do you see Islamic banks in terms of anti-corruption and governance?
Islamic banking, by its very nature, complies with the Shariah rules. Not only do these rules supervene on financial transactions and contracts, but also on every aspect of any transaction with the shareholders, investors, and depositors. Therefore governance in Islamic banks is more stringent than in traditional banks. But of course the people working in these institutions are human after all, and they can make mistakes. But since the very concept of Islamic banking is asset-based, there can be less chances for corruption, and this imposes a solid framework for governance.
How does the bank handle financing operations with the non-Islamic international institutions?
We can have cooperative financing. In principle, Islamic contracts do not generate interest but they can give guarantees similar to interest-generating loans. For example, financing through leasing gives the investor more guarantees that mortgaging assets. This is so because the assets in the leasing arrangement are registered the assets in the name of the financier, not the person who got the loan.
As I can see it, there is nothing that stops traditional banks from using Islamic contracts, like the Istisn'a contract, where you can get a letter guaranteeing execution for an Islamic bank, so that the financier does not become vulnerable to unacceptable risks.
Does IDB work toward creating a common Islamic market?
We need to increase intra-country trade among Islamic nations. This is a strategic objective and a necessity imposed by the global economic developments.

The volume of intra-country trade is 18 percent, which is not enough to warrant the establishment of a common Islamic market. That project is a dream we want to come true. It would facilitate our adaption to a globalized economy and our response to the external challenges in commerce, productivity, and technology. It would also increase our competitiveness in international markets and help achieve social and economic growth in Islamic nations.



(Arab News / 21 May 2013)

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Islamic finance needs global sharia board - IDB president


The Islamic Development Bank (IDB), a Jeddah-based multilateral institution, has called for the creation of a global sharia advisory board that can offer greater uniformity for the Islamic finance industry, its president said on Thursday.
A centralised format to the supervision of sharia-compliant banking products is gaining favour across the globe, as regulators seek to standardise industry practices and improve consumer perceptions.
"IDB and IFSB (Islamic Financial Services Board) should study ways for creating globally acceptable references for the industry for the benefit of all," IDB president Ahmad Mohamed Ali said at a conference in Kuala Lumpur.
"This could include striving for the concept of a globally accepted sharia committee or body, which would be able to assist all Islamic financial institutions and bring them in line with a uniform standard."
Malaysia pioneered the country-level sharia board and in recent months several countries have introduced central boards of their own, including Dubai, Oman, Pakistan and Nigeria.
Countries like Oman have gone as far as imposing term limits on the sharia scholars who are members of these boards, while also requiring they abide by a code of conduct.
Islamic scholars are experts in financial and religious law, but they are not certified or accredited like other professions, so regulators are increasingly developing ways to ensure the hiring of experienced and financially literate scholars.
A global sharia board would also allow the industry to address low penetration rates in majority Muslim countries such as Pakistan, Indonesia, Turkey and Egypt where the industry's share of banking assets remains below 10 percent.
A global sharia board would provide a more structured approach to the industry, which has its core markets in the Gulf and Southeast Asia.
"This is very important as it gives a much needed structure to the industry, thus enabling it to be more stable and allowing it to grow further," Ali added.
Ali also called for the IFSB to assist the IDB and its member countries in providing technical assistance, while urging the industry to focus on Islamic microfinance and youth employment.
The IFSB is one of the main bodies setting standards globally for Islamic finance, although national financial regulators have the final say on their implementation and enforcement.
(Reuters / 16 May 2013)

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