Nigeria: Islamic Finance For Development

Central Bank of Nigeria governor Sanusi Lamido Sanusi recently expressed the need for Nigeria and other African countries to tap into opportunities provided by Islamic financing to fund infrastructure development on the continent. Sanusi, who spoke at a conference on Islamic banking, pointed out that Islamic bonds called Sukuk, if well developed, could serve as a financing option and complement government’s efforts in infrastructure development. Authorities in this aspect of financing say it is a depository institution of financial intermediary that specialises in providing finance on sale, lease or sharing bases; Shari’ah is a criterion for financial transaction, with its tenet of non-profit modality.

It is widely accepted that conventional banks in Nigeria have failed to finance development because of their overdependence on profit. This is not bad in itself because it is the whole essence of business. But banks are expected to be the engine of national development activity particularly in the strategic sectors of the economy. They should also drive growth through the creation of opportunities capable of generating resources that can have a multiplier effect on the economy generally.They have not done this satisfactorily. It is a known fact that banks in Nigeria go into areas of little or no risks -- buying and selling --ignoring such areas as infrastructure development, real sector, agriculture and housing.

In spite of incentives by government to drag them into some of these core areas of economic activity, the response has been, at best, lukewarm. They claim that cost and tenor of funds make it difficult to invest in areas with long gestation. They also blame these for the high interest rate regime that is capable of discouraging the most optimistic fund user from sourcing money from the system. Yet, as revealed not too long ago, the level of mismanagement and bare-faced stealing by highly-placed insiders proves that the conventional banks, at least in Nigeria, were not set up to push economic growth.

It is on the basis of this realisation that we are persuaded to argue in favour of any other system, Islamic finance included, that can help speed up things in the nation’s quest for growth and development. Experts in Islamic finance like Sanusi have assured that a borrower who meets other criteria required in the transaction processes accesses funds interest-free. And this is regardless of the borrower’s religious persuasion.

Such source of easy finance is what this country needs at this time, if only the debilitating stereotypes like religious and cultural affiliations were done away with. We, therefore, support any effort to expand this financial system. It has the potential to succeed where the conventional banks have failed.

(Leadership / 03 July 2013)

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Malaysia: TNB planning RM2bil sukuk

PETALING JAYA (July 3, 2013): Tenaga Nasional Bhd (TNB) is planning to sell as much as RM2 billion of Islamic bonds to refinance existing debt, Bloomberg reported yesterday.

Citing unnamed sources, it said that TNB may offer notes with maturities of one to 13 years at indicative yields of 3.82% to 4.95%.

According to the news agency, TNB was coming to market when borrowing costs are rising after Federal Reserve chairman Ben S. Bernanke said monetary stimulus that's driven demand for debt in developing nations could be withdrawn.

The yield on the government's 10-year local-currency non-Islamic notes has climbed 49 basis points to 3.62% since the US central bank governor first indicated a possible end to its bond-buying program on May 22, it said.

"Demand for the Tenaga sukuk may be decent based on the indicative profit rates, notwithstanding current volatility," Michael Chang, who oversees US$1 billion as head of bonds at MCIS Zurich Insurance Bhd in Kuala Lumpur, told Bloomberg in an interview yesterday.

"The final yield pricing has to be attractive as the secondary market is offering compelling yields," he said.

TNB's securities are rated AA+, the second-highest investment grade at Malaysian Rating Corp and will the debt will be sold via Kapar Energy Ventures Sdn Bhd, which is 60% controlled by TNB and operates the largest thermal power station in the country.

The Islamic note offering is the second this year from TNB. The company sold RM1.62 billion sukuk in May with maturities of four to 23 years to part finance the construction of a new power plant. The utility sold a 2026 portion at a coupon rate of 4.21%.

Malaysia is the world's biggest issuer of sukuk, which pay returns on assets to comply with Islam's ban on interest.

(The Sunday Daily / 03 July 2013)

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Malaysia: Financial Services Act 2013 and Islamic Financial Services Act 2013 Come Into Force

The regulatory and supervisory framework of Malaysia enters a new stage of its development as the Financial Services Act 2013 (FSA) and Islamic Financial Services Act 2013 (IFSA) come into force on 30 June 2013.

The FSA and IFSA is the culmination of efforts to modernise the laws that govern the conduct and supervision of financial institutions in Malaysia to ensure that these laws continue to be relevant and effective to maintain financial stability, support inclusive growth in the financial system and the economy, as well as to provide adequate protection for consumers. The laws also provide Bank Negara Malaysia with the necessary regulatory and supervisory oversight powers to fulfil its broad mandate within a more complex and interconnected environment, given the regional and international nature of financial developments. This includes an increased focus on preemptive measures to address issues of concern within financial institutions that may affect the interests of depositors and policyholders, and the effective and efficient functioning of financial intermediation.

It is important that Malaysia's regulatory and supervisory system is adequately equipped to respond effectively to new and emerging risks so that confidence in the financial system is preserved and that the critical financial intermediation activities which are vital to the economy are not disrupted. The FSA and IFSA amalgamate several separate laws to govern the financial sector under a single legislative framework for the conventional and Islamic financial sectors respectively, namely, the Banking and Financial Institutions Act 1989 (BAFIA), Islamic Banking Act 1983, Insurance Act 1996 (IA), Takaful Act 1984, Payment Systems Act 2003 and Exchange Control Act 1953 which are repealed on the same date.

Key features of the new legislation include:

• Greater clarity and transparency in the implementation and administration of the law. This includes clearly defined regulatory objectives and accountability of Bank Negara Malaysia in pursuing its principal object to safeguard financial stability, transparent triggers for the exercise of Bank Negara Malaysia's powers and functions under the law, and transparent assessment criteria for authorizing institutions to carry on regulated financial business, and for shareholder suitability;

• A clear focus on Shariah compliance and governance in the Islamic financial sector. In particular, the IFSA provides a comprehensive legal framework that is fully consistent with Shariah in all aspects of regulation and supervision, from licensing to the winding-up of an institution;

• Provisions for differentiated regulatory requirements that reflect the nature of financial intermediation activities and their risks to the overall financial system;

• Provisions to regulate financial holding companies and non-regulated entities to take account of systemic risks that can emerge from the interaction between regulated and unregulated institutions, activities and markets. The Minister of Finance may subject an institution that engages in financial intermediation activities to ongoing regulation and supervision by Bank Negara Malaysia if it poses or is likely to pose a risk to overall financial stability;

• Strengthened business conduct and consumer protection requirements to promote consumer confidence in the use of financial services and products;

• Strengthened provisions for effective and early enforcement and supervisory intervention

The new laws will place Malaysia's financial sector, encompassing the banking system, the insurance/takaful sector, the financial markets and payment systems and other financial intermediaries, on a platform for advancing forward as a sound, responsible and progressive financial system. This is especially important to enable the financial system to meet the new demands for financing associated with Malaysia's economic transformation programme both during and beyond the next decade, the changing demographics of our population, and the increasing integration of the Malaysian economy with the region and the world.

(Zawya / 02 July 2013)

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

CIMB says industry growth a third of potential: Islamic Finance

The $1.6 trillion global Islamic finance industry is growing at a third of its potential as efforts to introduce sukuk tax legislation in non-Muslim nations have stalled, according to CIMB Group Holdings Bhd.

Shariah-compliant assets account for less than 2% of conventional equivalents, providing ample room for growth, Badlisyah Abdul Ghani, chief executive officer at CIMB Islamic Bank Bhd., a unit of Malaysia’s second-biggest lender, said in an interview. Mohd Effendi Abdullah, the head of Islamic markets at AmInvestment Bank Bhd., said there’s a need for more education and innovative new products to achieve that objective.

Efforts in South Korea, Australia, France and the U.K. to approve regulation have come to a halt, while Thailand is reviving plans to tap the market for the first time after at least a two-year delay. Nigeria is the latest to grant equal tax treatment, paving the way for a debut sukuk. Opposition from political and religious groups has prevented some nations from embracing banking that complies with the Koran’s ban on interest, according to Mohd Effendi.

“If the rules and regulations to make Islamic finance as accessible as the conventional market are in place, there’s no reason why it cannot grow at least three to four times the pace of today,” Kuala Lumpur-based Badlisyah said June 28. “The Islamic finance industry needs the right platform to grow.”

New Entrants

Global issuance of bonds that pay returns on assets to comply with Islamic principles dropped 9.5% in 2013 to $19 billion after reaching a record $46.4 billion last year, according to data compiled by Bloomberg. In 2003, the total market was just $4.3 billion.

Some countries with Islamic regulations are still reluctant to sell Shariah-compliant securities because the conventional market is more developed and issuers are more comfortable with such bonds, AmInvestment’s Mohd Effendi said, citing Singapore as an example.

Swiber Holdings Ltd., an oil and gas company based in the city state, is looking to sell its first sukuk this year. Sabana Shari’ah Compliant Industrial Real Estate Investment Trust, the Monetary Authority of Singapore, and City Development Ltd. are the only other issuers in the republic so far.

‘Some Excitement’

“New countries which are keen to develop Islamic finance further should tap the sukuk market to spur growth and to create some excitement for investors,” Mohd Effendi said. “The Islamic finance industry can grow at a faster pace if there are more new players.”

The Shariah debt market is dominated by Malaysia, Indonesia and the six-member Gulf Cooperation Council, which includes Saudi Arabia and the United Arab Emirates. The International Islamic Liquidity Management Corp. was set up in 2010 by central banks from Asia and the Middle East to sell the industry’s first short-term securities acceptable to investors across different jurisdictions. The issuance has yet to get off the ground.

While CIMB and AmInvestment are of the view that the industry’s growth hasn’t realized its full potential, Malaysian Islamic finance consultancy Amanie Advisors Sdn. said asset expansion is healthy and interest will pick up.

‘Good Start’

Regulators in key Islamic finance centers will continue to work together after they set up IILM, Baiza Bain, Amanie’s Kuala Lumpur-based managing director, said in a June 28 interview. The International Islamic Financial Market based in Bahrain issued global standards in June to help develop money markets and broaden the range of liquidity management tools.

“There’s a lot of effort among the players, especially the regulators, around the world, to consolidate their efforts,” Baiza said. “The establishment of the IILM is a good start. That will help to coordinate the redistribution of liquidity all over the world.”

Islamic Bank of Thailand, a state-owned lender, plans to sell 5 billion baht ($161 million) of 10-year notes in the fourth quarter, Bangkok-based Chief Executive Officer Thanin Angsuwarangsi said in a June 11 interview. Tunisia will issue $700 million in an inaugural offering once it has identified assets to back the securities, Finance Minister Elyes Fakhfakh said in May. South Africa is also looking at a debut issuance.

Yields on global Islamic bonds are rising on prospects the Federal Reserve will withdraw stimulus that’s contributed to fund inflows to emerging markets such as Malaysia and Indonesia.

Average borrowing costs climbed 65 basis points, or 0.65 percentage point, to 4.02% last month, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. That’s up from a record low of 2.67% on Jan. 10. The difference between average yields and the London interbank offered rate widened 38 basis points to 217.

Tax Hindrance

Islamic bonds sold on the international market retreated 2.3% this year, HSBC data shows, while debt in emerging nations dropped 8.2%, according to JPMorgan Chase & Co.’s EMBI Global Index.

The yield on Malaysia’s 3.928%sovereign sukuk due June 2015 rose 23 basis points in June to 1.51% and was little changed yesterday, according to data compiled by Bloomberg. The premium investors demand to hold Dubai’s 6.396% November 2014 debt over the Southeast Asian nation’s bonds narrowed six basis points to 89 yesterday.

Ernst & Young said in a December report that demand for sukuk could reach $600 billion by 2015. Saudi Arabia had about $207 billion in Shariah-compliant financial assets last year, the world’s largest, according to the article.

“Regulatory wise, Islamic finance in the Middle East and Malaysia is doing okay,” Tengku Zafrul Tengku Abdul Aziz, CEO of Maybank Investment Bank Bhd., a unit of Malayan Banking in Kuala Lumpur, said in an interview yesterday. “Other countries are not seeing much growth mainly because of the tax laws.”

‘Underlying Cause’

Another factor that could have held back expansion in the industry is the fear of anything “Islamic,” Megat Hizaini Hassan, partner and head of the Islamic finance practice at Kuala Lumpur-based law firm Lee Hishammuddin Allen & Gledhill, said in an e-mail interview yesterday.

“Such rejection may perhaps be traced to a deeper underlying cause, that is, discomfort with the unfamiliar,” Megat Hizaini said. “This may be overcome if there is greater familiarity and awareness of the potential for Islamic finance to play a positive role as a viable alternative.”

(Moneyweb / 02 July 2013)

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

Growth potential for Islamic fund management

Islamic wealth management has great potential to be the next big thing but requires innovation to allow for its expansion, according to a banker from CIMB Bank Investment Bhd.

Shahril Simon, who heads group asset management at the bank’s CIMB Islamic division, said one of the key policy recommendations in Malaysia stated the support for the growth of Islamic funds and wealth management industry.

“Islamic wealth management is the next big thing and is part of the innovative solutions in Islamic finance and part of Islamic money management.

“Over the next decade, the Islamic capital market is expected to sustain double-digit growth,” he said at a panel discussion at the Labuan IFC Wealth Management Forum 2013.

Fund management or assets under management is valued at RM505.1 billion in Malaysia, while net asset value of the unit trust industry stood at RM294.9 billion in 2012.

Islamic assets under management (AUM) accounted for about 16% of the industry’s total assets under management or RM79.6 billion.

There are 18 Islamic fund management companies operating in Malaysia including Aberdeen Islamic Asset Management Sdn Bhd, AmIslamic Fund Management Sdn Bhd, RHB Islamic Asset Management Sdn Bhd, BNP Paribas Islamic Asset Management Sdn Bhd and KFH Asset Management Sdn Bhd.

Shahril noted there are hurdles that have to be removed to ensure the expansion of the segment in Malaysia, where Muslims are increasingly seeking Shariah compliant products.

He said it was critical to build domestic take-up capabilities for innovative domestic products and solutions to pursue the development of the Islamic fund management industry.

Shahril said Islamic wealth management is based on the Islamic principle of religion, life, intellectual progeny and property, which showed that Islam called for the efficient management of wealth from its beginning.

The Islamic capital market, at RM1.4 trillion, has enjoyed greater internationalisation through wider participation of foreign sukuk issuers from Singapore, the United Arab Emirates, Bahrain and Kazakhstan, he noted.

Given the fact that over 88% of Bursa Malaysia stocks are Shariah-compliant, which includes blue chips from various sectors. there are no limited supply of investment avenues that could benefit the investors in the Islamic wealth management arena.

Trends in Malaysian wealth favour a more prominent role for Shariah-compliant asset management while CIMB aims to expand AUM by 43% over a three year period, according to a Datamonitor Research paper dated 2012.

(The Malaysian Reserve / 01 July 2013)

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Noor Islamic Bank executes $1.4b mandates in Turkey

Dubai: Noor Islamic Bank has completed Islamic capital market mandates valued at over $1.4 billion (Dh5.14 billion) in the past six months in Turkey, cementing its position as the leading GCC bank executing Shari’a compliant syndicated facilities in Turkey.

In its latest foray into the Turkish market, as an initial mandated lead arranger and joint bookrunner, Noor successfully closed a $500 million equivalent dual-currency Murabaha facility for Türkiye Finans Katilim Bankasi. Launched at $250 million, the syndicated loan was oversubscribed two times.

The facility, which saw the participation of 28 banks from across the globe, was structured as a Shari’a compliant dual currency, dual tranche facility with tenors of one year and two years.

Over the past six months, Noor Islamic Bank has also been an initial mandated lead arranger and joint bookrunner for a $382 million dual currency Murabaha Facility for Asya Katilim Bankasi (Bank Asya) and a $500 million Sukuk for Tukiye Finans Katilim Bankasi A.S.

In total, 85 banks and financial institutions across Asia, Middle East, Africa and Europe have participated in the syndicated financing deals led by Noor this year.

(Gulf News.Com / 30 June 2013)

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MSM Sharia Index to attract more investment in Islamic finance

By Kabeer Yousuf — MUSCAT — Muscat Securities Market launched ‘Sharia Index’ (MSMSI) aiming at measuring the stock’s performance of Sharia-Compliant Companies that pass the AAOIFI for compliance with the Islamic investment principles yesterday. With this launch, more individuals and corporates are expected to make use of the Islamic financial offerings in the country as a better investor sentiment and trust is created with the introduction of the Sharia Index.

AAOIFI (Accounting and Audit Organisation for Islamic Financial Institutions), the Sharia Board is an organisation in Bahrain which comprises Islamic Scholars that issue the religious guidelines to the Islamic financial institutions in the region. “I am certain that there is quite a significant number of people and bodies in our society who are keen to invest in Sharia-compliant financial products and I’m equally certain that the launch would further augment Islamic investment portfolio in the country”, Ahmed bin Saleh al Marhoon, Director-General, MSM said.

Speaking to the Observer, Al Marhoon further noted that “This is the introduction of the Islamic financial institutions and this is the time we have been working on issuing an index which is compliant with the Sharia requirements”. For the introduction of the Sharia Index, MSM has contracted with ‘IdealRatings’ to examine and analyse all the listed companies in order to make sure that those listed companies are in compliant with Sharia requirement. Also, the application of Sharia principle No 21 that is related to securities is also verified. MSMSI is a free-float Index capped at 10 per cent and the index constituents will be revised each quarter.

Marhoon further said that there has been a highly encouraging trend regarding the new IPO’s and an number of companies from both private and public sectors are on the anvil to launch their public offers. “More companies based on Sharia and power generation besides some major public sector companies are expected to launch their IPO’s this year”, Marhoon added.

(Oman Daily Observer / 02 July 2013)

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