Malaysia Plans To Be A Pioneer of Islamic Wealth Management

Malaysia hopes to be the first country in the world to introduce Islamic wealth management and champion new products under the Islamic financial system, said Deputy Finance Minister Datuk Ahmad Maslan.

According to him, Islamic wealth management is an attractive sub-sector and promises good returns in the financial services industry.

“We understand the concept of wealth management from the Shariah perspective that includes physical and spiritual wealth.

“This principle is contrary to conventional wealth management which focuses only on the physical or material wealth,” he told reporters after opening a conference on Islamic wealth management.

Datuk Ahmad said, having established themselves as a global leader in Islamic finance, Malaysia is currently the world’s third largest market for Shariah assets, namely takaful and sukuk, the products and services of Islamic banking.

Ahmad said, to boost Malaysia’s aspiration to be the center of intellectual excellence in Islamic finance, the government stepped up efforts in that direction.

“A few human resource development institutions, including the International Shariah Research Academy for Islamic Finance (ISRA), the International Centre for Education in Islamic Finance (INCEIF), Islamic Banking and Finance Institute Malaysia (IBFIM) and the Asian Institute of Finance (AIF) have been established to achieve these intentions.

“I expect the Islamic wealth management will evolve to the next stage in the Islamic finance industry with the availability of infrastructure in terms of human resource development for the Islamic financial institutions and expertise that is existing today,” he said.

The two day conference was organised by the Malaysian Financial Planning Council and the Labuan International Business and Finance. It acts as a platform for networking and exchange of ideas and views on the internal operations of the Islamic financial industry.

More than 300 delegates consisting of policy-makers, research institutes, government agencies and academia participated in the conference.

(The Establishment / 16 June 2014)

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Islamic finance still a pipe dream for Hong Kong

Hong Kong has been talking about Islamic finance for seven years with little to show for it.

The essential logic of Islamic funding is compelling. China's capital needs are growing exponentially. China's bond market is projected to soon become the world's second largest. The global financial crisis showed the US dollar and euro markets of the West are vulnerable to crisis and shutdowns, showing the value of diversification to other capital bases, such as the Middle East's.

"There are two important developments for the global financial market. One is the internationalisation of the yuan … and [the fact that] Islamic finance is getting more prominent in the global market," said Peter Pang Sing-tong, deputy chief executive of the Hong Kong Monetary Authority (HKMA).

The member states of the Gulf Co-operation Council and their sovereign wealth funds collectively control US$2 trillion of assets. Islamic finance restructures assets so they do not pay interest - forbidden under Islam - and instead pays out income in the form of profits or rental income.

It was notable that the British government last week announced a plan to bring a £200 million (HK$2.6 billion) sukuk, the first Islamic bond to be issued by a Western government. This stole the thunder from Hong Kong's own sukuk issuance planned this year to raise up to US$1 billion - but it showed Hong Kong to be on the right track.

"We are expanding into the sukuk market. It's important for Hong Kong," said Pang.

The reality is that Hong Kong has made little progress. Hang Seng Bank marketed an Islamic retail fund, six Islamic bonds have started trading on the Hong Kong exchange, and two issuers marketed yuan sukuks in Hong Kong. This week RHB Asset Management launched another Islamic retail fund into Hong Kong.

Hongkongers could be forgiven for not tracking any of these developments, all small deals on the periphery of the market.

Amir Ahmad, a Dubai-based lawyer who specialises in Islamic transactions, said this market needs relentless promotion to take root. He gives the example of Dubai, where leaders are continuously talking up the city as an Islamic funding hub. Dubai in any given year will host dozens of Islamic banking conferences and related industry gatherings. In 2014 Hong Kong has scheduled just one event, a Bank Negara-HKMA co-hosted conference that took place in April.

"Islamic bankers find it difficult [to do deals in Hong Kong]," said Ahmad. "The driving force is the political will. But if the political will is lacking, [Islamic finance] won't happen."

Lawmaker James To Kun-sun, who sits on the Legislative Council's financial affairs panel, said Hong Kong needs to do more work promoting itself as an Islamic hub.

All the promotion in the world will not be any use unless Hong Kong can persuade mainland issuers to use Islamic structures. A bond banker at a universal bank with Islamic capability said this was unlikely.

"I can't see this being much interest to mainland issuers at all," he said. "Issuers would want to see a pricing benefit from that and we would need to demonstrate a pricing benefit. If you go and say this is a new instrument that gives you tighter pricing, then they would consider it … but we can't do that."

In the best-case scenario, Islamic issues yield the same as equivalent conventional bonds. Often, however, the instruments have to offer more yield to investors to compensate them for the fact that sukuk bonds trade with less liquidity than conventional debt (all things being equal) and because Islamic instruments are not included in mainstream bond indices, such as the benchmark JP Morgan Emerging Markets Bond Index.

The diversification argument is also not persuasive. Chinese firms have access to ample liquidity in the Hong Kong and US markets. If they wanted to tap other pools of capital, the vastly liquid euro and yen markets remain largely unused by them.

Islamic debt flourishes in countries where issuers and investors are strongly motivated - for political or religious reasons - to use the structure. Essentially, these are Islamic nations.

"I struggle to see where the mainland authorities are going to see value in supporting [Islamic finance], given their stance towards religion in general. Some of the unrest recently has come from Islamic quarters and politically it's not something that [the Chinese government] want to see their state-owned enterprises doing," said the banker.

(South China Morning Post / 18 June 2014)

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Saudi’s Al Rajhi Capital to launch first sukuk fund

Riyadh: The investment banking arm of Saudi Arabia’s Al Rajhi Bank has received regulatory approval for its first mutual fund that will invest in sukuk (Islamic bonds), as demand for sharia-compliant debt rises in the Gulf’s largest economy.

Al Rajhi is the country’s biggest listed lender and the world’s largest Islamic bank, but it has been slower than some of its peers to embrace the sukuk market. It has never raised money through a sukuk issue itself.

A spokesman at Al Rajhi Capital could not be reached for comment but a source at the firm said the fund, in the pipeline since 2012, had been prompted by a growing number of client inquiries about investing in sukuk.

In January, the firm said it planned to expand its business primarily by underwriting, arranging and investing in sukuk.

Saudi Arabia is the second largest market for Islamic mutual funds with 167, behind only Malaysia, but only five of those funds are dedicated purely to sukuk, stock exchange data shows.

This is because in the past, there has been a lack of domestically available sukuk to feed such funds, and because of the conservative nature of some of the kingdom’s sharia scholars. A number of scholars view trading in sukuk as outright trading of debt, which is banned by Islamic principles.

But over the past two years, issuance of sukuk in Saudi Arabia has ballooned because of increased liquidity, comparatively low borrowing costs and firms’ desire to diversify their funding sources beyond bank loans.

Sukuk issuance in Saudi Arabia rose to the equivalent of $15.2 billion through 20 deals last year, compared to $11.2 billion through 18 deals in 2012, according to data from Zawya, a Thomson Reuters company. Year-to-date, there have been nine sukuk issued worth $8.5 billion.

Some Islamic banks have themselves issued sukuk. This month, Saudi Investment Bank completed a 2 billion riyal ($533 million) capital-boosting sukuk issue, while Banque Saudi Fransi

did a similar deal. National Commercial Bank sold a 5 billion riyal sukuk in February.

(Gulfnews.Com / 19 June 2014)

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Kazakhstan eyes ‘unified’ Islamic banking law next year

Kazakhstan will start drafting a new Islamic banking law that could help the industry develop in the former Soviet state, after a five-year-old set of rules failed to stimulate activity.

Fresh legislation would allow Islamic finance to develop better under the secular regulatory regime of the predominantly Muslim country, said Yerlan Baidaulet, the Kazakhstan member of the board of executive directors at the Saudi Arabia-based Islamic Development Bank.

"A new unified law being developed would aim to avoid any complicated Arabic terms. Instead it will focus on a certain set of financial instruments, on a clear tax regime, the actual structures and mechanisms the industry has to offer."

Drafting could take between four and six months and the proposed legislation may be presented to the government by the middle of next year, said Baidaulet, who also advises the Kazakh Ministry of Industry and New Technologies. The drafting is being funded by a grant from the IDB.

Kazakhstan was the first former Soviet country to introduce Islamic finance rules in 2009, but the industry remains embryonic with total assets of less than $200 million at the end of 2013, a report by rating agency Standard & Poor's said.

The new law is to include provisions to facilitate conversion of conventional banks to sharia-compliant ones, a key element in a country with only one full-fledged Islamic bank, Abu Dhabi-based Al Hilal Bank, which opened its doors in 2010.

In May last year, the private investment arm of the IDB said it planned to invest up to 35 percent of the subscribed and paid-up capital of Zaman Bank to convert it into the country's second Islamic bank, but there is no time frame for those plans.

The rigidity of the existing law means conventional banks would have to shut down and then reapply for licenses to convert their operations, a process that could take up to three years, said Baidaulet.

"The existing law is just a declarative act. Why should we compromise on a dead law that of course is not effective?"

Currently, Islamic banks are categorized on a par with other commercial banks, known as Tier 2 banks, but the current law does not extend to them all the tax privileges that conventional banks have, he added.

"We are not asking for offshore tax or any tax exemptions, we just want to equalize legally all rights and privileges among all other Tier 2 banks to compete on the same and fair basis.

(Al-Arabiya News Asia / 19 June 2014)

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Societe Generale’s Debut Shows Malaysian Sukuk Advantage

Societe Generale’s plan to sell ringgit sukuk shows Malaysia’s advantage in luring debut sales as Islamic finance expands beyond its traditional strongholds.

France’s third-largest banking group by assets, has set up a 1 billion ringgit ($311 million) multicurrency Shariah debt program, according to a June 12 statement from RAM Rating Services, which assigns the notes its highest investment grade. That follows Bank of Tokyo-Mitsubishi UFJ’s announcement last week that it was planning a debut sukuk in Malaysia.

The country, which pioneered Islamic finance in the 1980s, is benefiting as new issuers from outside the Middle East and Southeast Asia are attracted to an industry whose international assets are forecast to double to $3.4 trillion by 2018, according to Ernst & Young. The SocGen sale will encourage foreign companies to test the market using Kuala Lumpur, said CIMB Group Holdings, the world’s top sukuk arranger.

“Malaysia is able to attract foreign names because it has well-established Islamic legislation and human capital,” Mohamed Azahari Kamil, chief executive officer at Asian Finance Bank in Kuala Lumpur, said in a June 13 phone interview. “For a European bank such as SocGen to have confidence in the Malaysian Islamic market, it’s a feather in the cap for the nation. It also shows that the French bank wants to be part of the Islamic finance industry’s growth.”

Dominant market

SocGen will hold a non-deal roadshow for the offer in Kuala Lumpur on Tuesday, a person familiar with the matter who asked not to be named as the information isn’t public yet said in a June 13 phone interview.

Malaysia accounts for $178 billion of the world’s $290 billion of outstanding sukuk, according to a June 4 Moody’s Investors Service report. It will remain the world’s biggest market for the “foreseeable future,” the company said. Saudi Arabia, which has around 10 percent of the debt, shows domestic market potential, while Kuala Lumpur will face rising competition from non-Islamic financial centers such as Singapore, Hong Kong and London, according to the report.

Shariah-compliant banking assets in Malaysia climbed to a record 556.5 billion ringgit, or 26 percent of the total, in 2013, according to central bank data. There are 287 Islamic funds domiciled in the country, the highest in any jurisdiction, KFH Research, the Islamic investment research arm of Kuwait Finance House, said in a June 10 report.

“SocGen’s plan to raise ringgit funding is testament to the maturity of the Malaysian Islamic finance market,” Nik Norzrul Thani, the chairman of Kuala Lumpur-based law firm Zaid Ibrahim & Company, said in a June 13 interview. “The offering will also reinforce Malaysia’s position as a global Islamic hub.”

Sukuk sales

Sales of Islamic bonds by overseas companies in Malaysia dropped by more than half to 2.42 billion ringgit last year from a record 5.89 billion ringgit in 2012, data compiled by Bloomberg show.

Bumitama Agri, a Singapore-listed palm oil producer, is the only foreign company to issue sukuk in Malaysia this year, selling 500 million ringgit of five-year notes in March. Japan Bank for International Cooperation and Ireland’s Electricity Supply Board are among overseas companies that have said they are interested in tapping the ringgit market.

Global issuance of bonds that comply with Islam’s ban on interest has reached $21.3 billion so far this year, 13 percent more than at the same point in 2013, data compiled by Bloomberg show. Sales in Malaysia surged 86 percent this year to 29.7 billion ringgit.

The Bloomberg-AIBIM Bursa Malaysia Corporate Sukuk Index, a benchmark that tracks the most-traded local-currency notes, has climbed 0.4 percent this year, following a 2.8 percent advance in 2013.

Precedent seen

SocGen will be the second company from Europe to sell ringgit-denominated sukuk, after HSBC Holdings, Britain’s biggest lender, sold 500 million ringgit of the notes in 2012.

The French bank’s AAA assessment reflects the group’s strong franchise in retail as well as corporate and investment banking in Europe, RAM said in its June 12 statement. The debt will be issued by special-purpose company ALEF SA II and will give holders legal recourse to SocGen, the ratings firm said.

The Paris-based lender is forecast to post a net income of 3.2 billion euros ($4.3 billion) for 2014, compared with $2.2 billion last year, according to the average estimate of 16 analysts surveyed by Bloomberg News. It has 148,000 employees and a market capitalization of 33 billion euros, data compiled by Bloomberg show.

“SocGen’s offering will definitely set a precedent that can be used to attract other potential issuers from overseas,” Badlisyah Abdul Ghani, chief executive at Kuala Lumpur-based CIMB Islamic Bank, said in a June 13 phone interview. “We should see more foreign companies tapping the ringgit market in the next few months, including those from new jurisdictions.”

(Jakarta Globe / 16 June 2014)

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Sukuk issue bolsters the UK’s credentials as Islamic finance hub

Moylan said: ‘It is great to see that the UK looks likely to be the first past the post in becoming the first Western sovereign to issue sukuk and interesting to note the presence of banks from across the Gulf and Malaysia in the syndicate.

‘While the size of the issue is obviously dwarfed by both the conventional gilt market in the UK, and some of the mammoth sukuk issues, particularly across the Gulf, of recent years, the hope must be that the issue will stimulate other UK institutions to follow suit.

‘In the meantime, the issue will further bolster the UK’s credentials as an Islamic finance hub and provide a welcome route for UK-based Shari’ah-compliant institutions to manage their liquidity needs.’

(The Lawyer / 16 June 2014)

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Egypt intensifies efforts to regulate zakat

These efforts include regulating the work of charities and intensifying public awareness campaigns conducted via imams and mosques, officials told Al-Shorfa.

The Ministry of Endowments banned the collection of zakat donations in mosques last Ramadan, but the decision only went into effect this year.

The ministry issued a list of penalties for violators, and is moving, in co-ordination with Al-Azhar and security agencies, to prevent unauthorised donation boxes from being placed in mosques and gathering places, said Mahmoud Metwalli, a member of Egypt's Zakat Committee.

Zakat collection is restricted to Ministry of Endowments and Al-Azhar offices, as well as to around 14,000 licensed, nationally-recognised charitable organisations that receive zakat funds to disburse to the needy, Metwalli said.

"These organisations are subject to supervision and monitoring and are fully transparent with regard to the disclosure of collections and disbursements to the poor and the salaries of their employees," he told Al-Shorfa.

Zakat funds are disbursed each year by Al-Azhar and the endowments and social solidarity ministries to an approved list of eligible recipients, including the sick, orphans, widows and the poor, Metwalli said.

The disbursements are paid out directly or through post offices, in which case the payment dates are announced in the media, he said.

This year, an electronic link will be established between organisations that collect zakat, civil society organisations and the Ministry of Social Solidarity to monitor the funds and verify the beneficiary lists, he added.

EFFORTS TO PREVENT ABUSE

In some cases, unlicensed or fictitious organisations that have no defined budgets are collecting funds, Metwalli said, and "thus, the fate of the money they collect is unknown".

Additionally, he said, some individuals go from house to house to collect money, claiming to represent a legitimate organisation.

To stop this type of abuse, Al-Azhar and the Ministry of Endowments are conducting awareness campaigns at mosques around Egypt on the need to restrict zakat payments to authorised parties.

"The awareness campaigns also include the circulation of the names of ministry representatives and licensed organisations and institutions, with emphasis that citizens need to check the ID cards of those who try to collect funds," Metwalli added.

"The state of lawlessness that prevailed in the past period allowed some suspicious individuals to once again infiltrate Egyptian society," said Al-Azhar University sharia professor Nayef Abd Rabbu, who serves as an advisor to the Ministry of Social Solidarity.

"These individuals belong to terrorist groups that wreak havoc in Egyptian territories and require financial support to maintain their existence, and the month of Ramadan represents a favourable opportunity for them," he said.

In response, he said, agencies concerned with the collection and disbursement of zakat are tightening their control over the process to prevent these funds from reaching the coffers of "terrorist groups".

ZAKAT IS MEANT FOR THE NEEDY

Zakat funds are distributed based on lists of eligible recipients which are researched, vetted and compiled in advance, Abd Rabbu said, noting that Al-Azhar works with civil society organisations and charities to prevent beneficiaries from making multiple claims on these funds.

"The amount of money paid by Egyptians for zakat may reach up to 15 billion Egyptian pounds ($2 billion)," Abd Rabbu said.

Sheikh Abdullah Abdelradi, imam of al-Mustafa mosque in Dokki district, said he has been active in raising public awareness against giving zakat to non-officially licensed parties.

"There are many who exploit the surge in donations during the month of Ramadan to support some extremist and terrorist groups," he told Al-Shorfa.

The Ministry of Endowments is working to eliminate this practice by prohibiting mosques from accepting zakat and cash donations, he said.

"I personally, and other imams, ask citizens who wish to donate to mosques to donate in kind, that is to bring to the mosque equipment it needs" such as air conditioning units, fans, loudspeakers, prayer rugs and other necessities, Abdelradi said.

In-kind donations also can include maintenance work or joining the mosque's charitable organisation to organise evening banquets, or Rahman tables, during the month of Ramadan, he said.

"This way, [the handling of] funds is restricted to official parties only," he said.

In his religious sermons and speeches, Abdelradi said he stresses the need to refrain from giving money to unknown individuals or organisations, "especially those who go door to door to collect donations and zakat for a particular cause or project".

He also suggests that in lieu of cash, those who wish to donate more than the required amount of zakat could pay for student textbooks or tutoring or offer to pay the debts of a struggling family.

(Al-Shorfa.Com / 13 June 2014)

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