Malaysia: Islamic finance needs more talent, says DPM

THE growing number of local public and private universities offering Islamic finance and muamalat programmes is an encouraging sign as the rapid growth of the industry can only be sustained with a continuous supply of talents.

Deputy Prime Minister Tan Sri Muhyiddin Yassin said with student enrolment in Islamic finance programmes rising each year, there is a growing need to recruit highly qualified lecturers and trainers to develop talents at universities and colleges as they will lay the foundation of Islamic finance education.

“This will ensure a brighter future for our financial industry, as it will be the main beneficiaries of well-trained graduates,” said Muhyiddin, who is also the education minister, when launching the International Council of Islamic Finance Educators (ICIFE), here, yesterday.

He credited Bank Negara Malaysia, Securities Commission Malaysia, syariah scholars and 

the Islamic financial industry for elevating the country’s Islamic finance marketplace to the current level of sophistication.

He pointed out that the Malaysian Islamic banking sector has continued to outperform the conventional banking sector with average annual asset growth rate of 18.6 per cent from 2008 to 2012, against 9.3 per cent growth in the same period for the conventional banking segment.

On a global level, Malaysian Islamic banking assets, including development finance institutions (DFIs), has a 13 per cent share of the total global Islamic banking assets, behind Iran and Saudi Arabia.

Regionally, Malaysian Islamic banking assets make up more than 85 per cent of total in Southeast Asia’s Islamic banking industry, Muhyiddin said.

He said Malaysia also remains at the forefront in sukuk bonds, also known as Islamic debt issuance.

Sukuk has been the preferred financing structure for infrastructure projects and investments in key sectors such as utilities, healthcare, transportation and education, both locally and abroad.

He said it is a fact that one of the challenges faced by Islamic finance worldwide is the inadequate supply of talents and professionals who are equipped with both syariah and product knowledge.

“In this respect, we acknowledge the role played by Bank Negara Malaysia in setting up institutions such as Islamic Banking and Finance Institute Malaysia (IBFIM), The Global University of Islamic Finance (INCEIF), Asian Institute of Finance (AIF) and International Shariah Research Academy for Islamic Finance (ISRA) to train and provide financial industry executives and managers with the knowledge on Islamic finance and syariah best practices.

“The Malaysian Securities Commission, along with the Securities Industry Development Corporation (SIDC), have also stepped forward in developing talents through their Islamic capital market graduate training scheme,” Muhyiddin added.

The ICIFE was set up by a taskforce comprising Bank Negara, International Islamic University of Malaysia, Education and Higher Learning Ministry, INCEIF and the Asian Institute of Finance AIF.

(Business Times / 22 August 2014)

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Islamic bank pushes for regulation review

THE laws regulating Islamic financing in Kenya need fine tuning to fully support sharia compliant banking, First Community Bank general manager Omar Sheikh has said.

Islamic finance is based on the sharia principle known as Murabaha in which a bank purchases goods and sells them to a client at a cost that includes a profit margin. This is because sharia compliant banking prohibits earning interest on money, hence Murabaha is the loan facility for Islamic banking.

"There is need to safeguard our operations from double taxation. Islamic concept is based on murabaha where you enter into a contract to purchase goods and then sell to a customer. The regulatory parameter needs a little more refining to support Islamic banking fully," Sheikh said.

"When we pay VAT when we buy an item, it will not be fair to charge tax again when we resell it to client."

However, Sheikh said, that at the moment there is no double taxation for the murabaha contracts but the law ought to be clear on this matter for future operations.

Sheikh also cited the loss sharing principle as a matter that creates confusion in terms of declaration and their accounting statements whereby while sharia law requires that profit and loss be shared among the bank and clients, the local industry's guidelines require that they record it as loss provision in their books.

Sheikh was speaking at a media briefing held where he outlined the bank's growth plans that include opening up four more branches by end year to raise their network to 21 outlets, signing up 177 extra agents and increasing customer numbers by another 50,000 by December.

The bank which was the first fully fledged Islamic financial lender to be licenced by the Central Bank of Kenya currently has about 100,000 active accounts.

Sheikh urged non Muslims to also seek services at the bank adding that wrong perception that the lender is restricted to Muslim clients has been the biggest challenge to its growth.

(The Star / 23 August 2014)

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Erdogan Retooling Turkish Banks To Boost Islamic Finance

Turkey’s biggest state-owned bank is branching out from being a traditional lender to farmers to providing the country’s largest corporate loan as the government pushes an expansion ahead of an initial public offering.

TC Ziraat Bankasi AS, the Ankara-based lender founded in 1863 during the Ottoman Empire, lent a record $1.6 billion to Cukurova Holding AS in July. The bank is also planning an Islamic finance unit, it said in a public filing today, while it ended talks about buying shariah-compliant lender Asya Katilim Bankasi AS (ASYAB) as it said a deal “is not in line with our bank’s priorities.” Bank Asya would have pursued talks if Ziraat had made an official bid, it said in a public filing today.

Deputy 

Prime

 Minister Ali Babacan, also in charge of banks, said earlier this month the government would welcome Ziraat’s purchase of Bank Asya.

“We will be in all areas that we think will support Turkey’s growth,” Ziraat Chief Executive Officer Huseyin Aydin said in an interview Aug. 19. He declined to discuss concrete targets.

Turkey’s government, which has said it plans to eventually sell shares in the bank, has encouraged Ziraat and two other state-owned lenders to broaden their offerings and include Islamic banking. The move may increase the state’s sway over financial institutions’ strategy, said Apostolos Bantis, a credit analyst at Commerzbank AG in Dubai.

“While Ziraat remains 100 percent controlled by the government, these transactions will increase concerns about the bank’s corporate governance policies and the government’s influence on the Ziraat’s business strategy,” he said.

Planned Sale

Aydin took over the top job at the bank in 2011 from another state lender, Turkiye Halk Bankasi AS. (HALKB) He’s charted new territory with the loan to Cukurova, the biggest yet by a Turkish bank to a domestic company.

Cukurova used the money to repay debt to Russia’s Alfa Group to recover a 13.8 percent stake atTurkcell Iletisim Hizmetleri AS (TCELL), Turkey’s biggest mobile operator.

“Ziraat is in a phase of growing its assets as a prerequisite for its planned IPO,” said Bulent Sengonul, an analyst at Istanbul-based Is Yatirim, in a telephone interview Aug. 18. “It will be positive for the bank to grow its capital through profits and its subsidiary base through participation banking.”

Bank Asya was established by followers of Fethullah Gulen, a U.S.-based imam, who is at the center of a power struggle with President-elect Recep Tayyip Erdogan’s Ak Party that has accused Gulen and his supporters of illegal wiretapping aimed at plotting a coup to topple the party.

Bank Asya said on Aug. 8 that talks about a deal with Qatar Islamic Bank SAQ had ended while Ziraat said in today’s public filing that the lender is in discussions with investors for a possible stake sale. Several government institutions canceled contracts earlier this month for the lender to act as cash collector for them. Turkey’s capital markets regulator also didn’t approve the bank’s application for a sukuk sale, citing uncertainty over its ownership structure.

“There is a risk that the Bank Asya transaction, which reportedly has links with the Gulen movement, might be interpreted as a tool to assert political pressure on the government’s opponents,” said Bantis of Commerzbank.

(Bloomberg / 21 August 2014)

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Nigeria: Zakat Can Eradicate Poverty - Sultan

Sokoto — The Sultan of Sokoto, Alhaji Sa'ad Abubakar, has said that the practice of Zakat is capable of eradicating poverty. The statement comes as the Sokoto State Zakat and Endowment Committee disclosed that it collected and distributed N105.3 million between January and now.

Speaking during flag off of an enlightenment campaign on the payment of Zakat, organised by the Muslim Ummah in Sokoto, the Sultan said: "Giving out Zakkat and endowment, according to the teachings of Islam will surely purify our wealth and also eradicate poverty in our society."

The Sultan, who was represented by the Galadiman Garin-Sokoto, urged Muslims and the leaders to be faithful and always fear Allah in the conduct of their activities.

In his remarks, Commissioner for Religious Affairs, Alhaji Tukur Alkali, said the affluent in the state need to ensure they play their roles as stated in the Quran.

The commissioner, who was represented by Sokoto State Director for Shari'a and Religious Affairs, Alhaji Aminu Aliyu, added that government needs to be supported in ensuring the welfare of the masses.

(All Africa / 21 August 2014)

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Capital markets watchdog rejects Bank Asya sukuk issuance

Islamic lender Bank Asya has received another blow, as the Capital Markets Board (SPK) did not approve a 140 million-Turkish Lira sukuk issuance from the lender’s asset leasing subsidiary. 

The lender’s share trading was suspended by the Borsa Istanbul stock exchange on Aug. 14 until “uncertainty regarding its ownership is resolved.”

The country’s capital markets watchdog cited the same concerns and announced it has decided not to accept the Bank Asya subsidiary Asya Varlık Kiralama’s (Asset Leasing) request to issue a 140 million lira sukuk, which commonly refers to the Islamic equivalent of bonds, for consideration.

The bank has seen its profits and capital base collapse since December 2013, when it found itself at the center of a power struggle between President-elect Recep Tayyip Erdoğan and his political foe Fethullah Gülen, an Islamic scholar based in the U.S. whose sympathizers founded the bank in 1996.

Doubts over the bank’s future and its shareholder structure have been growing due to contradictory statements from the government regarding its potential acquisition by the state-run Ziraat Bank, as well as the annulment of key contracts by several public agencies.

(Daily News / 21 August 2014)

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Azerbaijan’s IBA plans stand-alone Islamic banking unit

International Bank of Azerbaijan (IBA), the country’s largest lender, is preparing to launch a separate sharia-compliant banking unit as the former Soviet state prepares an Islamic banking law slated for next spring.

A stand-alone unit would allow IBA, 50.2 per cent owned by Azerbaijan’s Ministry of 

×

Finance, to more than quadruple its 

×

Islamic financing business in the country, said Behnam Gurbanzada, IBA’s director of 

×

Islamic banking.

“IBA is working on developing new products as well as establishing a platform for a separate, fully sharia-compliant unit,” Gurbanzada said.

IBA, which holds 40 per cent of banking assets in 

×

Azerbaijan, has thus far extended $180 million of 

×Islamic financing in the country; after legislation is passed, this could increase to as much as $750 million within a year, he added.

The bank currently offers sharia-compliant products through an 

×

Islamic window, a practice which allows conventional lenders to provide 

×Islamic financial services as long as client money is segregated from the rest of the bank.

A separate unit could help increase the appeal of Islamic banking among retail clients, in a country where an estimated 93 per cent of the population of 9 million are Muslim.

IBA also wants to create a strong domestic Islamic banking platform for use with its subsidiaries in Russia, Georgia and Qatar.

“Azerbaijan shows considerable promise to become a hub for Islamic banking in the region and has great potential to cooperate with Russia and all other CIS (Commonwealth of Independent States) countries which are interested in Islamic banking,” said Gurbanzada.

This month, the Association of Russian Banks asked Moscow to consider ways to promote Islamic finance in the country, including through an industry-specific law.

IBA has hired Bahrain-based consultancy Shariyah Review Bureau to help in the design of several projects including a real estate development in Azerbaijan’s capital Baku and a cash financing product, said Gurbanzada. The bank is also developing a sharia-compliant student financing product.

(Gulfnews.Com / 18 August 2014)

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Perpetuals in Vogue as Malaysia Airports Sells: Islamic Finance

Malaysia Airports Holdings Bhd. (MAHB)’s plan to sell perpetual sukuk highlights rising interest in the debt from companies looking to shore up their balance sheets.

The manager of all of Malaysia’s 39 airports will hold an investor presentation for the offer on Aug. 25, two people with knowledge of the deal said last week. It will be the nation’s first sale of rated ringgit Islamic bonds with no set maturity following unrated issues by Malaysian Airline System Bhd. in 2012 and Boustead Holdings Bhd. in June. Boustead, a plantations company, sold the notes at 6.1 percent, 2.3 percentage points higher than its two-year non-Islamic debt at the time.

Perpetual bonds, which rating companies treat as equity, have been becoming more popular as they allow issuers to raise money without damaging their creditworthiness and offer higher yields to investors, Kevin Lim, RAM Ratings head of consumer and industrial ratings, said in an interview in Kuala Lumpur yesterday. Abu Dhabi’s Al Hilal Bank PJSC sold $500 million of perpetual sukuk in June, attracting around $5 billion of bids, the fifth such offer from the United Arab Emirates.

“The fact that Malaysia Airports is planning a rated perpetual sukuk suggests that investors are getting more sophisticated,” Mohd. Effendi Abdullah, head of Islamic markets at Kuala Lumpur-based AmInvestment Bank Bhd., the country’s third-biggest sukuk arranger, said in phone interview yesterday. “We are talking to a few companies that are keen to sell such debt.”

Income Dropping

Malaysia Airports will offer as much as 1 billion ringgit ($317 million) of perpetual sukuk, the two people who asked not to be named because the information isn’t public yet said in interviews on Aug. 15. It’s part of a previously-announced 2.5 billion ringgit Islamic bond program. Chief Financial Officer Faizal Mansor declined to comment on the latest offer when contacted by telephone yesterday.

The company, which has a market capitalization of 10.6 billion ringgit, had total debt of 4.2 billion ringgit at the end of June. The airport manager will report net income of 234.7 million ringgit this year, according to the average estimate of 19 analysts in Bloomberg survey, compared with 388.9 million ringgit in 2013. The company’s shares have fallen 14 percent this year, worse than the 0.3 percent decline in the benchmark stock index.

Malaysia Airports last sold Shariah-compliant securities in September 2013. The 4.15 percent notes due 2018 and the 3.85 percent debt due 2016 last yielded 4.17 percent and 3.87 percent, respectively, data compiled by Bursa Malaysia show.

Price Discovery

Borrowing costs on AAA-rated corporate non-Islamic bonds due 2024 climbed 40 basis points, or 0.4 percentage point, to 4.86 percent this year, according to a central bank index. That’s the highest level since September 2011.

“Rated perpetual issuance is rare in Malaysia and therefore I expect some price discovery to take place,” Norlia Mat Yusof, chief investment officer at Kuala Lumpur-based Etiqa Insurance & Takaful, said in an e-mail interview yesterday. “The yield must be reasonably above AAA issuance to account for the liquidity premium and the rather cautious investor sentiment due to rising interest rates.”

Worldwide issuance of bonds that comply with Islam’s ban on interest has climbed 27 percent this year to $26.9 billion, according to data compiled by Bloomberg. Malaysian sales have increased 78 percent to 39.3 billion ringgit, although the amount of offers has slowed from 18.7 billion ringgit in the first quarter.

Corporate Pipeline

The country’s beleaguered national carrier, which has lost two planes this year, sold 1 billion ringgit of perpetual Shariah-compliant notes in June 2012 to yield 6.9 percent. Khazanah Nasional Bhd., Malaysia’s sovereign wealth fund, has offered to take the airline private and announce details of a plan to revive it at the end of this month.

SP Setia, a property developer, issued 609 million ringgit of the debt at 5.95 percent last December and Boustead sold 201 million ringgit in June. All of the securities are unrated and can’t be traded under Malaysia’s Securities Commission rules.

“Perpetuals are attractive to investors because they offer higher yields,” Elsie Tham, a senior fund manager at Kuala Lumpur-based Manulife Asset Management Sdn., who oversees more than $1 billion, said in an Aug. 15 phone interview. “The offering should attract interest because the pipeline of corporate bonds in Malaysia is a bit dry at the moment.”

New Benchmark

Aeon Credit Service (M) Bhd., the Malaysian unit of Japan’s second-biggest consumer-finance company, still hasn’t offered perpetual sukuk since Managing Director Yasuhiro Kasai said it would do so in a Dec. 10 interview.

It’s more cost efficient to issue perpetual bonds than traditional equity because the transaction is tax deductible, said RAM Rating’s Lim. Corporates can improve their capital structure by replacing debt with notes that don’t mature because they are treated as shares by rating companies, he said.

“Malaysia Airports’ perpetual sukuk, once sold, will provide a benchmark to potential issuers,” Lim said. “Investors looking for higher yields will also have more investment choices.”

(Bloomberg / 19 August 2014)

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