SECP approves rules for sukuk issue

ISLAMABAD: 

The Securities and Exchange Commission of Pakistan (SECP) has approved regulations for the issuance of sukuk (Islamic bond) in an effort to develop the Islamic capital market and to facilitate fund-raising through Shariah-compliant financial products.

A draft of Sukuk Regulations 2015 was earlier notified for seeking public comments.

According to the SECP, the Islamic capital market is considered an important segment of a developed and broad-based capital market. A developed Islamic capital market can play a vital role in economic growth of the country.

At present, sukuk is issued as an instrument of redeemable capital under Section 120 of the Companies Ordinance 1984 mainly through private placements.

Besides Section 120, no other specific regulatory framework existed for the structuring and issuance of sukuk. Therefore, it had become imperative to have a separate set of regulatory framework for the sukuk.

Major investors in sukuk include mutual funds, employee funds, commercial banks, both conventional and Islamic, and non-banking finance companies (NBFCs), which directly or indirectly hold public funds.

The regulations prescribe certain conditions to be met before the issuance of sukuk and the eligibility criteria for the issuers. In addition to the disclosure and reporting requirements, they also require appointment of a Shariah adviser and an investment agent.

The adviser will help in structuring of the sukuk, ensuring that it is structured according to the Shariah principles.

Market sources suggest that a substantial amount of funds is held by investors who are looking for investment in Shariah-compliant financial products. The SECP believes that the regulations will enhance investor confidence, which will help in the development of the sukuk market.

(The Express Tribune / 05 Febuary 2015)

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Indonesia weighs merging Islamic banking units, but 2 banks say no plan yet

Indonesia's state enterprises ministry and financial regulator are talking about potentially merging the Islamic units of three state-controlled banks, but two of them said they have no plans for any such merger yet.

Local media previously reported that PT Bank Mandiri Tbk , PT Bank Rakyat IndonesiaTbk and PT Bank Negara Indonesia Tbk (BNI) may merge their Islamic banking businesses.

"That is just an initial thought that is developing between the state-owned enterprises minister and the regulator," Nelson Tampubolon, the executive head of banking supervision at the Indonesian financial services authority, told Reuters in a text message on Wednesday.

"It has to be further assessed because it has to involve the parents of each sharia bank," he said, adding that he cannot forecast when such a merger may take place.

Authorities in Indonesia want to reshape the country's Islamic finance industry by encouraging consolidation and building a new regulatory system, as the sector seeks to catch up with more mature markets in Malaysia and the Middle East.

Mandiri Corporate Secretary Rohan Hafas said it has no plans yet to merge its Islamic finance unit with others, while CEO Budi Gunadi Sadikin separately said that it is currently focusing on a rights issue.

BNI also has no plans for such a merger, Corporate Secretary Tribuana Tunggadewi said.

"Fundamentally it is up to the shareholders, but there must be some certainty on the purpose of this merger," said Imam Teguh Saptono, a business director at BNI Syariah, the Islamic unit of BNI.

(Reuters / 04 Febuary 2015)

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North Africa: Islamic Finance Experts Predict Maghreb Market Growth

Casablanca — Islamic banks can play an important role in the economies of Maghreb countries - particularly those struggling with socioeconomic development, a pan-African conference concluded last week.

According to the 6th African Islamic Finance Forum (FAFI) in Casablanca, Islamic products should not be simply limited by halal and haram, but should be designed as a source of wealth and job creation.

"Islamic finance, as a source of finance for African economies, must offer competitive products to attract customers and not focus solely on compliance with Sharia law," said banker Youssef Baghdadi of Dar Assafaa bank said at the 2-day event, which wrapped up on January 29th.

Lotfi Bouaicha, a former executive advisor of Tunisia's Zitouna Bank (the first Islamic bank in the Maghreb), adopted a similar stance.

"Quite apart from being Islamic, these are first and foremost banks that offer banking products and must meet the needs of their customers, offering a quality service and being just as competitive as traditional banks," he explained.

Abdelmalek Alaoui of consulting firm Global Intelligence Partners noted what he called the "paradoxical attitudes among a number of governments".

These governments turn to Islamic banks, he said, "for considerable amounts of funding, but at the same time want to control their development because of fears about their competition with conventional finance".

Khalid Labniouri, a bank clerk, emphasised that the debate over Islamic finance needed to be viewed separately from religious considerations. He stressed "the advantages of Islamic banking in a society like Morocco", pointing out that current bank service penetration was only 53%.

Sharia-compliant financial products and services could offer a real alternative, suggested Omar Kettani, the head of the Moroccan Islamic Finance Association (ASMECI).

Islamic banks, he explained, are there to serve the economy and the social sector.

Africa offered real opportunities to develop Islamic finance, financial analyst Najib Foukari said, pointing to a 6% growth rate and efforts to improve transparency and governance among institutions.

However, the shortage of suitable human resources is still a major challenge that needs to be overcome, he said.

In 2015, a number of Islamic financial institutions are being set up in Tunisia, Mauritania, Mali, Côte d'Ivoire and Chad.

Morocco has also just adopted a legal and regulatory framework for the establishment of Islamic financial institutions.

(All-Africa / 04 Febuary 2015)

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Islamic finance looks to outgrow bad habits as it expands

After a year of landmark deals which are opening new markets for Islamic finance, the industry is under fresh pressure to address some of its shortcomings and prove that it is not just an imitation of conventional finance.

Born in its modern form during the 1970s, Islamic finance has boomed in the last few years on the back of strong economic growth in its core markets, the Gulf and southeast Asia.

Over the past 12 months it has shown signs of going global, as even non-Muslim countries have promoted it in the hope of luring cash-rich Islamic funds. Britain, Hong Kong and South Africa issued debut sovereign Islamic bonds; the industry’s worldwide assets are now estimated to total over $2 trillion.

But with this success have come doubts over whether Islamic finance is living up to all of its principles. After all, it was launched not merely to make money, but to promote Muslim values such as equity, risk-sharing and social inclusion.

Those values may sometimes be getting lost as financial institutions engineer products which obey the letter of Islamic law – for example, a ban on interest payments – while mimicking conventional finance in many ways.

Top industry bodies such as the Jeddah-based Islamic Deveopment Bank, a multilateral lending institution with 56 member countries, are leading calls for Islamic banks to strengthen their moral foundations and promote real economic activity instead of monetary speculation.

This will require the sector to go back to the drawing board and develop genuine Islamic finance products that are not only profitable but support socioeconomic development, IDB president Ahmad Mohamed Ali said in a speech in Jakarta in November.

(Reuters / 03 Febuary 2015)

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Morocco Islamic Finance 2014: Unlocking The Kingdom’s Potential

Morocco Islamic Finance Country Report 2014 presents the necessary confluence of economic, financial and political fundamentals that are coming together in a kingdom ready to embrace Islamic finance.

In Arabic, Morocco is called ‘Al Maghreb’, the westernmost land in the northwestern region of the maghreb (region denoted in lower case). Yet this dominant Arab complexion of Morocco belies the country’s and indeed the entire maghreb region’s richly tapered history and heritage long before lines in the sand were drawn to separate the modern nation states of Algeria,

Morocco and Tunisia.

Historically, the maghreb as a region is home to the native diverse Berbers who pre-date the arrival of the Arabs in the 7th century. Between the 7th and the 16th centuries the region was ruled by different successive Berber and Arab dynasties. During this period the maghreb reached a high during the 10th to the 13th centuries under the Arab Fatimid caliphate and

then under the Islamic Berber dynasties Almoravids and Almohads. The Almoravids founded Marrakesh in 1062, and extended their empire beyond present-day North Africa to parts of modern-day Spain, Portugal, France, Gibraltar and Mauritania.

In the mid-12th century the Almohads overtook the Almoravids, and ruled until their decline in the mid-13th century. Lesser and smaller Berber rule reigned until the middle of the 16th century when Arab dynasties returned first with the Saadis and then with the Alaouites in the 17th century. The maghreb fell under the influence of European powers in the early 19th century, but the Alaouites have persisted, and their position preserved through the five decades of European rule from the early to the mid-20th century, even if they did not have

significant power.

Today, the maghreb as an entity is embodied in the Arab Maghreb Union, which is a trade agreement signed in 1989 that envisions an economic and future political unity for Algeria, Libya, Mauritania, Morocco and Tunisia. The state of the Union, however, is inactive, fraught as it is with political disputes.

(Aquila Style / 02 Febuary 2015)

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SUKUK PIPELINE - Issue plans around the world

Following are major Islamic bond issues in the global pipeline.

The Thomson Reuters Global Sukuk Index is at 117.48601 points, up from 115.79726 at the end of last year. The Thomson Reuters Investment Grade Sukuk Index is at 115.34912 against 113.69014 at end-2014.

IVORY COAST - Ivory Coast plans to make a debut 200 billion CFA franc ($340 million) sukuk issue in 2015, the region's development planning agency UMOA-Titres said in January.

EGYPT - Egypt is exploring the idea of issuing international sukuk, but that would require regulatory change, Hanan Salem, first deputy minister for economic and financial policies at the Finance Ministry, said in January.

QATAR ISLAMIC BANK - Qatar Islamic Bank plans to raise up to 2 billion riyals ($549 million) through a capital-boosting sukuk issue, the bank said in mid-January.

PUTRAJAYA HOLDINGS - Malaysia's Putrajaya Holdings Sdn Bhd has proposed issuing 370 million ringgit ($103 million) of 15-year sukuk musharaka, Malaysian Rating Corp said in mid-January.

BANK ISLAMI - Bank Islami Pakistan, the country's second largest full-fledged Islamic bank, plans to raise 3.5 billion rupees ($34.8 million) via subordinated sukuk, a bank official said. Issuance of the first 500 million rupee tranche, which still requires regulatory approval, could be as early as this quarter.

MOBILINK - Pakistan Mobile Communications (Mobilink), the country's largest telecommunications operator, plans to raise 6.9 billion rupees via sukuk this quarter, Pakistan Credit Rating Agency said.

BANGLADESH CENTRAL BANK - At the start of January Bangladesh's central bank launched a weekly sukuk issuance programme; it introduced three-month paper, having previously only sold six-month sukuk, and will now hold auctions every Thursday.

INTERNATIONAL BANK OF AZERBAIJAN - International Bank of Azerbaijan, the country's largest and the only state-owned bank, plans to issue $200-300 million of debut sukuk this year, a senior manager said in early January.

TUNISIA - Tunisia will delay its planned debut issue of $500 million in Islamic bonds until the third quarter of the year to allow parliament time to amend a law concerning the sale, Finance Minister Hakim Ben Hamouda said in early January.

BAHRAIN - In early January Bahrain launched direct sales of local currency government sukuk and bonds through its securities exchange, to broaden the investor base for its debt as sliding oil prices put state finances under pressure. The bourse set a minimum subscription of 500 dinars ($1,326).

NINGXIA - China's AVIC Capital Co said in late December that its unit AVIC Securities had signed an agreement to advise the government of the country's Ningxia Hui Autonomous Region on the global issue of up to $1.5 billion worth of instruments such as sukuk and U.S. dollar bonds, with maturities up to five years.

INDONESIA - The government plans to issue 7.14 trillion rupiah of project-based sukuk in 2015 to finance three infrastructure programmes and develop the sukuk market, the Jakarta Post quoted Suminto, director of Islamic bonds at the debt management office, as saying in mid-December.

The finance ministry plans to sell retail sukuk worth around 20 trillion rupiah in April, an official at the debt management office said in early December.

The government plans to issue global sukuk in the first quarter of 2015 before the U.S. Federal Reserve starts increasing interest rates, Scenaider Siahaan, a director at the debt management office, told Reuters; he did not give details.

AXIS REIT - Malaysia's Axis REIT said in mid-December that it planned to expand its sukuk programme to 3.0 billion ringgit from its existing size of 300 million ringgit, and extend the programme to a perpetual programme from 15 years.

TURKIYE FINANS - Turkish Islamic lender Turkiye Finans Katilim Bankasi applied to issue 143 million lira ($60.5 million) via sukuk, the Capital Markets Board said in mid-December.

TIRSAN TREYLER - Turkiye Finans received regulatory approval for a 71 million lira sukuk issue by trailer manufacturer Tirsan Treyler Sanayi ve Ticaret, the Capital Markets Board said in mid-December.

1MDB - Malaysia's sovereign wealth fund, 1Malaysia Development Bhd , has postponed the sale of up to 8.4 billion ringgit of sukuk to 2015, two people familiar with the matter said in early December.

GULF FINANCE HOUSE - Bahrain's Gulf Finance House is in talks on buying two asset management firms for a total of up to $500 million and is planning to increase debt to finance the deals, chief executive Hisham al-Rayes told Reuters in early December. He said GFH would have a preference for using sukuk over syndicated loans.

UNITAPAH - Malaysia's UniTapah Sdn Bhd plans to issue up sukuk murabaha of up to 600 million ringgit to refinance a term loan funding construction of the new campus for Universiti Teknologi MARA in Perak, RAM Ratings said in early December.

KENYA - Kenya will issue its debut sukuk in the next financial year to June 2016, not this one as some had expected, its finance minister said at the start of December.

CAGAMAS - Malaysia's state-backed mortgage lender Cagamas will raise up to $2.5 billion with a multi-currency Islamic bond programme, credit agency RAM Ratings said at the start of December.

TURKEY - The Turkish Treasury said in late November it would issue sukuk worth 1.5 billion lira by end-February.

ICD - The Islamic Corporation for the Development of the Private Sector, the private sector arm of the Jeddah-based Islamic Development Bank, plans to tap Islamic capital markets to raise as much as $1.2 billion in long-term funds during its current financial year, which started in October, its chief executive told Reuters in late November.

POINT ZONE - Malaysia's Point Zone (M) Sdn Bhd, a subsidiary of KPJ Healthcare, received in early November authorisation from the Securities Commission to establish a sukuk programme of up to 1.5 billion ringgit.

MALAYSIA BUILDING SOCIETY - Malaysia Building Society Berhad is planning a second issuance of its structured covered sukuk commodity murabaha programme, aiming to raise up to 700 million ringgit, bankers said in mid-November.

KUVEYT TURK - Turkish Islamic bank Kuveyt Turk mandated CIMB Investment Bank, Kuwait Finance House and Maybank Investment Bank to issue up to 2 billion ringgit of sukuk in Malaysia, bankers said in mid-November.

FLEETCORP - Turkey's Fleetcorp, wholly owned by Kuwait's The International Investor, has received regulatory approval to raise up to 150 million lira via sukuk, the Capital Markets Board said in early November.

BANK MUSCAT - The Islamic unit of Bank Muscat, Oman's largest lender, plans to tap the sukuk market in the first quarter of next year, in what would be the first sukuk sale by a bank in the country, a bank official said in late October. The issue would fall under a 500 million rial ($1.3 billion) sukuk programme which shareholders approved in March this year.

TEMASEK EKSLUSIF - Temasek Ekslusif, a wholly owned unit of Malaysian property developer Gamuda Bhd, will raise up to 1 billion ringgit with Islamic bonds, ratings agency RAM Ratings said late in October.

OMAN - Oman's government will make its first issue of rial-denominated sukuk for the domestic market as soon as in the first quarter of 2015; the issue may be worth the equivalent of around $300 million or $400 million, with maturities of five or seven years, financial affairs minister Darwish al-Balushi told Reuters in late October.

KAZAKHSTAN - Kazakhstan may make its second international issue of sukuk in 2015, central bank governor Kairat Kelimbetov told Reuters in late October. The issue would probably be quasi-sovereign but plans have not been finalised yet; details are likely to be decided near the end of this year.

LUXEMBOURG - Luxembourg is open to the idea of making more sovereign sukuk issues after conducting its first such issue at the end of September, Luxembourg finance minister Pierre Gramegna told Reuters in late October.

ETISALAT - Abu Dhabi-based telecommunications firm Etisalat is planning its first sukuk issue, bankers told IFR in early October. The company will have the documents ready in coming weeks, but the deal is more likely to be launched in early 2015, they said.

BANK ISLAM - Malaysia's Bank Islam, wholly owned by BIMB Holdings, has set up a 1 billion ringgit subordinated sukuk programme to boost its regulatory capital, RAM Ratings said in early October.

BINTULU PORT - Malaysia's Bintulu Port Holdings is expected to prepare for its planned Samalaju Port project with a proposed sukuk issue, likely to be 700-800 million ringgit, The Edge daily reported in early October.

MALAYSIA MARINE - Malaysia Marine and Heavy Engineering said in late September it had received approval from the Securities Commission to establish a sukuk murabaha programme of up to 1 billion ringgit.

MAHCO MALAYSIA - Mahco Malaysia, a vehicle to issue sukuk for Mohammed Othman Al Houkail Trading & Contracting Co, a medium-sized contractor in Saudi Arabia, proposed an Islamic medium-term note programme of up to 300 million ringgit, RAM Ratings said in late September.

CENDANA SEJATI - Malaysia's Cendana Sejati, a unit of local bank Masraf Al Barakah, proposed a 360 million ringgit senior sukuk murabaha medium-term note programme, RAM Ratings said in late September.

AGAOGLU - Turkish construction-to-energy Agaoglu Group plans to raise around $300 million by issuing sukuk, Niyazi Albay, Agaoglu's chief investment officer, told Reuters in mid-September. No specific time frame was given.

AKTIF BANK - Aktif Bank, Turkey's largest privately owned investment bank, has received regulatory approval to issue 200 million lira in sukuk, the Capital Markets Board said.

DOGUS GROUP - Turkish conglomerate Dogus Group has received regulatory approval to raise $370 million by issuing the country's first U.S. dollar-denominated corporate sukuk, the Capital Markets Board said in late August. No time frame was given.

CIMB ISLAMIC - CIMB Islamic, the sharia-compliant unit of Malaysia's second largest bank, is preparing an Islamic bond programme to raise up to 5 billion ringgit, ratings agency MARC said in late August.

SUNWAY - Malaysian property developer Sunway will raise up to 2 billion ringgit by issuing sukuk mudaraba, it said in August; short-term commercial paper under the programme will have maturities of between a month and a year, while medium-term notes will have maturities of one to seven years. Sunway will make its first issuance within two years.

SOCIETE GENERALE - Societe Generale completed the roadshow for the first issue in its 1 billion ringgit multi-currency sukuk programme in Malaysia, and would decide on the size in days, the bank said on June 18. In early July, banking sources said Societe Generale was still seeking a window to launch.

IFC - The International Finance Corp, the World Bank's lender to the private sector, is considering a return to the Islamic bond market, an IFC official said. A sukuk issue was still in the early stages of discussion but would likely be in the fiscal year starting in July 2014.

JORDAN - Jordan's government is studying a proposal to issue its first Islamic bond as early as in 2015, possibly raising over $1 billion in multiple currencies, but a preference for concessionary loans from aid donor countries could hinder the plan, government sources said.

(Yahoo.News / 01 Febuary 2015)

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Islamic finance looks to outgrow bad habits as it expands

After a year of landmark deals which are opening new markets for Islamic finance, the industry is under fresh pressure to address some of its shortcomings and prove that it is not just an imitation of conventional finance.

Born in its modern form during the 1970s, Islamic finance has boomed in the last few years on the back of strong economic growth in its core markets, the Gulf and southeast Asia.

Over the past 12 months it has shown signs of going global, as even non-Muslim countries have promoted it in the hope of luring cash-rich Islamic funds. Britain, Hong Kong and South Africa issued debut sovereign Islamic bonds; the industry's worldwide assets are now estimated to total over $2 trillion.

But with this success have come doubts over whether Islamic finance is living up to all of its principles. After all, it was launched not merely to make money, but to promote Muslim values such as equity, risk-sharing and social inclusion.

Those values may sometimes be getting lost as financial institutions engineer products which obey the letter of Islamic law - for example, a ban on interest payments - while mimicking conventional finance in many ways.

Top industry bodies such as the Jeddah-based Islamic Deveopment Bank, a multilateral lending institution with 56 member countries, are leading calls for Islamic banks to strengthen their moral foundations and promote real economic activity instead of monetary speculation.

This will require the sector to go back to the drawing board and develop genuine Islamic finance products that are not only profitable but support socioeconomic development, IDB president Ahmad Mohamed Ali said in a speech in Jakarta in November.

"The potential of Islamic finance is not fully realized and in practice most financing is concentrated on a few modes."

A survey by consultancy PWC, published last October, found only 52 percent of Islamic banking customers in the Gulf region believed their bank lived up to their religious values.

Ashruff Jamal, PWC's global Islamic financial services leader, said Islamic banks were "at a crossroads" as growth was slowing and to maintain expansion, they would need to convince increasingly sophisticated customers that they were different from conventional banks.

REGULATORS

One area of controversy is the structures which Islamic banks used for funding. In Asia and parts of the Gulf, for example, murabaha - a cost-plus-profit deal where one party buys merchandise for another - is popular. But scholars criticize it for its resemblance to a conventional loan, with the pricing of a murabaha contract effectively acting as an interest payment.

Structures with stronger risk- and profit-sharing elements such as musharaka, a partnership in which two or more parties agree to provide capital, are rarer.

In some jurisdictions, regulators are moving to change this, but it remains to be seen whether they can shift entrenched behavior among the banks.

In Pakistan, central bank governor Ashraf Wathra warned Islamic banks last week to develop ways to reward their customers in line with a rise in the sector's profitability, or face unspecified regulatory action.

In Malaysia, the government plans to roll out an investment platform this year to spur wider use of risk-sharing and equity-based contracts by Islamic banks.

The result of such initiatives could be to push Islamic banks beyond their longstanding role as credit providers to become investment intermediaries - a shift that would bring them closer to the spirit of Islamic finance, some analysts feel.

"Banks will become more of a full-service, asset manager-type of organization versus just banking services," said Khalid Howladar, Moody's global head of Islamic finance.

Also controversial are the "Islamic windows" of banks and insurers, which let them operate conventional and sharia-compliant businesses side by side. Funding of the two sides is supposed to be completely separate, but the arrangement can lead to doubts.

Although Islamic windows are common, they can make it hard for Islamic institutions to distinguish themselves from conventional ones in the eyes of consumers, PWC's Jamal said.

There are signs of a gradual regulatory backlash against the practice. Qatar banned it in 2011, and when Oman introduced Islamic banking rules in 2012, it required Islamic windows to operate out of physically separate branches. In Indonesia, a new law requires insurers to spin off their Islamic windows by 2024.

SOCIAL IMPACT

It may be harder, though, to ensure Islamic finance lives up to the principle that it should promote social welfare by giving needy people better access to funds.

Tens of millions of people in the Muslim world lack bank accounts because of poverty, poor education and lack of infrastructure. In theory, Islamic banks could help to change this by attracting customers who are not served by conventional banks. But outside a few areas, such as rural Afghanistan, there is little evidence of them doing this on a large scale.

"At the moment this has been neglected, so there is a void - this is not in line with Islamic teaching," said Abdul Halim Ismail, who in 1983 founded Malaysia's Bank Islam, the country's first full-fledged Islamic lender.

Ismail is prompting the idea of an institution that would channel charitable funds into projects to help the poor and needy, with such investments managed by Islamic banks to burnish their social credentials.

But few Islamic banks - perhaps inevitably, given pressure from shareholders and financial markets - are embracing the social dimension and making substantial efforts to offer products such as sharia-compliant microfinance.

Excluding some efforts in Indonesia and Pakistan, "I fear there is not much to tell regarding an attempt by bigger Islamic finance institutions to become active in microfinance," said Matthias Range, advisor at the German government's international development agency GIZ, which supports such efforts.

(Reuters / 01 Febuary 2015)

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