Turkey shows progress in developing Islamic finance

Experts who attended at a G20 conference on Islamic finance in Istanbul have pointed to Turkey's progress in developing the sector.

Aysegul Eksit, executive vice chair at the Capital Markets Board of Turkey, said that the Turkish government is hard at work to create better enabling conditions for Islamic finance.

Islamic lenders now account for about 5.3 percent of Turkish banks' total assets, and this is more than twice the level a decade ago, Eksit said.

The value of Islamic finance assets in Turkey was $51.2 billion in 2014, making the country the eighth in the world. Only about 3.6 percent of global sukuk issuance comes from Turkey, according to World Bank statistics.

Sukuk are instruments similar to bonds, but in which asset growth provides income as opposed to the collection of interest which is forbidden under Sharia law.

“The Turkish legal framework for the issuance of sukuk is in the process of completion. Laws passed in 2012 and 2013 have established the use of these instruments,” Eksit said.

But there are still legal obstacles to the development of the sukuk market in Turkey, Eksit pointed out.

“There are still tax-related issues that limit the development of sukuk in Turkey. But there is work currently underway at the Ministry of Finance to overcome these obstacles,” Eksit said.

For now, almost all sukuk issuance in Turkey is made by participation banks and the Turkish Treasury.

In 2014, the Treasury has also created the basis for a wider range of Islamic finance instruments, such as “Mudarabah”, or investment based on profit sharing; “Murabahah”, in which a buyer purchases from a seller at a fixed profit margin; “Musharakah”, which allows each party involved in a business to share in the profits and risks; and “Wakalah”, which refers to a type of Takaful insurance contract.

“Corporates still do not issue sukuk, although there is no legal obstacle to their doing so,” Eksit said.

There are four private Islamic banks operating in Turkey for many years: Albaraka Turk, Bank Asya, Kuveyt Turk, and Turkiye Finans.

The sector employs about 16,000 people, and is growing at about 32 percent per year, relatively faster than the rest of banks in Turkey.

But on Oct. 15, the Banking Regulation and Supervision Agency (BDDK) allowed state-owned Ziraat Bank to establish an Islamic banking branch, and this opened on May 29.

State-owned VakifBank has also received a license for Islamic finance operations in Turkey.

“This is a game changer,” commented Khalid Howladar, global head of Islamic Finance at credit agency Moody’s.

“The market in Turkey has been small, but the entrance of these large state-owned banks, with thousands of points of distribution among them, should be a major step into growing the market. The large banks are also likely to involve corporates in the market for the first time,” Howladar said.

Turkey also boasts four Sharia-compliant pension funds, although assets under management remain low by global standards -- total value of investment in individual Turkish pension system is at about $14 billion, according to OECD statistics.

But the entire pension sector has invested in sukuk in the past, and is expected to show a considerable interest in sukuk as the instrument and the market becomes more mature in Turkey, Eksit said.

(Anadolu Agency / 21 November 2015)

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Bahrain's growing stature in Islamic banking underlined

Manama, Nov 16 (BNA): CEO Khalid Hamad of Banking Supervision at Central Bank of Bahrain highlighted Bahrain's leading standing attained in the world of Islamic banking through the adoption and development of the Islamic banking.


In a press conference held today at the Bahrain Stock Exchange to review the details of the World Islamic Banking Conference 2015, Hamad asserted that many of the developed and developing countries have resorted to Bahraini expertise and its qualitative initiatives in the field of Islamic banking. 

He attributed Bahrain's success to the sound Islamic banking policies followed, commitment to legitimate controls and implementation of best accounting and auditing standards in the Islamic banking sector. He called for investing in education, training, agriculture and health areas. 

(Bahrain News Agency / 16 November 2015)

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Turkey a Rare Bright Spot in Islamic Finance's Forgettable Year

In a year to forget for the Islamic finance industry, this month’s Turkish election may prove the high point.

Two Turkish banks, Kuveyt Turk and Albaraka Turk, are marketing international sukuk issues this week in what may herald a revival of the Shariah-compliant industry in the country after the AK Party regained its parliamentary majority this month. The government’s Islamic drive had foundered following a previously inconclusive election in June as sukuk sales dwindled and the largest-listed state lender halted plans to set up a Shariah-compliant unit.

“A lot of the transactions that were on hold are being dusted off right now," Rizwan H. Kanji, a Dubai-based partner at law firm King & Spalding LLP who structures Islamic deals, said by phone from Riyadh. “We’re in the next phase of the growth of participation banking in Turkey."

The return to majority rule of the party co-founded by Turkish President Recep Tayyip Erdogan comes at a time when global sales of sukuk are heading for their slowest year since 2010. The AK Party has introduced Islamic units at state banks and expanded Shariah-compliant finance education at universities.

Unmet Demand

Kuveyt Turk meets investors this week before a potential $400 million sukuk sale, while Albaraka started meetings Nov. 13 before a Tier 2 subordinated offering.

Economic and political stability in Turkey will boost investor confidence and participation banking will be a direct beneficiary, according to Ashar Nazim, a partner at Ernst & Young LLP’s Global Islamic Banking Center. Untapped demand for banking that adheres to the religion’s ban on interest means the industry could expand as much as 10-fold in Turkey, he said.

"There’s no need to rush," said Melih Murat Borekci, the London-based co-head of equity research at Yapi Kredi Yatirim, a Turkish brokerage. "I don’t think that there will be a change to AK Party’s intention to establish state presence in participation banking, but there could be changes to the previous economy management. New appointees would need time set their own plans and timeline.”

Halkbank, the country’s biggest state-controlled publicly traded lender, withdrew its application for an Islamic banking unit before this month’s elections. Plans to start a new unit would be clear in two to three months, Chief Executive Officer Ali Fuat Taskesenlioglu said in October.

Despite Erdogan’s ambition to increase the proportion of Shariah-compliant banking assets to much as 20 percent of the market by 2023, for several years they haven’t gained market share. In September they were at 5.1 percent, their lowest as a percentage of the entire industry’s assets in almost three years.

New Units

Turkey’s cabinet appointed Mehmet Ali Akben, a career Islamic banker who has worked at two of the country’s five Shariah-compliant banks, to lead the Banking Regulation and Supervision Agency in May. The regulator approved state-run Ziraat Bank’s Islamic unit the same month.

Vakifbank’s main shareholder got the regulator’s nod for its own unit a month later, while Halkbank looks poised to revive its plans.

"Ziraat participation arm is already in action, we’re going to see another two state banks set up these units in the first half 2016 and we’ll have three participation banks,” said Aykut Ahlatcioglu, a banking analyst at Istanbul-based brokerage Oyak Menkul Degerler AS. "Participation banking will grow faster than their conventional peers.

(Bloomberg Business / 16 November 2015)

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Wanted — Islamic finance specialists

KUALA LUMPUR: Rapid growth in Islamic finance in recent years is pushing up demand for more experts in the field, with the Financial Accreditation Agency (FAA)identifying five key areas in which specialists are urgently needed.

However, programmes offered by local universities now are too generic and provide only a broad-based education on Islamic finance, noted FAA chief executive Dr Amat Taap Mashor in an interview with The Edge Financial Daily.

The industry and its future growth, at the very least, require experts that are specialised in compliance, risk management, governance, audit and the syariah principles guiding all these areas of expertise, he said.

“What is needed now are specialised areas of studies. Currently, if someone wants to specialise in risk management for Islamic finance, the [local] universities might offer only one class on risk management. How is the student supposed to develop the depth of knowledge needed [in] Islamic finance?

“Without a depth of knowledge in syariah principles, how can you design a syariah-compliant product?” asked Amat.

According to the FAA, an independent quality assurance and accreditation body for the financial services industry that is supported by Bank Negara Malaysia (BNM) and the Securities Commission Malaysia, global syariah-compliant assets are expected to expand to US$3 trillion (RM13.20 trillion) in a few years.

Last year, Ernst and Young said it expected such assets to enjoy a global double-digit growth of 19.7% a year until 2018.

On whether there are any specialised programmes offered or developed by tertiary education institutions to fulfil the industry’s needs, Amat said some are being developed, but the results will likely be seen only from 2020.

“Even when we were developing a generic programme, it took us one and a half years. A specialised programme will take a lot more work. The International Centre for Education in Islamic Finance and the International Islamic University, for instance, are in the midst of developing specialised programmes.

He said Islamic finance may be the best tool to battle an economic downturn due to syariah compliancy requiring real assets, granting it stronger fundamentals when compared with speculation-based conventional finance.

“Islamic finance is based on real assets. When you talk about land or a building, there is physical evidence. You are not [merely] talking about market sentiment or speculation.

“When the economy is [facing] a downtrend, Islamic finance can provide a bedrock [for the economy]. That’s why even in Europe recently, they have begun asking if Islamic finance is the solution when the economy is on a downward spiral because the conventional system cannot seem to sustain it.

“This is a good sign for Islamic finance as a whole because there will be great demand for [a] non-conventional market,” he said.

But again, the issue of talent crops up. There is a lack of syariah knowledge among some of its practitioners as they were trained in conventional finance, which may not comply with syariah requirements.

To address this, BNM has tasked the Islamic Financial Institute of Malaysia to conduct professional programmes to equip conventional professionals with a better understanding of syariah principles.

In 2010, the central bank said Malaysia requires at least 40,000 syariah-compliant professionals in the industry by 2020. Currently, it is not known how many such professionals the country has trained.

“Another problem is other countries pinching our graduates. Many of our graduates receive offers from Singapore, Australia, the Middle East and even Europe.

“[However, this can also be viewed] as a good sign. It shows that our programmes are well developed and produce quality talent.”

Still, due to the extra cost in preparing for syariah compliance, many businesses unfamiliar with Islamic finance may have doubts about investing their resources to train syariah-compliant professionals.

(The Edge Market / 16 October 2015)

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Zakat Foundation to expand projects

The Zakat Foundation of America, Ghana, a social and humanitarian organization, is to expand its interventions in the southern parts of the country to benefit more vulnerable and deprived people.

Mr Habib Abubakar, Programme Manager of Zakat Foundation of America, Ghana, disclosed this when he briefed journalists in Tamale after they have toured the organization's projects in the Northern Region.

The tour was to enable the visiting Interim Programme Director of Zakat Foundation, based in Chicago, United States of America, Mr Kamal Ali Birru, to assess the projects being undertaken by Zakat Foundation of America, Ghana, in all its project areas.

Mr Abubakar said currently, Zakat Foundation of America, Ghana, which is based in Kumasi, worked in the areas of education, health, livelihood empowerment and humanitarian assistance in three regions, namely, the Brong-Ahafo, Northern and Upper East Regions.

He disclosed that the organization was implementing a livelihood programme in the Bole District where it had set up a cassava processing plant to help especially women farmers to process their cassava, including vocational training and equipping beneficiaries with machines to start work as self-employed.

He also spoke about other interventions of Zakat Foundation of America, Ghana, which he said, included the provision of medical supplies to four hospitals and 32 water wells across Bole, Bawku and Binduri.

He said the interventions were helping to transform lives, and pledged to improve on them to touch more lives.

Mr Birru, who is based in Chicago, Headquarters of Zakat Foundation, expressed gratitude to all partners, including District Assemblies, for their collaboration to ensure the delivery of the projects.

(Ghana Web / 31 October 2015)

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SEC canvasses issuance of national Sukuk bond

Securities and Exchange Commission (SEC), Nigeria’s apex capital market regulator, has called for issuance of issuance of a sovereign Sukuk bond by the Federal Government to deepen the fledgling alternative finance market in Nigeria.

Director General, Securities and Exchange Commission (SEC), Mr Mounir Gwarzo, said the Debt Management Office (DMO) should consider issuance of Sukuk bond on behalf of the Federal Government. DMO oversees and issues sovereign debt issues on behalf of the Federal Government.

At a parley with the Director General of Debt Management Office (DMO), Dr. Abraham Nwankwo, SEC noted that a major plank of the 10-year capital market master plan, which the apex regulator is currently implementing, is the development and deepening of the non-interest capital market in Nigeria.

Unlike interest-paying conventional bond issue, Sukuk makes returns to the investors through sharing of profit or cash flow from the underlying asset with them in addition to redemption of the principal upon maturity. Nigeria currently has only one Sukuk bond issued by the Osun Sate Government.

Gwarzo said the issuance of Sukuk by the central government would not only provide a benchmark for other issuers of Sukuk like state governments but will also be in line with global trends.

Annual Sukuk issuances have grown from $15 billion in 2008 to almost $120 billion in 2014. This is growth is not only coming from the usual issuers like Malaysia, Saudi Arabia, the United Arab Emirates (UAE), Turkey and Indonesia. In 2014, countries such as the United Kingdom, Hong Kong and Luxemburg, including peer African countries like Senegal, South Africa issued their debut Sukuk.

Gwarzo expressed optimism that Nigeria has potential to become a global leader in Sukuk and non-interest financial market and urged the DMO to contribute to actualizing that aspiration by issuing sovereign Sukuk for Nigeria.

SEC’s Rules on Sukuk Issuance in Nigeria underline that Sukuk shall be structured as Sukuk Ijarah – leased contract; Sukuk Musharakah– sharing contract; Sukuk Istisnah–  exchange contract; Sukuk Murabahah– financing contract; and any other form of contract that may be approved by the Commission.

According to the rules, eligible issuers of Sukuk include public companies including Special Purpose Vehicles (SPVs), State Governments, Local Governments, and Government Agencies as well as multilateral agencies.

The rules stipulate that any issue, offer or invitation of Sukuk by a public company which is capable of being converted or exchanged into equity with the intention of being listed shall be subjected to the additional requirements stipulated in the listing requirements of a securities exchange.

Both SEC and DMO agreed to work in synergy for the growth and development of Nigeria’s financial system, particularly, the domestic bond market.

Gwarzo applauded the DMO’s role in the ongoing restructuring of loans owed by state governments while emphasizing the need for closer collaboration between SEC and DMO to catalyze the development of the bond market, including the non-interest segment.

So far, the DMO has been able to convert about N575 billion in state government loans into longer tenured debt instruments.

Gwarzo pledged further support from the SEC to ensure states enjoy a cost effective restructuring as well as reduced debt-servicing burden.

While outlining a number of initiatives which require closer collaboration with the DMO to achieve, the SEC DG applauded the role DMO plays in sustaining the Irrevocable Standing Payment Order (ISPO) framework which has been critical for investor confidence in the domestic bond market.

He urged the DMO to focus on conducting more robust debt sustainability analyses for the states in line with its mandate enshrined within the DMO Establishment Act 2003.

Both institutions agreed to work together to avoid crowding-out effect by Federal Government bond issues by ensuring that states and companies also have easy access to long term capital.

With increasing interest from multilateral institutions in the domestic bond market, both SEC and DMO emphasized the need for synergy to efficiently coordinate such applications. The World Bank’s private sector arm, International Finance Corporation (IFC), and the African Development Bank (AfDB), have both issued naira-denominated bonds within the past two years. Both multilateral development finance institutions have also expressed interest in registering medium term note programmes that ensure periodic issuances to deepen the bond market.

The two institutions agreed to strengthen the interagency team already in place and ensure that issues concerning the development of the bond market are jointly addressed.

(The Nation / 11 November 2015)

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Islamic finance can promote stability

Kuwait City (AFP) - The fast growing, Sharia-compliant Islamic finance industry has the potential to promote financial stability because of its risk-sharing and asset-backed features, International Monetary Fund managing director Christine Lagarde said Wednesday.

"Islamic finance has, in principle, the potential to promote financial stability because its risk-sharing feature reduces leverage and its financing is asset-backed and thus fully collateralized," Lagarde told an Islamic finance conference in Kuwait.

Islamic banks also offer profit-sharing and loss-bearing accounts that can help mitigate losses and contagion in the event of banking sector distress, she said.

"This leads... to higher total loss-absorbing capital, one of the key objectives of the new global regulatory reform," Lagarde told the one-day event organised by the IMF and Central Bank of Kuwait.

But she said that for the industry to unlock its full potential, it must expand its customer base, harmonise standards and improve regulatory frameworks.

Lagarde later told a press conference the IMF will increase its involvement in the Islamic finance industry by providing more bilateral surveillance and analytical help.

The Islamic finance industry, which bans speculation and interest, still lacks effective regulatory and supervisory frameworks catering to its unique risks.

It also bans dealing in products with excessive uncertainty, gambling, short sales and financing prohibited activities considered harmful to society.

Lagarde said Islamic assets have crossed the $2 trillion mark and has the potential to grow much larger.

Around 40 million of the world's 1.6 billion Muslims are clients of the Islamic finance industry, which has surged in popularity since its niche market days of the early 1970s.

Kuwait's Central Bank governor Mohammad al-Hashel said Islamic finance can offer a system based on strong principles and social justice.

"A system, which if implemented in its true spirit, will bolster growth, create jobs, reduce poverty and address inequality," Hashel said.

He said the Islamic system channels credit into productive investments that are socially responsible and not in wasteful speculative activity.

The objective is to create a system that is "ethically right, socially just, financially stable and economically productive", Hashel said.

Officials and experts, however, acknowledged that the industry still faces tough hurdles, mainly setting consistent regulations for all markets.

The Jeddah-based Islamic Development Bank president, Ahmad Mohamed Ali, said he believes the main obstacle is the failure to create a mega Islamic bank and the lack of sufficient tools to manage liquidity effectively.

(Yahoo News / 12 November 2015)

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