Favourable regulation key to Islamic finance growth: Expert

Muscat: Developing an enabling and empowering environment, including the necessary legislative and regulatory framework, is needed to support the growth of Islamic economy, according to an expert.

This can be done by working on several key strategic pillars, Abdulla Mohammed Al Awar, chief executive officer of Dubai Islamic Economy Development Centre (DIEDC), said at the 2nd Islamic Banking Knowledge Forum hosted recently by Bank Nizwa in Muscat.

DIEDC was established in 2013 with a vision to position Dubai as the ‘capital of the Islamic economy’ and with a mission to implement a comprehensive strategy with practical programmes and initiatives to achieve this goal.

Al Awar noted that the centre is founded on the seven pillars of finance, the ‘halal’ industry, tourism, digital infrastructure, art, knowledge and Islamic standards.

Islamic economies

He explained that the Islamic economies of the world represent more than $7 trillion in the gross domestic product (GDP).

Islamic financial assets are estimated at $1.81 trillion and are expected to reach 3.25 trillion by 2020, the expert said, adding that the 1.7 billion Muslim population is growing at twice the rate of the global population.

According to him, fast growing and relatively young population of Muslims is increasingly asserting its Islamic sensitivities in the marketplace to products as varied as food, banking, and finance extending all the way to fashion, cosmetics, travel and healthcare.

Islamic finance

On DIEDC’s strategy regarding Islamic finance, Al Awar said that the centre works with both public and private sector partners and reaches out within the Middle East and beyond to build the international bridges essential for the global success of Islamic finance.

The centre also works with the Islamic finance industry to develop the regulatory framework that will enable the sector to flourish and become a global alternative to conventional finance, he added.

Halal industry

Commenting on the halal industry pillar, he said that the centre pursues national halal regulations, standards and auditing processes and works with public and private sector stakeholders to consolidate and unify halal certification standards globally.

He added that the centre’s other strategies in this regard include driving the development of the ‘Halal Park’ concept to enable halal sector companies to set up in Dubai and receive globally recognized halal certification as well as creating a knowledge base accessible to stakeholders, especially potential entrants to the sector.

Tourism

On the pillar of tourism, Al Awar said that Muslims globally spent around $142 billion on tourism in 2014, which accounted for 11 per cent of global expenditure, and is expected to reach $233 billion in 2020. He clarified that the data excludes Haj/Umrah pilgrimage.

He noted that the centre’s strategy is to attract investment in this sector, create awareness and consolidate family friendly tourism travel guidelines and certification standards to protect consumers and ensure sector integrity.

Digital economy

Digital economy is another pillar that DIEDC is seeking to promote through supporting digital start-ups among Muslim entrepreneurs, encouraging technology companies to create Arabic and Sharia-compliant content or products and working with the digital media industry to develop the regulatory framework that will enable the sector to flourish.

Art and design

Al Awar said that in order to promote Islamic fashion, arts and design landscape, the centre strives to establish an enabling environment for a modest fashion incubation platform to develop sector talent.

According to him, DIEDC also encourage film festivals to establish dedicated awards for Islamic heritage films and promotes the adoption of architecture that reflects Islamic lifestyles and values.

In addition, the expert said that the centre works with stakeholders to align academia with government and industry to address skill shortages within the Islamic economy and conducts studies and specialised research on the Islamic economy to create a global knowledge resource.

Standards

Commenting on the standards and certification pillar, Al Awar said that, as part of its efforts, the centre works with stakeholders to develop a framework for certifying halal products and services that is globally acceptable.

(Times Of Oman / 20 December 2015)

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Gulf banks set to dominate global Islamic banking sector by 2020

Islamic banking assets of commercial banks based in Qatar, Indonesia, Saudi Arabia, Malaysia, the UAE and Turkey (known as QISMUT) are set to exceed $801 billion in 2015, according to EY's World Islamic Banking Competitiveness Report 2016.

The report said this will represent 80 percent of international Islamic banking assets which are set to exceed $920 billion this year.

It added that In terms of banking market share, Saudi Arabia, Kuwait, Bahrain and Qatar are expected to be the major players by 2020.

Saudi Arabia continues to dominate the share of the global Islamic banking market with 33 percent, followed by Malaysia (15.5 percent) and the UAE (15.4 percent), the report said, adding that Islamic banks in Bahrain have also been steadily gaining market share over traditional banks.

(Arabian Business.Com  19 December 2015)

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Zakat: The best welfare system

Islam was born in the sandy deserts of Arabia with profound implications for the world. Its impact is still found around the globe due to its contacts with other religions and communities. Today Islam is almost associated with terrorism which is nothing but the “manufactured perception” by media and some interested groups to control the resources of the Muslim world. The tag of terrorism to any Islamic country gives them an excuse to invade the country and destroy its history, culture and society. Some big multinational companies are involved in this process as well as for the world it is necessary to control the markets and provide a readymade supply of raw materials. By any standards, Islam is nothing but peace and it has come to world to establish a just and fair system. It just takes a rational man without the prejudices to understand the implications of this system. This has been even realised by European intellectuals as well. It is disastrous for the honour of the Muslims that they have to resort to writing of European intellectuals to justify good in Islam rather than simply relaying on its tenants and principles. Even though there is a sense of ‘Political Islam” emerging which has totally overshadowed the other sub systems that are present in Islam which could relieve humanity from poverty, misery and destitution. The social welfare system in Islam is based on the concept of Zakat.

Modern governments are based on the concept of welfare system. These take care of the health, education and other basic necessities and needs. The type of the welfare system will be in line depending on the types of governments whether it is capitalist, communist or dictator.  There is some difference between these. However all these aim at the promotion of the peace, prosperity of their respective countries. However there is a serious question whether the policies have worked or not. Globally, there are still more than 1 billion population that lives in extreme conditions. This is a starving line where people don’t possess enough food to eat. Much of the world’s poverty of this type is concentrated in Asia and Africa. Millions of dollars are spend on the welfare systems around the world, billions are spend by NGO’s yet there is no solution to the looming crisis that has engulfed humanity. The reason, being, that today’s welfare system is based on the Political necessities and Macavalian policies. The governments have billions to spend on weapons and wars but not to feed the starving mouths around the world. It will take just 15% of the global spending on wars to feed the billions that die and provide them education. There will be more left to spend on the scientific knowledge and progress of humanity. However it seems crazy to believe that after spending so much, the welfare system of the world is unsustainable. It becomes even more unsustainable when there is depression and recession in the economy. The recession of 1930’s, recession of 2008 and Greek debt crisis saw deep cuts in the welfare expenditure around the world. It forced many millions to resort to violence on the streets. However, the economy is to be seen in light of the “whole” system. The governments in the recession resorts to tricky measures, to cool the temperature, by resorting to borrowing from banks and other entities. Many few realise the borrowing will cost them in future. They will have to pay back the money and with due interest rates. It is no secret that millions of people are under debt even in developed countries. It is exactly what happened in Greece. Similarly, in recession the rich demand cuts in income taxes and all to keep the economy afloat which again impacts the welfare system. In recession banks don’t lend to poor and those who lost their jobs due to income credibility problems. If it lends, it lends these at higher charges. It puts them in trap of banking system that creates money out of nothing. The recession is the best opportunity for the banks to keep governments in check and control economic resources.  And when these institutions turn in on these poor flocks, they have no mercy.

Zakat is significantly different from the other systems. The first principle of the zakat is that it is exclusively left for the poor. This principle takes away the interference from political parties tempering into the welfare system. Whether the money is less or more, it has to be spent on the poor people. However since the poverty is a relative term, the poverty line can always be adjusted to keep spending on the poor in a country and when everyone is rich, the money can be given to other nations to feed their poor flock. Islam doesn’t make a difference between poor persons living in different countries. However the modern government’s welfare system does. The zakat can be stored in the boom times to meet the basic necessities when the economy is in recession and when it is expected that poverty ratio will increase. One more important fact about zakat system is that it is provided to poor free of interests and governments have not to borrow it from the people. It is religious obligation on the rich to provide some amount of the money to poor. This way there is no inter-generational debt problems. The present consumption by the poor doesn’t lead to an increase in income taxes for the next generation. This is all what economics strives for. However since there is bias about Islamic institutions these are really taken seriously. One misconception about zakat system is that it will breed poverty among the society as people will choose to be poor as the society will take care of them. So there is no incentive for hard work. However human nature is against being at the bottom. There is a lot of evidence in economics that suggests that men or women if given enough space will try to achieve a good life for them and their children. Zakat has more profound implication on the evils of the society like theft, kidnaping etc. since zakat will take care of the basic needs of the poor, and they are unlikely to indulge in social evils. It has a positive externality for the society as social evils will come down rapidly. It strikes at the root of class war which Marks, the false prophet, proposed. However the zakat system has to be seen as a sub system of the Islamic economic system. Since the society will make resources available money for the poor, the creation of better relations is a necessary implication for it. In fact zakat is a guarantee for peace and development. This helps in more growth and equality distribution.

 It is necessary that the prejudices against Islamic economic system must be removed. Its fundamentals will remove the defects of the present economic systems throughout the world. The welfare system of the world has cracked down and the poverty is increasing so is the inequality. It is a great time for the economists to give serious thoughts to zakat system so that poverty, hunger and destitution will be removed throughout the world.

(Kashmir Images / 17 December 2015)

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

Oil-Squeezed Malaysia Seen Selling Sukuk as $1.2 Billion Matures

Malaysia will face pressure to sell global sukuk next year as $1.2 billion of Islamic debt matures in July and plunging oil prices erode fiscal revenue and currency reserves.

RHB Investment Bank Bhd. and Union Investment Privatfonds GmbH see demand for a new Islamic bond holding up because of a scarcity of dollar sukuk and longer-term prospects for Malaysia’s finances. The ringgit has rebounded 1.8 percent this quarter, paring its losses to 19 percent for 2015, a year in which reserves slid below $100 billion for the first time since 2010.

Prime Minister Najib Razak repeated a warning last week that government revenue for Asia’s only major net oil exporter could fall short of the official target by the equivalent of about $7 billion next year. The yield on the sovereign U.S. currency Shariah-compliant notes that are maturing has climbed 21 basis points in 2015 to 1.58 percent, the highest in more than two years.

“Despite some problems in its sovereign credit, Malaysia will easily sell $1 billion to $1.5 billion,” said Sergey Dergachev, a senior money manager who helps oversee $13 billion at Union Investment, which is “market weight” on the debt. “I assume many emerging-market sovereigns and corporates would like to make use of this cheap opportunity to still lock in low rates.

Dergachev said he’ll consider buying the bonds if valuations are good, and estimated a 20 to 25 basis-point premium over Malaysia’s existing 2021 dollar Islamic notes assuming it’s a five-year maturity. The 4.646 percent debt yielded 3 percent on Wednesday. He said the government may tap investors early next year.

Angus Salim Amran, Kuala Lumpur-based head of financial markets at RHB Investment Bank, said a Malaysian 10-year sukuk may pay 160 basis points more than U.S. Treasuries, which he put around 3.80 percent when he was interviewed on Tuesday.

Global issuance of Shariah-compliant bonds has dropped 29 percent in 2015 to $34.2 billion, the poorest showing since 2010, according to data compiled by Bloomberg. Malaysia sold global Islamic bonds this year for the first time since 2011, and has a total of four foreign-currency sukuk outstanding and no conventional notes.

Overseas investors also seem optimistic, after raising holdings of the nation’s sovereign and corporate ringgit debt to a seven-month high of 213.6 billion ringgit ($49.5 billion) in November. They increased the proportion of government Islamic notes to a record 11.7 billion ringgit.

The recovery in foreign demand “may be an indication of the interest that investors are expected to exhibit in any sukuk offering by the government,” said Helmi Abdul Jabar, head of project finance with the global investment banking division of OCBC Bank (Malaysia) Bhd. in Kuala Lumpur.

Brighter Picture

Asset sales by a debt-ridden state investment company may also help. 1Malaysia Development Bhd. struck a deal last month to sell its power assets to China General Nuclear Power Corp. for 9.83 billion ringgit. The firm had drawn criticism from lawmakers due to its 42 billion ringgit of debt and spooked investors when it almost defaulted on a loan in 2015. The government provided a 950 million ringgit credit facility in March to shore up its finances.

As the central bank sought to prop up the ringgit, Malaysia’s foreign-exchange reserves sank 18 percent this year to $94.6 billion. The currency’s rebound and 1MDB’s progress in winding down its operations also brought down the cost to insure the nation’s sovereign bonds from non-payment to 182 basis points from a six-year high of 247 in September.

Standard & Poor’s analyst Kim Eng Tan said Wednesday that the company’s stable outlook on its credit rating for Malaysia was unchanged despite the domestic and global developments. It rates the nation A-, the fourth-lowest investment grade.

“Fundamentally, investors are still positive on the longer-term prospects,” said RHB’s Angus. “I expect buyers to be made up mainly of structural investors who take a longer-term outlook on the sovereign rather than focus on current market weakness.

(Bloomberg Business / 17 December 2015)

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HSBC Amanah chief to head CIMB Islamic banking arm

Dec 14 CIMB Group Holdings Bhd , Malaysia's second-biggest bank by assets, said on Monday it had hired the former head of HSBC's Islamic arm to lead its Islamic banking operations.

Mohamed Rafe bin Mohamed Haneef, who was heading HSBC Amanah Malaysia Bhd, was appointed chief executive of CIMB Islamic Bank Bhd and the Group Islamic Banking Division effective Jan. 4 2016, CIMB Group Holdings said in a statement to the bourse.

The move sees Haneef, a 15 year Islamic finance vereran, taking the helm of one of the largest arrangers of sukuk or Islamic bonds at a time when the market seeks to expand into new markets and attract a wider range of issuers.

Haneef will replace Badlisyah Abdul Ghani who resigned from CIMB Islamic in July, and CIMB Group has been looking for a suitable replacement since the resignation.

The lender, the region's fifth-largest by assets, reported net interest income of 2.42 billion ringgit ($574.55 million) for the third quarter through September - its highest since December 2013 - driven by growth in operating income.

(Reuters / 14 December 2015)

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Malaysia: Insurance, Takaful sector will remain stable in 2016

KUALA LUMPUR: The insurance and takaful sector in Malaysia will remain stable in 2016, underpinned by the industry's solid capitalisation, says Fitch Ratings. M&A (mergers and acquisition) activities are likely to pick up following a quiet 2015.

The rating agency said solid capitalisation in Malaysia will also support the sector's premium growth and potential underwriting volatility as economic growth decelerates.

Malaysia's robust regulatory framework and capital practices comes from a series of regulatory reforms implemented in recent years ahead of full liberalisation and economic integration with other south-east Asian economies.

The industry's consolidated risk-based capital ratio was strong at 239 per cent in the first half of the year, well beyond the regulatory minimum of 130 per cent.

Premium growth was slower in the first half on the back of lower automotive sales and private consumption as consumers adjust to the Goods and Services Tax implemented in April.

"Stable domestic demand and low insurance penetration will continue to support the general insurance and takaful sector, “said analyst Thomas Ng, in a report.

Fitch Ratings also said the growth in investment-linked policies is likely to stay strong given the low interest rates. "We expect life insurers to increasingly tap on health-related and retirement products as the population ages and medical costs rise."

High claims from the compulsory motor class will continue to pressure general insurers' profitability but this will be partly offset by healthy underwriting margins from fire and non-motor classes.

"We believe the deregulation of tariff rates in 2016 to have a mixed impact: motor insurers are likely to benefit from greater flexibility in pricing their risks adequately, but it could trigger competitive pricing among fire insurers and erode bottom-line profitability.

 On the M&A, it said it will be driven by the regulatory requirement for composites to split their life and non-life operations within five years from 2013.

There are currently eight takaful and four insurance composites that have yet to split their operations.

(News Straits Times Online / 03 December 2015)

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Bank of England joins IFSB Islamic finance body

The Bank of England has joined the Islamic Financial Services Board (IFSB), one of the main standard-setting bodies for Islamic finance, the second Western regulator to do so after Luxembourg.

The BoE joins as an associate member, the 65th regulatory body to join the Kuala Lumpur-based body, bringing total membership to 189, the IFSB said in a statement.

Britain's government has been keen to make London a centre for Islamic finance. In June of last year it became the first Western country to issue Islamic bonds (sukuk).

The move comes at a key time for Britain's domestic Islamic banks, as the BoE works to grow the number of sharia-compliant assets they can use in their liquidity buffers, with progress expected by the turn of the year.

Currently, sukuk issued by the AAA-rated Islamic Development Bank are the only assets that meet the BoE's criteria for use in the liquidity buffers of the 22 Islamic financial institutions operating in Britain.

The BoE could expand this by allowing use of sukuk issued by sovereigns with lower credit ratings and other non-financial issuers, according to a consultation paper released last year.

Islamic finance follows religious principles such as bans on interest and pure monetary speculation, limiting the range of financial tools that banks can use to manage short-term funding needs.

The IFSB has also admitted the central bank of Kyrgyzstan and the Securities and Exchange Commission of Pakistan as observer members.

The central bank of Kazakhstan has also been upgraded to a full member, becoming the 23rd member of the IFSB Council, its highest governing body.

(Reuters / 09 December 2015)

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