Sukuk market to grow 30% in 2013

JEDDAH – The sukuk (Islamic bond) market is expected to grow by around 30 percent this year, buoyed by sovereign sukuk that will continue to dominate, supported by emerging of new countries that issue sukuk, Kuwait Finance House (KFH) said in a recent report.

Sukuk issuance will grow this year by 20-30 percent after the momentum witnessed by the issuance process last year that was worth $131 billion, the report, compiled by the KFH-Research, showed.

The share of the Middle East of issuance in 2012 increased; especially in Saudi Arabia and UAE, it said, noting that the returns on sukuk increased during the same year, compared to returns in 2011.

Sukuk remain a major facet of the Islamic finance industry in 2013. The Islamic capital market now stands aflush with more than $230 billion in outstanding sukuk papers, having developed as a crucial platform for international liquidity and fund raising activities, it said.

Renewed struggles in Europe have hampered growth in advanced economies, leading to capital flows into emerging markets and alternative investments.

Despite this, economic growth in 2012 is estimated to have remained subdued even in emerging economies on the back of lower global demand for goods and services. This sustained sentiment has kept investors in the bond markets in a year that has seen benchmark 10-year US Treasury yields lose 9.3 percent, it said.

In 2012, a total of $131.2 billion worth of sukuk papers were recorded from the primary market, representing a y-o-y increase of 54.2 percent. The amount dwarfs that of previous years and even represents three times the size of the primary sukuk market pre the global financial crisis. Since 2008, total yearly issuances have grown at a compound annual growth rate of 67.4 percent.

Sovereign issuers led the market share in 2012 despite a record amount of corporate sukuk placed during the year. Total issuances from sovereign entities throughout 2012 reached $80.2 billion as compared to $58.9 billion in 2011, representing a 36.0 percent y-o-y increase. Despite the dominant market share of 61.1 percent, sovereign papers were overshadowed by significant growth in both corporate and government-related entities which grew by 92.4 percent and 103.0 percent to $36.5 billion and $14.5 billion, respectively, the report indicated.

By region, issuances from Central and East Asia continued their growth momentum, climbing by 60.1 percent y-o-y to $104.8 billion during 2012. This was led by Indonesia (+131.1 percent y-o-y, $6.0 billion) and Malaysia (+59.4 percent y-o-y, $97.1 billion).

Meanwhile, issuances from the Middle East and North Africa also increased by 34.4 percent y-o-y to $26.3 billion, mainly led by the 278.2 percent y-o-y jump in issuances from Saudi Arabia to $10.5 billion and the 49.3 percent y-o-y increase in issuances from the UAE to $6.1 billion.

Within the corporate sukuk market, $26.8 billion worth of papers or 73.5 percent of total issuances were issued in Malaysia, while $4.2 billion (11.5 percent) was issued in the UAE and $3.4 billion (9.3 percent) was issued in Saudi Arabia, the report added.

(Saudi Gazette / 17 Feb 2013)

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Islamic banking facing regulatory challenges

LAHORE - Islamic insurance (Takaful) is flourishing all around the world alongside Islamic Banking. Its global market size has reached 12 billion dollar whereas the number of Islamic Takaful institutions has exceeded to 350.

Banking industry experts said that though Takaful industry is prospering in the recent times; however it’s also facing certain challenges which include: issues regarding re-Takaful, regulatory challenges, competition and lack of human capital. These issues can be resolved by employing effective strategies and through proper planning. Unfortunately, there is not a single institution in the world which can provide guidance to Takaful industry on the above mentioned issues. Hence, to overcome all these challenges and issues of Takaful industry, Al Huda CIBE established a Takaful Consultancy Wing. Its principle consultant will be Captain Jamil Akhtar Khan who is a renowned and notable personality of Takaful industry. He has the expertise on Takaful regulatory issues, establishment of Takaful companies and other related departments.

Captain Jamil Akhtar Khan said that Takaful Consultancy Wing will be an independent institution which will provide its services to other organizations for the establishment of new Takaful companies, research, advisory, training, re-Takaful, Shariah guidance and other Takaful related matters. It will be a distinguished institution because of its services. Justice (r) Khalil Ur Rehman said that Takaful industry was in need of such institution from a long time, so that services related to Takaful industry can be provided internationally in an efficacious way. He also said that Islamic banking and Takaful are interdependent; hence in order to strength the Islamic banking industry, Takaful industry has to be strengthened as well.

He was confident that Al Huda will play a vital role in this regard.

(The Nation / 19 Feb 2013)

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Islamic banks ‘should focus more on quality growth’

Mergers and acquisitions, quality of talents and embracing technology are key areas for Islamic banks to move forward, in addition to focusing more on quality rather than percentage of growth.

“There are 13 banks that are big with more than US$1 billion [RM3.09 billion] each in equity whereas the rest of the industry is small, lacking scale,” Ernst & Young (E&Y) partner, Islamic banking excellence centre, Ashar Nazim told The Malaysian Reserve last week.

“There are too many banks out there. Therefore, consolidations and mergers is the way to go in moving forward,” said Ashar. “The industry is still young and it has learnt from its mistakes. It is emerging from a state of self-denial after the international crisis. There is a long way to go.”

Ashar added that Malaysian banks are ahead of the pack in terms of the scale some of them have achieved.

Commenting on talents, Ashar said: “Most Islamic banks are led by bankers that were previously conventional bankers and some have reached their retirement age. This industry is a young industry that needs entrepreneurial fresh blood to drive it forward.”

He added that the use of technology is sub-optimal because no information technology vendors out there are truly syariah-compliant and have been vetted or certified by the global standard setting board.

“They are mostly conventional core banking solutions which have been adapted for Islamic banks. That is a major limiting factor for Islamic banks and that drives their operating costs much higher than conventional,” Ashar said.

Regarding quality of growth, Ashar said: “Initially, it used to be important because it was a young industry. It was trying to establish itself and to prove a point that it is not a fad and is here to stay.

“Now, whether the growth rate of 19% or 20% or 22% is less relevant. What is more relevant now is the quality of growth.”According to E&Y’s World Islamic Banking Competitiveness Report 2013, global Islamic banking assets had an average annual growth of 19% over the last four years and are set to cross US$1.8 trillion (RM5.56 trillion) in 2013, up from the US$1.3 trillion of assets held in 2011.

Synthetic instruments

The report added that the top four market accounted for 84% of industry assets and Islamic banking grew 50% faster than the overall banking sector.

Nonetheless, the report said that the average return on equity at 12% was lower than the 15% registered for conventional banking.

“Islamic banks are 20% to 25% less profitable than conventional banks, but the more worrying factor is that this is because of all factors that are controllable,” said Ashar.

“Being syariah-compliant should mean that you are more profitable because you are better linked to the real economy and you are into socially responsible businesses,” he added.

Ashar said that for Islamic banks in Malaysia to grow from its current US$120 billion-US$130 billion industry to a 40% market share of the industry by 2020, banks have to “optimise the balance sheet to be more capital friendly”.

He added that Islamic banks have to understand the customers better because as the conventional banks “are bigger, well entrenched, understand their customers better and as everyone agrees, they have a better service culture.

That is where Islamic banks slacked. “Islamic banks have so far failed to penetrate the mainstream segments to its fullest potential.”

Ashar said Islamic banks should look at their retail banking business and how they acquire and serve their customers.

He added that many customers of Islamic banks are deposit bank customers and have not taken the financing part either because of lack of awareness or a number of other reasons.

“Clearly there is an opportunity to increase penetration with existing customers,” Ashar said.

Commenting on the new Islamic Financial Services Act 2012 which will statutorily enforce management of syariah-non-compliance risk and requires Islamic financial institutions to ensure at all times that their aim, operation, business, affairs and activities are in compliance with syariah, Ashar said: “It will help the international industry move towards harmonisation because the gist of the act is that Islamic banking business should be more syariah driven, syariah-based instead of just having synthetic instruments.”

According to Bank Negara Malaysia’s website, there are 16 Islamic banks operating in Malaysia, 10 locally-owned with the remaining six that are foreign-owned.

(F.M.T News / 18 Feb 2013)

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Global Islamic investments to hit USD1.8tr in 2013: E&Y

(MENAFN) Ernst and Young (E&Y) stated that during the current year, investments in accordance with Islamic law (Shari'ah) will hit USD1.8 trillion, reported Xinhua News.

E&Y said that Islamic financial institutions in Southeast Asia and the Middle East and Africa (MEA) region are boosting their investments that are carried out in line with Shari'ah, as these economies have surpassed the global economic expansion since the start of the new millennium, and developed their regulatory system to stimulate Islamic banking.

However, financial institutions and banks in the US and Europe have trimmed their exposure in banking in line with Islamic law, due to the financial crisis that forced them to return to their roots by lowering their exposure in foreign fields, including Islamic finance, and by limiting their investments in emerging markets.

The Shari'ah law forbids interest-based and speculative investment, including short-selling or trading derivatives, furthermore, it bans stocks from firms that produce alcohol, weapons, entertainment or pork meat.

E&Y said that sukuk (Islamic bonds) are not like ordinary bonds, as they do not pay interest based on a coupon, but share profits of a specific, tangible asset, such as a real estate or a commodity, with the investors. 

Last year, global issuances for sukuk surged by 43.36 percent from 2011, reaching USD121 billion, with Malaysia contributing with more than 60 percent of total issuances

It is worth noting that the Islamic finance industry is expanding by 15 percent annually, and is expected to double every 5 years.

(Mena.Com / 17 Feb 2013)

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India: RBI has a positive approach towards Islamic banking: Minister

NEW DELHI, FEB. 17: The Reserve Bank of India has taken a positive approach to the suggestion of an alternative banking system for Muslims, subject to certain laws being amended first, K. Rahman Khan, Minister for Minority Affairs, said here recently.

“I have written to the RBI Governor, invoking Section 25 of the Constitution, saying that it was the duty of the State to facilitate every citizen to practice and follow his/her religion,” he said, adding that Muslims being given no option but interest-based banking amounted to obstruction in practice of religion.

Khan said the RBI Governor had written back accepting his view, but pointing to the need for certain amendments to the laws concerned. The Minister was addressing a session on ‘Islamic Banking and Finance: Global Trends and India’ at a two-day conference organised by the Institute of Objective Studies.

The Minister said, in India the biggest issue was who should regulate the proposed alternative system, as it needed a strong monitoring mechanism. It could be a new law or amendments to the existing law, but I am hopeful of an outcome soon, he added.

At present, about 60-70 per cent of the 200 million Muslims in India are excluded from the conventional banking system (Shariah law prohibits riba (interest)-based financial transactions) because of lack of Shariah-compliant financial instruments.

Khan said Islamic banking had been adopted by 75 countries, including the UK, and added that India could no longer afford to stay away from the $1.5-trillion Islamic financial market, which could even help address the country’s huge fiscal deficit.

However, the Minister pointed out that no concrete effort had been made by the Muslim community in this regard. “Raising a demand alone will not help,” he said, and added that concrete efforts should be made, such as setting up an expert committee to draw up a framework of an alternative banking system, along with a strong legal system to back it.

(Business Line / 17 Feb 2013)

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ASEAN Muslim scholars unite on issuing fatwas

In anticipation of modern developments in various fields, international Muslim clerics and muftis have decided to establish a committee on fatwas for Muslims in Southeast Asia.

The regional Fiqh council aims to produce fatwas as well as share knowledge on existing fatwas and deliberation methodology in various countries, said Muhyiddin Junaidi, head of the international relations division of the Indonesian Council of Ulema (MUI).

Closer co-operation between fatwa-issuing authorities in different countries would be suitable not only for Southeast Asian Muslims but also for Muslims worldwide, he suggested.

"For a start, we are going to streamline the deliberation process of issuing a fatwa at the regional level," Muhyiddin told Khabar Southeast Asia.

Fatwas declare various subjects as haram (sinful), such as violent jihad, terrorism, suicide bombings, a meningitis vaccine imported from Europe for hajj pilgrims, blocking public streets to conduct mass sermons, and vasectomies.

An ASEAN initiative

Establishment of an ASEAN Fiqh council to respond to contemporary problems faced by Muslims was one of 11 recommendations issued at the end of an international conference on fatwa held in Jakarta in late December 2012.

The committee is expected to provide solutions in co-operation with the Islamic Fiqh Council -- a body within the Muslim World League, based in Saudi Arabia -- and fatwa-issuing bodies in other countries.

"They can share their experiences in deliberating a fatwa including the methodology and exchange knowledge regarding the fatwas issued in their respective countries," said Secretary General of Islamic Fiqh Council Soleh Zabin Al-Marzouqi.

The majority of ASEAN's 230 million Muslims live in the three predominantly Muslim countries – Indonesia, Malaysia, and Brunei – while sizeable Muslim minorities live in Cambodia, Laos, Burma, Thailand, Singapore, the Philippines and Vietnam.

Contemporary Islam

Indonesian Minister for Religious Affairs Suryadharma Ali told reporters that a line of Islamic experts on fatwa has agreed to convene biannually to discuss how they can best respond to, among others, advances in medicine, astronomy, social dynamics, science and technology.

"We would monitor the developments over the past two years and see which ones need [Islamic] laws because not all existing fiqh can cater to the needs of today's world. We would need to issue new fiqh as a reference for Islamic conduct suitable to the current context," Suryadharma said.

He said the committee does not intend to centralise the issuance of fatwa to increase their legitimacy, but he did not rule out the possibility that a fatwa could affect government policies.

The MUI has issued approximately 8,000 fatwas since it was founded in 1975. Suryadharma cited an example from 2009 when the Indonesian government halted using a meningitis vaccine produced by a European pharmaceutical after the MUI declared it haram because it had traces of porcine enzymes. The government had to buy a new stock of vaccine.

"A fatwa should be adopted collectively. The more congregations that endorse a fatwa, the more legitimate it would be for the Muslim people," said the politician from the Islam-based United Development Party (Partai Persatuan Pembangunan/PPP).

Ratna Shofi Inayati, an ASEAN expert at the Indonesian Institute of Sciences (LIPI), told Khabar that the establishment of a regional forum that allows ASEAN Muslim clerics to exchange information on fatwa-issuing matters is a good effort. It is a form of people-to-people relations that is encouraged in ASEAN community blueprints.

"However, it is better to also co-ordinate their activities with the governments of ASEAN member states – especially those that have Muslim minority populations," she said.

(Khabar Southeast Asia / 14 Feb 2013)

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

Sukuk market to grow 30% in 2013

JEDDAH – The sukuk (Islamic bond) market is expected to grow by around 30 percent this year, buoyed by sovereign sukuk that will continue to dominate, supported by emerging of new countries that issue sukuk, Kuwait Finance House (KFH) said in a recent report.

Sukuk issuance will grow this year by 20-30 percent after the momentum witnessed by the issuance process last year that was worth $131 billion, the report, compiled by the KFH-Research, showed.

The share of the Middle East of issuance in 2012 increased; especially in Saudi Arabia and UAE, it said, noting that the returns on sukuk increased during the same year, compared to returns in 2011.

Sukuk remain a major facet of the Islamic finance industry in 2013. The Islamic capital market now stands aflush with more than $230 billion in outstanding sukuk papers, having developed as a crucial platform for international liquidity and fund raising activities, it said.

Renewed struggles in Europe have hampered growth in advanced economies, leading to capital flows into emerging markets and alternative investments.

Despite this, economic growth in 2012 is estimated to have remained subdued even in emerging economies on the back of lower global demand for goods and services. This sustained sentiment has kept investors in the bond markets in a year that has seen benchmark 10-year US Treasury yields lose 9.3 percent, it said.

In 2012, a total of $131.2 billion worth of sukuk papers were recorded from the primary market, representing a y-o-y increase of 54.2 percent. The amount dwarfs that of previous years and even represents three times the size of the primary sukuk market pre the global financial crisis. Since 2008, total yearly issuances have grown at a compound annual growth rate of 67.4 percent.

Sovereign issuers led the market share in 2012 despite a record amount of corporate sukuk placed during the year. Total issuances from sovereign entities throughout 2012 reached $80.2 billion as compared to $58.9 billion in 2011, representing a 36.0 percent y-o-y increase. Despite the dominant market share of 61.1 percent, sovereign papers were overshadowed by significant growth in both corporate and government-related entities which grew by 92.4 percent and 103.0 percent to $36.5 billion and $14.5 billion, respectively, the report indicated.

By region, issuances from Central and East Asia continued their growth momentum, climbing by 60.1 percent y-o-y to $104.8 billion during 2012. This was led by Indonesia (+131.1 percent y-o-y, $6.0 billion) and Malaysia (+59.4 percent y-o-y, $97.1 billion).

Meanwhile, issuances from the Middle East and North Africa also increased by 34.4 percent y-o-y to $26.3 billion, mainly led by the 278.2 percent y-o-y jump in issuances from Saudi Arabia to $10.5 billion and the 49.3 percent y-o-y increase in issuances from the UAE to $6.1 billion.

(Saudi Gazette / 16 Feb 2013)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com