Jordan's appetite for Islamic banking

Sami Al Afghani, CEO of Jordan Dubai Islamic Bank talks to Banker Middle East about the growing interest towards Islamic banking products and practices within Jordan's banking and finance sector.

How do you see the growth in Islamic banking in Jordan?

Islamic banking is an increasingly growing sector in Jordan and is in a position to fulfill all the financial needs and requirements of customers in all categories. There is a growing trend in Jordan whereby a large number of customers are shifting their business to Islamic banks. This trend is made rather clear from the increasing market share for Islamic banks, due mainly to a host of new competitive Islamic products.

At Jordan Dubai Islamic Bank , we are placing all our focus on the local market for the time being to ensure our position in the market as the leading providers of Islamic banking products in Jordan.

There is room for Islamic banking to grow in Jordan and the opportunity for it is rather great due to an ever increasing Muslim community, interested only in dealing with Islamic financial products especially where there are clear guidelines and structures. Islamic banking is not only a matter of providing the service but more importantly, it is about the quality of this service which is highly affected by Shari'ah Islamic laws.

I believe that the entrance of new players into the Islamic banking market is beneficial for all, as it will help in allowing for more regulations for this sector and will highlight Shari'ah- compliant products making them more familiar to the public, as new comers will enhance the experience and culture in this sector in the same way that Jordan Dubai Islamic Bank has.

What is your view of the Sukuk market growth in Jordan, regionally and globally?

The Sukuk market is growing rapidly both regionally and globally. This growth rate reflects the economic development of the Middle East region, the financial appetite of countries such as those in the GCC, as well as the growing appetite for Shari'ah-compliant instruments.

Last year in October 2012, the Sukuk law was approved in Jordan. Now there is a committee consisting of the Central Bank of Jordan, Jordan Securities Commission, Ministry of Finance and Dar Al Efta', to place detailed instructions and mechanisms to issue sovereign Islamic Sukuk, which will be the benchmark for the private sector to issue Sukuk, and we expect this to be finalised within the second half of this year. Sukuk issuance will help Jordanian Islamic banks invest their liquidity surplus, which means managing the funds more efficiently which will in turn be reflected in depositors and shareholders' profitability.

The increased conservatism of the Arab banking sector in its lending policies resulted in a noticeable surplus of funds amongst some of them. How can these banks invest their surplus and what is the impact of its accumulation on the Bank's profitability?

I think that the tightening in Arab banking lending/financing policies is a normal reaction to the various financial challenges and its negative impact on the world's economy. This negative impact and slowdown is affecting every sector and therefore banks have to be more cautious and do have to analyse every aspect, which is already in the core structure of banking business. However, during financial slowdowns similar to the one we are going through, banks increase their terms and level of analysis in order to protect their depositors and shareholders.

How has the Bank performed at end of 2012? And what are your plans for the future?

Jordan Dubai Islamic Bank started operations in 2010. By the end of its third year of operating as an Islamic Bank, working under the Central Bank of Jordan's regulations, the Bank's total assets exceeded $670 million and its shareholder's equity exceeded $179 million. Our results for fiscal year 2012 were much better than original expectations as we have adopted flexible plans taking into consideration regional developments and their impact on the Jordanian economy. Despite the difficulties that have faced Jordan Dubai Islamic Bank in 2012, we were successful in building a high-quality financing portfolio that generated operating profit and at the same time we have been able to distribute competitive profit rates to our depositors.

Mr. Sami Al Afghani, CEO of Jordan Dubai Islamic Bank since its establishment in January 2010 has 26 years of experience in banking, holding different positions in several banks across the region such as the Abu Dhabi Islamic Bank, Arab National Bank and Arab Bank.

(Zawya / 20 May 2013)

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Islamic Microfinance research study initiated in Yemen

AlHuda Center of Islamic banking and economics (CIBE) Initiated a Islamic Microfinance research study for Yemen Microfinance Network (YMN) in Yemen.

This study will be conducted in the Yemen's capital Sana'a including Taiz, Adan and Almoukla, so that the Islamic Microfinance products can be examined broadly and further Islamic Microfinance products can be developed for Yemen Microfinance sector with the compatibility of existing structure. Consequently, maximum people utilize the Microfinance facility and the alleviation of poverty would be assured. 

Najah Al-Mugahed Managing Director of Yemen Microfinance Network explained the association memorandum of research study that Microfinance market size in Yemen is more than one million but only 80,000 (eighty thousand) people are barely facilitating with the services and products of Microfinance which is approximately 8% of the total Microfinance market size. Its major reasons are; Non-existence of complete Islamic Microfinance range of products, Domination of Murabaha in Islamic Microfinance sector, increasing rate of Murabaha and percentage of interest in Microfinance are the obstacles in the expansion of Microfinance industry. An appropriate implementation plan would be prepared through this research study to strengthen the Yemen's Microfinance sector.

Muhammad Saleh Al-Lai Chairman of Yemen Microfinance Network and Executive Director of Alamal Microfinance Bank proclaimed that Yemen's Islamic Microfinance market is very promising and we want to make it stronger through this study so that Yemen could get a distinguished level through Islamic Microfinance. He further mentioned that this is our privileged that Al-amal Microfinance Bank won the award of Islamic Microfinance Challenge 2010 which was organized by Islamic Development Bank and CGAP (World Bank) which shows a clear understanding of our strong structure of Islamic Microfinance.

Muhammad Zubair Mughal Chief Executive Officer of Alhuda Center Islamic Banking and Economics (CIBE) said that our selection for the research study is a great honor for AlHuda CIBE. He mentioned that they have developed a strong research methodology for this study and used different research instruments e.g surveys, focus group discussion (FGDs), stake holder's interviews, desk review of MFI's and meetings with prestigious professionals of Microfinance industry to get primary & secondary information etc which will help to design the ideal products for Yemen Islamic Microfinance sector.

He further mentioned that the share of Islamic Microfinance in Yemen's Microfinance sector is approximately 90% and remaining 10% are also converting their portfolio into Islamic Microfinance, Yemen Microfinance Industry will be further strengthened with the development of new Islamic Microfinance products, It will increase the outreach of Microfinance sector and help out to eradicate poverty.

(Ame.Info.Com / 21 May 2013)

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

Sri Lanka: Amãna Takaful sustains profit momentum into 2013

May 17, 2013 (LBT) - Composite insurer Amãna Takaful PLC (ATPLC) posted modest growth in all aspects of the business in Q1 2013. Releasing their interim results, the company reported that consolidated Revenue of Rs. 463.4 million grew by 15% over Q1/2012 with profit before tax of Rs. 22.9 million, an increase of 55% in the same comparison.

Amidst many challenges, Non-Life business kept pace with the industry and grew by 10% to Rs. 357 million in which all classes delivered product-line profitability, notably Motor. Prudent and speedy management of motor claims and its supply chain continue to impact positively among all stakeholders. Consequently the combined ratio too improved substantially to 86% from 98% a year ago.

Gross Written Premium of the Life segment improved significantly to Rs. 105.8 million or 34% over the corresponding period in 2012, over-performing industry growth performance of 7% (Source IASL). New Business performance on Regular products and Prosper - the Wealth Management offer, took a major share of this increase.

Lacklustre performance in the white-listed equities coupled with volatility in bullion virtually halved investment income to Rs. 22 million compared to the corresponding quarter in 2012. Importantly, a 46% improvement in the Under-writing result at Rs. 134.7 million helped to mitigate the under-performance in investment income.

“The start to 2013 was extremely volatile and highly charged due to un-warranted and extraneous influences that adversely impacted our client base and trading partners. This was exacerbated by intense price cutting. Nonetheless, we stayed the course and weathered the storm, growing on par with industry while defending our market share,” said CEO Fazal Ghaffoor, commenting on the first quarter performance.

“It is heartening that our strategy to deliver sustainable growth in our people’s performance, our quest for a balanced portfolio and real achievements on the productivity front while delivering real value to our customers, is well on track to achieve the desired outcomes,” he concluded. 

Meanwhile, Amãna Takaful Group, which also includes Amãna Takaful Maldives reported first Quarter profit of Rs. 41.3 million. “The Groups first quarter results are a good start to the year, despite the challenging trading environment more particularly here at home. The operation in the Maldives is progressing steadily on all fronts”, commented Chairman Tyeab Akbarally. “While great and real opportunities are yet to be fully optimised with prudent risk management and innovative product offers in our pipeline, I remain optimistic of our growth momentum. For sure, the industry has to get its act together in responsible tariff management practices” the Chairman concluded.

The company’s re-fashioned strategic route map to build sustainable balanced growth and profits has begun to deliver results. The plan took flight last year and reached grass root levels in the organisation together with the establishment of new branches, refurbishment of existing locations and leveraging information communication technology to boost service at customer touch-points. One of a few ISO certified insurance operators in Sri Lanka, Amãna Takaful now operates in 22 locations with plans of expanding its footprint further. ATPLC also operates three key strategic business units that specialise in Life, General and Medical Takaful, which is unique in its approach to serve the respective developing customer segments. Furthermore, by keeping to its tenet of mutuality, the company also offers financial protection through the Takaful concept to the needy of the Sri Lankan populace by providing Navodhaya - ATPLC’s Micro-Takaful (insurance) solution. 

The current Board of Amãna Takaful PLC includes, Tyeab Akbarally (Chairman), Ehsan Zaheed (Executive Director), Non-Executive Directors - Osman Kassim, Dr A. A. M. Haroon, Dr T. Senthilverl, Dr Ifthikar Ismail and Non-Executive Independent Directors M. H. M. Rafiq, Dato’ Fadzli Yusof, A. S. M. Muzzamil, Ali Sabry and, R. Gopinath.

(Lanka Business Today / 17 May 2013)

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Nigeria: 'Zakat Could Check Poverty'

Sokoto — Wealthy Muslims in the country have been reminded on the need to always ensure they carry out the religious duty of paying the compulsory Zakat to the poor.

Chairman of the Sokoto State Zakat and Endowment Committee Alhaji Lawal Maidoki told newsmen in Sokoto at the weekend that regular payment of zakat could enhance socio-economic wellbeing of the downtrodden and check poverty in the society.

"The payment of zakat is compulsory upon any Muslim whose wealth in terms of cash, treasures, farm produce and livestock, among others has reached the prescribed amount and within a period of twelve consecutive months", he said. The chairman said Governor Aliyu Wamakko has given some livestock to the committee as part of his zakat for animals.

"This is the first time we received animals as zakat from any individual", he said. He described the gesture as highly encouraging and commendable".

He added that the governor is also the sole financier of the committee's activities and its district-level counterparts in the 63 districts of the 23 local governments of the state.

Maidoki called on wealthy people in the state to take a cue from this, saying refusal to pay zakat attracts negative consequences.

(Allafrica / 06 May 2013)

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

Turkey: Islamic banks continue raising funds

Turkey’s Islamic banks maintained their upward momentum in the first quarter of 2013, continuing a trend that began last year, according to an association of the lenders.

The Participation Banks Association of Turkey (TKKB) said Turkey’s four Islamic lenders, also known as participation banks, raised 53.1 billion Turkish Liras in funds in the first three months of the year, an 8 percent increase compared to the same period last year. The banks yielded 226 million liras in net profit in the first three months of the year. 

Islamic banks operate in compliance with Islamic financial rules which ban interest. Along with the rising presence of Islamic-compliant financial instruments in the global financial markets, Turkey’s Islamic banks benefited from decreasing confidence in regular lenders in the wake of the global crisis. 

“The share of participation banking overall banking sector fell to 1 percent in 2011. We raised it to 6 percent in 2012. Out growth is on the upturn,” Albaraka CEO Fahrettin Yahşi told Anatolia agency yesterday. Turkey’s four participation banks, Albaraka, Bank Asya, Kuveyt Türk and Türkiye Finans, have 836 branches among them across the country. 

(Daily News / 18 May 2013)

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UK's biggest Islamic bank eyes closer ties to Gulf

The Bank of London and The Middle East (BLME), Britain's largest standalone Islamic bank, is targeting 15 percent growth in assets this year, with plans for a Dubai office to help boost its capital markets and wealth management offerings.

BLME plans to have a presence in the emirate's offshore financial district later this year to attract regional business from countries such as Qatar and Saudi Arabia, chief executive Humphrey Percy told Reuters in an interview.

"Our Dubai office will help identify opportunities for club transactions, syndications and for our wealth management offering," Percy said.

There are no plans for seeking a full branch licence or a presence in other countries, he added.

BLME, which offers corporate banking and wealth management services, has carved a niche in middle-market transactions while benefiting from limited Gulf-based competitors and reduced activity from large British banking groups, he said.

The bank expects double-digit asset growth in coming years, with its balance sheet growing past 1 billion pounds ($1.6bn) by December 2012, up from 807 million pounds in 2011.

"We target 15 percent growth in assets this year, with ambitious targets from there onwards."

The bank was founded in 2006 with the backing of Kuwaiti investors, including Boubyan Bank, which held 21.8 percent of BLME shares as of December 2012.

The bank returned to profitbality in 2012, posting a net operating profit of 5.5 million pounds, after a 10.8 million loss in 2011.

Focus areas include healthcare, transportation and real estate, where BLME is further diversified across property development, investment holdings and residential financing.

"At this point in the cycle, real estate development is attractive and showing good results," he added.

The bank holds over $100m in assets under management across a range of Islamic funds, including a fixed income fund rated A by Moody's.

In October, Australian fund manager Crescent Wealth appointed BLME as the investment sub-adviser to its Islamic cash fund

(Arabian Business.Com / 17 May 2013)

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Muslim banking in Canada: A paradigm shift

It is likely that Islamic finance in Canada will increase in popularity given the number of potential households it could serve. It is also likely that as the regulatory framework for such institutions solidifies, more entrants into the market will help satiate the desire for economies of scale. Many emerging markets around the world with relatively large Muslim populations already have significant Islamic banking institutions. Needless to say, Islamic finance still remains a mystery to many in the Western world.

One of the fundamental tenets of banking is known as interest. There are several historical accounts of interest payments being made as far back as several centuries BC. Interest exists in two general types: a) a fee that is paid by a borrower of money; and b) a fee that is earned from the deposit of money. The difference between b) and a) is often referred to as "the spread." The spread is how most financial institutions make revenue. Take for example a bank that takes a deposit from a customer of $100 and pays that customer interest of 2 per cent or in this case $2 after a year's period. The bank will then take that same $100 and lend it out to a different customer who must pay borrower's interest of 5 per cent or $5. In this case, the bank has made a spread (or profit) of $3.

Islamic banks adhere to religious law — called "sharia" — which affects how they operate. Under sharia law, Muslims do not pay or receive interest. This practice is known as "riba" in Arabic. When gold currency was used for normal transactions, it was acceptable for a loan of 100 gold dinars to be paid back as 110 gold dinars because it was considered tangible value. However, when economies moved toward the use of fiat (or government regulated) money, the practice of riba was inconsistent with Islamic principles and therefore, not permitted. Riba is defined as surplus value without counterpart. This distinction between tangible (gold) and intangible (fiat) transactions is at the root of what makes Islamic banking unique.

If Islamic finance prohibits charging interest (riba), how do they function? Ensuring fair play is at the core of Islamic banking. As such, the principle of "risk-sharing" is a critical component. In essence, the Islamic bank becomes a business partner with the customer. For example, a car lease is appropriate because the bank has a stake in the ownership of the car. There are two principle financing arrangements offered to borrowers: murabaha (instalment sale) and ijara (redeemable lease). In the murabaha example, the bank buys the asset (e.g. large screen television) and then resells it to the customer at a higher price while the customer still uses it. In this case, the customer will have an instalment plan of those repayments. In the ijara example, the customer would use the asset (e.g. large screen television) over a number of years and at the end of the agreement pay cash to own it outright.

When it comes to deposit accounts, Islamic banks have a similar philosophy to credit unions. They will both share in the profits of the organization. The main difference in Islamic finance is that the profits that will be distributed are at a rate agreed to when the account is initially opened. As such, if the Islamic bank does not make any profit, the depositor will not receive any payment. This is an example of the risk-sharing principle outlined earlier.

Islamic finance is an interesting topic of study. There are courses now offered in business schools across the country including ours at DeGroote. A handful of Islamic credit unions are popping up across Canada, although some have struggled to survive. A well-regulated and beneficial Islamic financial infrastructure is indeed possible, and most importantly, necessary for long-term viability in Canada.

Nick Bontis is a professional speaker, management consultant, business adviser, McMaster University professor and author.

(Thespec.Com / 17 May 2013)

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