MENA SMEs Turn To Islamic Financing For Funding

Around 35 per cent of SMEs in the MENA region are excluded from the formal banking sector because they are seeking shariah compliant products that are not readily available in the market, according to a new study by International Finance Corporation (IFC).

The study, which was carried out across nine countries, found a potential market gap of up to $13.2 billion for SME Islamic financing in the region.

Despite the rising demand for Islamic financing among SMEs, the study reported a gap in Shariah complaint offerings among regional lenders. Of the 36 per cent of banks in the MENA region that offer SME products, only 17 per cent offer Islamic options.

The study also noted a significant variation across countries; demand for Islamic banking is as high as 90 per cent in Saudi Arabia while falling low as four per cent in Lebanon.

A high level of risk aversion by banks, poor regulatory environments, differing perceptions of Islamic finance, and a lack of relevant products were found to be hindering the growth of Islamic SME banking.

“The Islamic banking industry is not adopting measures that would grow the market. They don’t have a strategic outlook and there is a lack of product innovation,” added Attiq ur Rehman, partner, Israa Capital.

The study was carried out in Iraq, Pakistan, Yemen, the Kingdom of Saudi Arabia, Egypt, Lebanon, Morocco, Tunisia and Jordan.

But figures are not widely different in other GCC countries, experts noted.

“What we see in Saudi will be applicable to the rest of the GCC region as markets are very similar in that sense,” said Mouayed Makhlouf, regional director for IFC, MENA.

“But more importantly, the study reveals a significant, untapped ‘new to bank’ funding opportunity, as banks and other financial institutions lack adequate strategic focus on this segment to offer Shariah-compliant products. It also highlights the measures they need to take to overcome this.”

The Islamic banking industry is expected to develop significantly over the next few years.

“Islamic banking has a compound annual growth rate of 15 per cent whereas conventional banking in these countries is not more than seven per cent,” said Rehman.

“Islamic banking grew even during the crisis period of 2008 to 2010 when conventional banking slowed. It maintained that growth pattern after that as it saw a phenomenal growth in 2013.”

Rehman attributed the growth in Islamic finance in the region to lower non-performing ratio (NPR) of loans compared to conventional banking.

“The reason is that there are real transaction and people’s tendency to default is low because willful defaulters are less in Islamic banking as compared to conventional banking,” he said.

Fuelled by economic growth in core Islamic financial markets, global Islamic banking assets are set to exceed $3.4 trillion by 2018 according to a report released earlier this year by Ernst & Young (EY).

EY’s Global Islamic Banking Centre said the combined profits of Islamic banks broke the $10 billion mark for the first time at the end of 2013.

(Gulf Business / 14 June 2014)

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CIMB to jointly arrange £200 mil UK sukuk

CIMB Group Bhd is among five international banks that has been mandated to arrange the British government’s £200 million (RM1.08 billion) sovereign sukuk, the first to be issued by a Western government.

The sukuk, which according to Her Majesty’s Treasury website will be issued “in the coming weeks”, will have a tenure of five years and use the Al-Ijara structure.

It will be underpinned by rental income from three central government office properties, which will remain in government ownership during the lifetime of the sukuk.

The website also announced the appointment of CIMB as part of a syndicate of five banks (that has been mandated to arrange the deal .

The other banks are HSBC, Barwa Bank (Qatar), National Bank of Abu Dhabi (UAE) and Standard Chartered.

The British government first toyed with the sovereign sukuk idea six years ago but was pushed to shelve the plan because the issuance was deemed “too expensive” for the government to structure then.

Prime Minister David Cameron, however, announced last year plans to make London the primary leading hub for Islamic finance in Europe as well as the world, alongside Kuala Lumpur and Dubai.

Issuance of a sovereign sukuk will underscore this goal.

Malaysia has recorded spectacular growth on the sukuk front with a 69 per cent share totalling US$82.4 billion (RM271 billion) of total world issuance as at end-2013, according to a report published by the Malaysia International Islamic Financial Centre (MIFC) in January.

CIMB, through CIMB Islamic Bank Bhd, is also one of the country’s strongest sukuk players with deals encompassing Projek Lebuhraya Usahasama Bhd’s sukuk programme of RM11 billion, Khazanah Nasional Bhd’s 300 million yuan (RM155.65 million) trust certificates due this year and Petroliam Nasional Bhd’s US$4.5 billion (RM14.4 billion) trust certificates.

In an interview with Business Times late last year, CIMB Islamic deputy chief executive officer Mohamad Safri Shahul Hamid had shared his enthusiasm in the wake of the British sovereign sukuk announcement.

“Britain is an economic powerhouse, it is one part of the G-20 countries, and to have a sukuk being issued out of a G-20 country is definitely a step in the right direction for Islamic finance. The sector is definitely booming, but now we have the support of London, the default European Islamic finance centre, to help us expand our wings,” he said, noting that spillover effects of the sukuk will be tremendous.

he sukuk will diversify the asset class of syariah-compliant asset management. This is the first time a pound sterling sukuk has been in the market and it will definitely provide more opportunities for all parties involved, including the issuer, in this case the British government, and the potential investors.

(Malaysia Hronicle / 14 June 2014)

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Islamic finance challenges to be tackled in global conference

Leaders of the global Islamic finance industry will be in Singapore this week to discuss the many challenges that remain for the Islamic banking sector. Experts said however, that there was no sign of a slowdown in the sector. Islamic finance stakeholders will be attending the 5th annual World Islamic Banking Conference: Asia Summit (WIBC Asia), which is hoping to tackle, among other things, the different ways to build cross-border connections to sustain the industries' momentum. CIMB Islamic CEO Badlisyah Abdul Ghani said there was a need for the industry to build international linkages in order to accelerate its development. Islamic Bank of Asia CEO Toby O'Connor said the industry needed to develop new financial products and services in order to cater to evolving needs of customers.

(Asia First / 02 June 2014)

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UK mandates banks for maiden sovereign sukuk 'in coming weeks'

The British government has mandated banks to arrange a five-year 200 million pound sukuk - the world's first Islamic bond to be issued by a Western sovereign.

The Islamic bond could be issued in the coming weeks, subject to market conditions, The Treasury said in a statement late on Thursday.

The roadshow will start on June 17 in Jeddah and Kuala Lumpur, then moving to Riyadh, Dubai, Doha, and Abu Dhabi, ending in London on June 20, lead banks said.

A sovereign sukuk is the centrepiece of Prime Minister David Cameron's bid to position London as a leading hub for Islamic finance, as competition heats up with financial centres in the Middle East and Asia.

The bond would be issued before similar transactions planned by Luxembourg, Hong Kong and South Africa, all keen to diversify their funding sources and tap liquidity provided by increasingly wealthy Islamic investors.

In January, Britain appointed HSBC (HSBA.L) to arrange the deal and it has now added four more banks to the syndicate: Qatar's Barwa Bank, Malaysia's CIMB (CIMB.KL), National Bank of Abu Dhabi (NBAD.AD) and Standard Chartered [STANB.UL].

The sukuk will use an ijara structure, a sharia-compliant sale and lease-back contract, allowing the rental income of three central government offices to underpin the transaction.

In an ijara sukuk, a party leases equipment, buildings or other facilities to a client for an agreed rental price - a popular format among both sovereign and corporate issuers.

Britain has six full-fledged Islamic banks and over 20 institutions in the country that offer sharia-compliant financial services, which follow religious principles such as a ban on interest and gambling.

A sovereign sukuk could help Britain's Islamic banks to help manage their short-term liquidity needs.

In March, The Bank of England said it was studying ways to increase the number of sharia-compliant assets that Islamic banks can use in their liquidity buffers, a step towards reducing concentration risks in the sector.

Britain considered a sovereign sukuk six years ago, but that issuance never materialised as the Debt Management Office decided the structure was too expensive at the time.

(Reuters / 13 June 2014)

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Malaysia Seeks To Pioneer Islamic Wealth Management

KUALA LUMPUR, June 11 (Bernama) -- Malaysia hopes to be the first in the world to introduce Islamic wealth management, and champion the new product under the Islamic financial system, said Finance Deputy Minister Datuk Ahmad Maslan.

He said Islamic wealth management is an exciting and promising sub-sector of the financial services industry.

"We understand the concept of wealth management from the Shariah perspectives that covers both the physical as well as spiritual facets of wealth.

"This principle stands in contrast to the conventional wealth management that focuses on only the physical or material wealth," he told reporters after officiating a conference on Islamic Wealth Management, here Wednesday.

He said having already established itself as a global leader in Islamic finance, Malaysia today is the world's third largest market for shariah assets, namely, Islamic banking products and services, sukuk and takaful.

Ahmad said to further Malaysia's aspiration of becoming a centre of intellectual excellence in Islamic finance, the government is stepping up measures to that end.

"Several human capital development institutions, including the International Shariah Research Academy for Islamic Finance (ISRA), International Centre for Education in Islamic Finance (INCEIF), Islamic Banking and Finance Institute of Malaysia (IBFIM) and the Asian Institute of Finance (AIF) have been established to crystallise the aspiration.

"I foresee Islamic wealth management as a natural next-stage development of the local Islamic finance industry with the availability of our infrastructure, in respect of the human capital development to the Islamic financial institutions and expertise we have before us today, " he added.

The two-day conference, organised by the Malaysian Financial Planning Council and Labuan International Business and Financial, serves as a platform for networking and exchange of thoughts and outlook about the inner workings of the Islamic financial industry.

More than 300 delegates involving policy makers, research institutes, government agencies, practitioners and scholars are attending the conference.

(National News Agency Of Malaysia / 11 June 2014)
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Asia poised to become main driver of Islamic banking in near future

Asia presents huge developmental potential for Islamic finance and is likely to be the main driver of Islamic banking growth in the near future, given the untapped potential in India, Bangladesh and Indonesia, a report said.

Islamic finance can be utilised for greater integration of financial markets with the real economy and for improvement of the economic balance between emerging and frontier markets, according to Kuwait Finance House Group report.

Islamic banking is banking that is consistent with the principles of Sharia which prohibits acceptance of specific interest or fees for loans of money. Originally dominated by Islamic banking products and services, Islamic finance has expanded its offerings around the world to cover Shari, a compliant insurance and capital market (which include principally Islamic bonds and Islamic fund management).

Having thus grown across all component segments in Asia too, as at end-2013 the region's Islamic finance assets totalled about $391.2 billion, equalling 22% of Islamic finance assets worldwide, the report said.

Asia's Islamic finance asset composition is characteristically balanced — in particular, among Islamic banking and Islamic bonds sectors — with Islamic banking accounting to 49% of aggregate Islamic financial assets in Asia, followed by financial certificates (45%), Islamic funds (5%) and takaful (1%), a co-operative system of reimbursement in case of loss.

However, the report did not provide details of Islamic banking operations in countries like India, Bangladesh and Indonesia. Driving the industry in the region is Malaysia, the global leader in Islamic finance, particularly in areas of Islamic banking, bonds and funds, it said.

(The Financial Express / 13 June 2014)

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Islamic Finance: UK Government Launching £200m Sukuk

Britain will launch the world's first non-Muslim government sukuk – an Islamic bond – within weeks, said Chancellor George Osborne.

The £200m (€250m, $339m) issuance will have a five year maturity. It will make payments based on rental income from government-owned properties rather than interest. Making money from interest – usury – is forbidden in Islam.

"It is with these active steps that together we are making Britain the undisputed centre of the global financial system," said Osborne in a City of London speech.

Prime Minister David Cameron had revealed that work was in progress to create a UK sovereign sukuk in a speech at the World Islamic Forum in London during October 2013, the first time the event was held outside of a Muslim state.

A UK government sukuk is a part of its effort to become a Western hub for Islamic finance. Attracting more investment from Muslims across the world is a lucrative opportunity for the UK.

Much of the large infrastructure projects in the UK, such as The Shard, have been funded by wealthy Muslims.

As well as a sukuk, the government has worked to create a banking infrastructure that is more accommodating to Islamic finance. This includes Muslim-friendly mortgages and student loans.

(International Business Times / 13 June 2014)

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