Malaysia exports Islamic Finance Expertise to Drive Russian Islamic Finance Ambitions

A rising domestic Muslim population estimated at 17 million, as well as ambitions to tap alternative sources of investment and funding is driving a Russian push to develop its expertise in Islamic finance.

Recent developments include a draft law supported by Russian banks who lobbied the central bank on allowing Islamic finance institutions to enter the Russian market, as well as a recent agreement between Russia’s National Rating and the Islamic International Rating Agency to jointly rate sharia-compliant products.

To provide a further push Russia is looking to Malaysia to assist and build its knowledge and human capital within the sector. In February a delegation from Malaysia, consisting of representatives of the state corporation MATRADE, a subdivision of the Central Bank of Malaysia for development of Islamic finance IBFIM and one of the leading universities University Tun Adbul Razak visited Russia. The legal and economic environment in Russia was assessed, with a view for the development of a feasibility study for opening Islamic windows and launching Islamic banking products in the Russian Federation.

Kazan Federal University and University Tun Adbul Razak Sign Agreement

A more recent development has seen one of the oldest universities in Russia, the Kazan Federal University, located in Kazan, Tatarstan this week sign a Memorandum of Understanding with University Tun Adbul Razak to develop cooperation in the field of Islamic banking law.

A delegation from Malaysia visited several Kazan Federal University units including the Institute of Management, Economics and Finance, and the Faculty of Law.

Malaysia Exports Islamic Finance Expertise

Malaysia has developed considerable expertise in Islamic finance being a pioneer in modern Islamic Banking boasting the world’s biggest sukuk market. It is looking to export its Islamic finance expertise and its banks have successfully assisted in Singapore and the Hong Kong government to issue sukuk.

A planned 2011 sukuk issuance by the Tatarstan Republic was postponed due to “technical difficulties” Bloomberg reported in 2014, and Vnesheconombank, Russia’s state development bank, is seeking advice from lenders in the Middle East on how to sell its first Islamic bonds, the RIA Novosti state-news service reported Dec. 16.

Malaysia was instrumental in the first sovereign Sukuk in the Russian Commonwealth with the issuance in 2012 of the Development Bank of Kazakhstan sukuk for 240 Million Malaysian Ringgit, which was issued in Malaysia.

(Islamic Finance.Com / 16 April 2015)

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Malaysia: MBSB priority to become full-fledged Islamic bank in 5 years

KUALA LUMPUR: The priority for Malaysia Building Society Bhd (MBSB) in the near term is to continue to close its gap in becoming a full-fledged Islamic bank – something it aspires to achieve in the next five years.

The move from being a non-conventional bank to an Islamic bank is to prepare itself for any potential corporate exercise.

“Any form of corporate exercise of a financial institution will require Bank Negara’s blessing but this is something in the future,” MBSB chief executive officer Datuk Ahmad Zaini Othman told reporters after its AGM yesterday.

He said that any possible merger would require the Employees Provident Fund’s (EPF) approval and laborious study by the board.

Asked if the company was in talks with any other banks to achieve the goal, he said: “Not at this stage.”

But this was up to the major shareholders to push to the regulators should there be something that they thought was worthwhile, he said.

Asked whether MBSB would be merging with an Islamic bank, he said: “It would be, logically.”

It has been previously speculated that Bank Islam Malaysia Bhd was an ideal merger candidate for MBSB that was supposed to be turned into a mega-Islamic bank under a merger exercise that also involved CIMB Group and RHB Capital Bhd.

Currently, about 80% of MBSB’s assets are Islamic assets.

In terms of timeline, Zaini hinted that it could happen this year or next but pointed out that the critical part was to close its gap to being a full-fledged bank that met the regulators’ requirements.

MBSB would align its operations, processes and systems in line with the regulatory framework of the central bank, he said.

“Then, the timeline will just fall in place,” he said.

Zaini also said that becoming an Islamic Bank was part of its business plan.

For the past two years, measures and processes had been put in place so that it ran like a bank, he said.

“It’s a must. If you look at the business environment, we need to transform to move to that new environment,” he said.

Zaini said MBSB had wanted to start the five-year plan earlier but the mega bank merger which involved CIMB Group and RHB Capital proposed in June last year made the management put the the plan on hold. The mega merger was called off in January this year.

He also said the capital requirement for it to move towards that vision had been there.

On whether it would apply for a new banking licence, he said yes, but noted that it would be a longer journey and that there would be more pressure on its major shareholder to get the required capital.

Looking ahead, it aims to grow its loans from 3% last year to between 7% and 8% this year.

Its focus would be on quality loan growth rather from a pure number perspective.

“Last year was a unique year… we were distracted by eight months of hibernation,” he said, referring to the mega deal.

Now, it will “re-activate” its original business plan.

Among the improvements it’s looking at include its continual effort to reduce its non-performing loans to below 3%. It also targets to grow its corporate segment from 12% to 20%.

The shift to emphasise on business financing is to mitigate the decline of its personal financing segment, which has been its bread and butter.

Going forward, it would streamline its resources and could embark on a rightsizing programme involving about 10% of its 1,500-strong workforce.

(The Star Online / 16 April 2015)

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QIIB and QNB Capital in deal to promote Islamic finance in China

QIIB and QNB Capital have joined hands with Southwest Securities (SWSC) to promote Islamic financing and investments in China.

Chinese brokerage Southwest Securities is based in Chongqing, one of the five “listed central cities” in China. Southwest Securities is also Chongqing’s first listed financial institution.

The agreement was signed yesterday in Doha on the sidelines of an event held to formally open the Middle East’s first centre for clearing transactions in the Chinese yuan. QIIB chief executive officer Abdulbasit A al-Shaibei told Gulf Times yesterday the “partnership would help create a framework for Islamic financing” in China. 

Besides helping Southwest Securities to access investor markets in Qatar and the Middle East, the agreement also aims to open the Chinese market for both QIIB and QNB Capital. 

“We are looking to access the Chinese market for financing and investments, either directly or indirectly,” al-Shaibei said. 

He said the agreement was the first one of its kind in both China and Qatar.

Al-Shaibei said there was a “clear appetite” for Islamic financial instruments in China. “Chongqing is among the five top Chinese cities and they are looking to promote Islamic banking not just in the other provinces in China, but beyond their borders to surrounding Asian countries,” he said.

Al-Shaibei said an agreement between the two countries called for Qatari banks’ presence in China.

“As HE the QCB Governor Sheikh Abdulla bin Saud al-Thani mentioned today (Tuesday), the agreement encouraged Qatari banks to have a presence in China.”

He said it was part of “QIIB’s vision to invest in China”.

“We have clearly seen from the Chinese side an interest for Islamic instruments. China is a huge economy and their neighbouring countries in Asia have a huge population of Muslims. Clearly, there are prospects for developing Islamic financing in China and the surrounding countries,” he said. 

“Through this agreement, QIIB and QNB Capital will work together with SWSC to reach the targeted goals and support Chongqing in the development of its economic blueprint to develop Islamic financial instruments,” al-Shaibei said. 

The agreement, the QIIB chief executive officer said, was “open and not time-bound.”

A Reuters dispatch said currently there was very little Islamic finance activity in China, but the country’s population of Muslims was estimated at more than 20mn. The agency said some bankers saw room for the Islamic finance industry to develop in China.

China’s AVIC Capital Co said in late December that its unit AVIC Securities had signed an agreement to advise the government of the country’s Ningxia Hui Autonomous Region, which has a large population of Muslims, on the global issue of up to $1.5bn worth of instruments such as Islamic bonds and US dollar bonds, with maturities of up to five years. Since then, no concrete progress towards an issue has been announced. 

(Gulf Times / 14 April 2015)

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MBSB plans RM900mil covered sukuk issuance

KUALA LUMPUR: Malaysia Building Society Bhd (MBSB) plans its third issuance of covered sukuk worth RM900mil, according to a regulatory filing by credit rating agency RAM Ratings Bhd.

Covered sukuk are rare in Islamic finance but work in much the same way as conventional covered bonds, where investors are entitled to claims not only on the issuer but also on assets backing the structure, giving them two layers of security.

MBSB has raised a combined RM1.2bil worth of covered sukuk in the past two years, under a RM3bil programme.

The third tranche has a tenor of 10 years and has been assigned a preliminary rating of AA1 by RAM Ratings.

The transaction uses a portfolio of personal-financing receivables, which have a weighted-average tenor of 13 years, to provide the additional security.

MBSB was part of a proposed three-way merger of Malaysian lenders, which was called off in January.

It is aiming to double its corporate loan book by 2020 and has plans to convert itself into a full-fledged Islamic lender.

(The Star Online / 14 April 2015)

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

Zakat takes the spotlight

Although it predated official development assistance, zakat — the Muslim practice of social giving and one of the pillars of Quran — has only gotten ample attention lately. And it has much to do with the need to find new sources of financing for humanitarian aid and development.

Zakat is equivalent to 2.5 percent of a Muslim’s wealth; this goes to certain categories of people, including the needy, the poor and those in debt.

The role of zakat in financing humanitarian action has taken the spotlight ahead of the World Humanitarian Summit, which is slated for 2016. It’s in fact one of the areas the WHS secretariat is “studying in more detail” and discussing with a range of stakeholders, its chief, Jemilah Mahmood, noted in a gathering in London.

“I wouldn't be at all surprised to see it in the 2016 recommendations,” Chloe Stirk, program adviser for the Global Humanitarian Assistance program of Development Initiatives, told Devex.

Magnitude of zakat

Stirk authored a recently launched report exploring the magnitude of zakat. Actual numbers on the global volume of zakat can’t be determined but it’s estimated to be in the tens of billions of dollars per year.

“One big takeaway for me is the scope and potential of zakat as a resource, and yet despite it's clearly huge potential, there’s a lack of really credible evidence or data on just how much is raised, collected and how it's being used and where it's being used,” Stirk said.

Stirk and her team were however able to get figures from Indonesia, Malaysia, Qatar, Saudi Arabia and Yemen — where 17 percent of the world’s Muslim population resides — and funds raised through zakat from these countries currently total $5.7 billion each year.

In these countries, the state collects and distributes zakat, and it gets paid for administering the funds. In cases where neither the state nor a governing entity administers zakat, Muslims can choose who to hand funds to, like nonprofits such as the Islamic Relief Worldwide.

(Devex / 10 April 2015)

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Oman: Bank Nizwa chief executive highlights Islamic banking potential

Bank Nizwa participated in the College of Banking and Financial Studies (CBFS) Symposium, discussing the emerging challenges and future growth of the Islamic banking industry in the Sultanate.

In addition to sitting on a panel discussion on the 'Prospects and Challenges Facing Islamic Banking in Oman', the CEO of Bank Nizwa, Dr Jamil El Jaroudi, delivered the sole presentation of the symposium shedding light on the journey of Islamic banking to date in Oman, its current status and future projections. 

Addressing government policy makers, research scholars, industry professionals and students, El Jaroudi said, "Islamic banking saw  33 per cent and 27 per cent in financing and deposits respectively in 2014 incremental increase of the entire banking sector."

"In order to maintain this momentum, we need to focus on overcoming both internal and industry challenges, including constraints in liquidity management, the lack of standardisation in products and services, the availability of qualified professionals, as well as the limitations posed by the relatively low levels of customer awareness on Islamic banking and the added-value it brings to individuals, local communities and the national economy," he added.

Explaining the banking landscape in Oman, El Jaroudi highlighted the competitive edge that conventional banks enjoy in comparison to Islamic banks, given their well-established networks, brand visibility and operational scales of efficiency.

He further outlined how these propositions support the operations and growth of Islamic windows as they leverage on the existing customer base and infrastructure of their parent organisation; while fully-fledged Islamic banks require time to build their network and promote their products, services and name. 

As of December 2014, the market in Oman includes two full-fledged Islamic banks and six Islamic windows of conventional banks, with a network of 46 branches in total. In light of the recent formation of the High Sharia Supervisory Authority, Dr El Jaroudi highlighted four key areas to consider in order to inspire organic growth within the industry, including products, people, market place and the regulatory environment. 

According to El Jaroudi, the first area focuses on the introduction of products that can compete with their conventional counterparts, such as equity financing, liquidity management and Sukuk. As for people, this area is centred on attracting qualified and experienced professionals and retaining them.

He characterised the market place, as a catalyst for attracting investors to utilise Islamic banking products and services to sustainably grow their businesses. As for the regulatory environment, it emphasises the need to have common ground between Sharia and civil regulations in order to achieve the industry's long-term goals.

Joining Dr El Jaroudi in representing Bank Nizwa during the symposium was Dr Ashraf Al Nabhani, General Manager Corporate Support, who took part in a panel discussion entitled 'Impact of Islamic Finance on Economic Growth'.

The panel also featured Prof. Abbas Mirakhor, a distinguished scholar who is the First Holder of the International Centre for Education in Islamic Finance (INCEIF) Chair of Islamic Finance.

Based in Malaysia, INCEIF is the only university globally dedicated to offering academic and professional qualifications in Islamic finance.

Bank Nizwa's participation in the symposium came as part of its ongoing strategy to continue raising awareness on Islamic banking across the Sultanate. The Bank has been collaborating with CBFS, supporting its program in Islamic banking through workshops for first year students, introducing them to the industry, its impact on the economy and most importantly highlighting available career opportunities.

(Times Of Oman / 13 April 2015)

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New liquidity initiatives benefit Bahrain, UAE Islamic banks

Dubai: The recent launch of one-week Sharia-compliant contracts with the central bank will benefit Bahrain’s Islamic banks because they broaden the range of options available for short-term liquidity management, said Bashar Al Natoor, Global Head of Islamic Finance at Fitch Ratings.

In a recent move the UAE Central Bank started accepting a wide range of sukuk as collateral for banks to access its special lending facility from April 1, 2015. “This will help the UAE’s Islamic banks, which often hold these securities,” said Al Natoor.

Bahrain’s one-week facility is based on a wakalah contract, where the regulator invests cash on behalf of the lender.

Most Islamic Bank liquidity management instruments consist of low-profitability assets, such as cash and central bank deposits. Sukuks are primarily offered as over-the-counter instruments and only a limited amount of them are listed on developed and liquid exchanges.

It is widely expected that the implementation of Basel III and its new liquidity coverage ratio LCR will increase offerings of liquidity management instruments while issuers are likely to list more of their sukuk on exchanges and that some regulators will start to accept sukuk as collateral for liquidity provisions.

Bahrain and UAE-based Islamic banks have so far held excess liquidity either in cash or monthly offerings of central bank sukuk, with maturities between three and six months. This placed them at a disadvantage to conventional banks, which have a wide range of interest-earning liquidity management options available.

“Efforts to develop Sharia-compliant liquidity tools are picking up in several Gulf countries, notably Oman. These tools will be important for Islamic banks to boost their competitive positions, all the more so as the pace of growth in Islamic financial services is outstripping conventional banking growth in the region,” said Al Natoor.

Islamic finance is set to expand as large numbers of relatively under-banked Muslims seek banking services in line with economic development in their home countries, and some countries with large Muslim populations seek to invest their wealth in Sharia-compliant instruments.

The UAE’s Islamic banking assets total $100 billion, the fourth-biggest in the world after Iran, Malaysia and Saudi Arabia, according to Dubai government data. Bahrain has $43 billion. In the UAE, the central bank has expanded the list of eligible collateral for its Sharia-compliant overnight facility to include assets other than the regulator’s Islamic certificates of deposit.

“Regulatory and tax limitations could hold back the development of Islamic banking, as could a lack of workable tools that accommodate Sharia rules. Bahrain and the UAE’s introduction of new liquidity management tools marks a small but important step towards overcoming some of these challenges,” he said.

(Gulf News Banking / 13 April 2015)

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