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Saturday, November 30, 2013

Technology Aids Sharia Compliance for Islamic Finance's Rise

Islamic finance is the fastest growing segment of the global financial system. With an increasing Muslim population and a reputation for being more resilient to crisis than conventional finance, the Islamic financial sector is now facing great demand worldwide for schemes and products responding to the criteria set by Islamic laws, or Sharia. By Marina Daras
After the global financial crisis, some western investors sought restricted exposure to the types of assets that brought the world's economy to its knees. And more crucially, the number of Muslim investors requiring that their investment activities comply with the Islamic moral code, known as Sharia, is growing. These factors have brought about an increase in Islamic banking activity, and have drawn attention to the Islamic finance sector. This rise in prominence has left an opening for technology vendors looking to gain a foothold in a niche market with unique requirements and restrictions.
Sharia mandates that losses and profits be shared by both parties; receipt or payment of interest is not allowed; and the practices of short-selling, gambling, and taking risky, speculative, or uncertain positions ─ known as Gharar in Islamic laws ─ are formally forbidden. Islamic finance is generally considered to represent an ethical system, but means most derivative contracts are considered invalid because of the uncertainty involved in the future delivery of the underlying asset.
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Sharia mandates that losses and profits be shared by both parties; receipt or payment of interest is not allowed; and the practices of short-selling, gambling, and taking risky, speculative, or uncertain positions ─ known as Gharar in Islamic laws ─ are formally forbidden.
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The Islamic financial sector is still considered a relatively new and underdeveloped part of the global capital markets, which could be an advantage, if it means firms practicing Islamic finance can develop more reliable trading systems by only adopting the best-of-breed technology already tried and tested by the traditional markets.
Its growth cannot be understated: The sector had an estimated $1.6 trillion under management as of the end of 2012, and will have a forecasted $6.5 trillion under management by the end of 2020, according to a report by the Kuwait Finance House entitled Overview of the Islamic Financial Landscape. To ensure the industry has the scalability to meet this demand, while staying in line with the ethical standards of Sharia, specialized, cutting-edge technology is needed that can decipher the complexity of the market structure, and monitor and manage business and reputational risks in a restricted but fast-evolving environment.
The first challenge in Islamic finance is Sharia compliance. This means being able to trace and monitor, on an historical and a real-time basis, the entire trade lifecycle, as well as the compliance of every third party involved in the process. Before electronic trading, when bankers knew their customers and counterparties personally, this wasn't difficult. But as trading activity has migrated to computers and gone global, this has become impossible.
In order to respect ethical restrictions ─ meaning no investments in business involving gambling, alcohol, pornography, and non-halal products ─ asset managers must rely on analytics to delve into huge volumes of trading-related data. Sayd Farook, global head of Islamic capital markets at Thomson Reuters, explains that aside from covering the basics that asset or fund managers in all markets have to go through, there is a layer of additional due diligence to ensure the Sharia compliance of an investment.
"To search and collect all the data you need in order to assess the compliance of each investment instrument represents a lot of work, time, and money," Farook says. "And the process is different for each asset class. So the challenge for technology providers is to facilitate a platform that can understand this process and provide all the information within that same platform."
Taking advantage of this rise in popularity, in 2010 Thomson Reuters launched its Islamic Finance Gateway, a global platform and directory that aggregates news and information for Islamic finance participants. Reuters Messaging is embedded within the platform to facilitate communication among users.
In 2011, Bloomberg debuted its ISLM platform, designed to provide analytics tools such as real-time pricing data, historical data and graphics. It aims to maximize investment performance and manage the Sharia compliance cycle. It also contains databases of publicly listed and Sharia compliant securities, Islamic financial professionals, Sharia scholars, and the products they have endorsed as compliant.
"As the market began to grow, Bloomberg recognized the need for a comprehensive platform that provides in-depth data, transparency, and gives users the ability to customize data across countries and asset classes," says Kamel Hajri, business manager for Islamic finance at Bloomberg.
Despite a push from regulators and central banks in South East Asia and the Middle East to implement harmonized standards on a global scale, the Islamic market is still fragmented. A board of scholars, experts on Islamic laws, determines the interpretation of Sharia and is responsible for endorsing (or not) partnerships with companies when they launch new products. As each financial institution has its own Sharia board, standards can vary from one region to another, from one country to another, and even from one bank to another within the same country, depending on the origins of the scholars, their personal and collective interpretation of Sharia, and the bank's strategy.
This fragmented nature of Islamic finance makes it difficult to evolve beyond local markets. But according to Hajri, technology can help iron out those discrepancies by building the necessary filters to adopt the different conventions and terminologies.
An Educational Purpose
Path Solutions, a technology provider to the global financial industry with a specific focus on Islamic finance, has been around for more than 20 years. Reflecting on the industry and the challenges facing technology providers, Jacob Zachariah, executive vice president of operations and global support for the iMAL platform at Path, says that the vendor's clients are not always fully aware of all the concepts and challenges Islamic finance can bring. "We also give them full support during and after the implementation, to make sure they have the right foundation in place to start their business," Zachariah says.
As most participants come from a conventional finance background having studied or started their career within the industry, it is important for them to be able to collect and analyze data to better inform themselves about the specifics of the instruments' structure and be comfortable with the investment decisions they make.
Implementing a standardized terminology describing Sharia-specific financial instruments and practices is one thing, but as the market develops across borders, firms also need highly flexible systems that can cater to all changes within countries and regions, but also within conventional and Islamic business.
Geneva-headquartered banking solutions provider Temenos has developed its T24 banking platform to suit the requirements of Islamic banking, within a single core banking software system that handles Islamic financial services in tandem with non-Islamic ones. Fadi Yazbeck, product manager of the Islamic banking sector at Temenos, explains that the vendor's strategy is to offer a flexible system to handle all types of variations and future growth strategies, both in terms of assets and geographies. "We allow high levels of flexibility within the T24 system so that it can suit any bank's requirements and can be implemented in Europe, the Middle East, Africa, or even Asia and Pakistan, which all follow different schools of culture, apply different rules of Islamic finance, and offer different products. It all depends on the flexibility and the level of parameterization you offer around your product," he says.
As Waters' editor-in-chief Victor Anderson wrote in August, technology firms' images and their reputations play an integral role in their healthy functioning. Due to the ethical and religious aspects of Islamic finance, it is even more important for firms to mitigate various risks and preserve their reputations if they want to attract clients.
The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), a Bahrain-based regulator, has teamed up with professional services provider Ernst and Young to help technology vendors negotiate the compliance minefield of Islamic finance. The partnership allows them to issue certification of financial software products and core banking systems for the Islamic banking industry.
"The AAIOFI provides the Sharia review process, while Ernst and Young goes into the technical details," says Majd Bakir, financial analyst at the AAIOFI. "Banking and financial information technology vendors can utilize this program to properly incorporate AAOIFI standards in their products and systems. Technically, by securing an AAOIFI-certified status, IT systems in Islamic financial institutions can boost their operations and mitigate risks of Sharia non-compliance."
According to Bakir, there is a lot of pressure on vendors to stay on the right track from a Sharia perspective, as their customers are concerned about their reputation. "The aims behind offering a certification are to bring some standardization across the industry and to harmonize the practices within the third-party technology vendor industry," he says.
The certification process is lengthy and subject to ongoing review, so vendors don't always renew their certification, as is the case for Path Solutions' IMAL. Instead, Path's product management team monitors all the market requirements and Sharia-compliance issues to ensure they can address those stipulated by central banks and other regional regulatory bodies. "The product management team is responsible for analyzing clients' specific needs and requirements to make sure the system answers their own business needs and is in accordance with the Sharia laws," says Zachariah.
Mitigating Risks
The restrictions Islamic laws impose on the market are a double-edged sword: Although its risk-averse model has made the Islamic market a safe haven for investors, it is constrained to the extent that investors often experience "concentration exposure" to specific stocks in their portfolios, due to lack of diversification. "When it comes to investment banking or derivative products, there is no product specifically restricted in Islamic laws," says Yazbeck. On paper, the restrictions exist to ensure that there is no gambling, excessive risk, or non-halal investments, and that every investment is being made for hedging purposes, he explains.
But although it is aimed at reducing operational risks for the banks rather than restricting investment instruments, the practical result is different, and the Islamic market remains narrow and under-developed. As the market evolves, it will have to develop deeper liquidity to become a real force, and that process has already started. Islamic financial institutions are tiptoeing around trading activities, looking for a more diversified landscape in which to participate.
Following that trend, Bloomberg's ISLM platform has been working toward the delivery of trading tools to facilitate and assist firms with their growth. "Initially, we started by providing cross-asset-class data over a ticker, historical performance data and equity screening tools, as well as structured diagrams and fatwas mainly for Islamic bonds, or sukuk. Now, as the market keeps growing, we have to follow demand and move from offering basic information-driven functionality to providing trading tools," says Bloomberg's Hajri.
Thanks to its attractive structure that reduces risk and poor investments, the Islamic finance sector is playing catch-up with the more traditional markets. Developing the best data-driven technology system to ensure the ethics and principles of Sharia are respected while working on making it sustainable on a bigger scale, is a process already in place.
The next step for the Islamic market is to become more mainstream by growing its spectrum of investments and building competitive trading venues. Since UK prime minister David Cameron announced at World Islamic Economic Finance Forum in London the future issuance of a bond-like sukuk worth £200 million ($322 million), it seems to be on the right track.
Salient Points
  • As the Islamic financial industry continues to develop, it offers technology vendors an opportunity, as Islamic firms are dependent on data-collection and analysis tools for their trading activities.
  • The Islamic finance sector needs to work toward a more standardized and harmonized system before it can become a true global player. Having to cater to a fragmented market, IT systems need to be highly flexible and support parameterization within core banking solutions to allow firms to develop outside their traditional countries or regions.
  • To be competitive and sustainable, the market needs to work on the establishment of Sharia-compliant trading venues and trading instruments.

Waters Technology

Friday, November 29, 2013

Billion-peso halal hub to rise in Mindanao

KUALA Lumpur —The Halal International Chamber of Commerce and Industries of the Philippines Inc. (HICCIP) has unveiled plans to put up a billion-peso halal hub in Mindanao.
Halal Chamber President and Chief Executive Officer Ustadz Alexander Sultan said the chamber has joined the International Trade (Intrade) exhibition in Malaysia to source halal products and eventually set up a halal supermarket in the Philippines.
“Halal is a very clean food. Halal is a million-dollar industry in the Philippines and has potential for exports in the Asian and Middle East markets,” he said at Intrade exhibition held at Menara Matrade in Kuala Lumpur.
“The HICCIP plans to put up Halal Business Park in the Autonomous Region in Muslim Mindanao [ARMM], where we can have a halal supermarket and produce our own halal.… It’s going to be a halal zone,” he added.
“We want to help the economy through exports. We can have purely halal chicken that can be exported to other countries. We can export our halal products to the Middle East and the Organization of the Islamic Conference (OIC) because we are free from bird flu,” he added. The HICCIP’s member-companies are based in Baguio, Metro Manila, General Santos, Cebu and Marawi City.
They are looking for a 10-hectare land in the ARMM for the halal site, which entails about P1 billion in investments. HICCIP is just waiting for the approval of the National Commission on Muslim Filipino for its certification.
“Our application as halal-certifying body was approved in principle, and we hope to get the certification before the year ends,” he added.
HICCIP is promoting halal business and social service, as well as helping the country to grow tourist arrivals from Muslim countries.
“When tourists come in, they want to eat halal and, unfortunately, there’s only a few halal food in the Philippines,” he said.
Founded on March 16, 2013, HICCIP aims to promote the proliferation of halal entrepreneurship and industries through education and information campaign. The small and medium enterprises engaged in the distribution of halal products saw a growing interest of the Philippine market in  Malaysia’s halal food.
Anthony B. Rivera, Malaysia External Trade Development Corp. Philippines marketing manager, said several representatives from the Philippines have already been to Malaysia for the certification requirements in the development of halal food. 
“The relevant parties are also working hand in hand with Jakim for the halal-certification issue for the Philippines. Once all the conditions have been met and the goods are certified, Malaysia welcomes the entry of these in the market,” he added. 
Food is the fifth top export of Malaysia to the Philippines with a 21-percent share and total value of $212 million in 2012. 
On the other hand, food is the third top import of Malaysia from the Philippines with a share of 4 percent and total value of $92 million last year. 

Islamic finance can support growth

Zeti says the global regulatory reform agenda has placed significant focus on addressing elements of the regulatory and supervisory systems that allow the build-up of excessive leverage.
KUALA LUMPUR: Growth prospects of the world economy going forward is expected to remain modest for an extended time, said Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz.
With the global economy on the recovery path now, Islamic finance offered enormous potential in supporting more inclusive and sustainable economic growth, she said. “Developing and emerging economies in particular stand to reap the largest benefits from this potential,” she said at the Islamic Development Bank Prize Lectureheld in Jeddah yesterday.
Zeti said regulatory priorities in strengthening financial stability taking into consideration the specifics of Islamic finance would ensure its continued resilience and its potential to effectively service the functioning of economies and the economic wellbeing of societies.
“Several important lessons have emerged from this recent global financial crisis. The first relates to the exponential expansion of the financial system which did not commensurate with the expansion in economic activities.
“This has resulted in a significant disconnect between the financial sector and its role in serving the economy. A number of factors contributed to the weakening of the link between financial intermediation and productive economic activities,” she said.
In efforts to build stronger defences against a repeat of the events that precipitated the 2008 global financial crisis, Zeti said the global regulatory reform agenda had placed significant focus on addressing elements of the regulatory and supervisory systems that allowed the build-up of excessive leverage.
She said these elements included the unfettered innovation by financial institutions and the prevailing incentive system. “Financial engineering had led bankers and investors to lose focus on their risk exposures when they failed to understand the increasingly complex products that purported to reduce the risks.
“The weak regulatory regime and supervision also failed to rein in such unbridled innovation. Misaligned incentives then fuelled excessive risk-taking both at the institutional and individual levels,” she said.
Zeti said the global reform agenda had made important progress in efforts to reduce the fragility of the financial system and to strengthen its resilience.
She said substantial work had already been advanced and largely completed on the development of global liquidity standards, the adoption of leverage ratios, and the significantly strengthened capital regulations which were important components of the reform effort.
“Greater focus has also been placed on strong supervision, effective resolution regimes and arrangements for the oversight of systemically important financial institutions. While the effective implementation of these reforms is crucial, the world continues to seek more enduring solutions that will place financial institutions firmly back in the service of society,” she said. — Bernama
In some countries, she said, fundamental structural changes were being pursued to reduce the complexity of banking and to protect banking services from such higher risk-taking activities.
“The challenge, however, is how this might be achieved in a sustainable manner without undermining growth and development, and erasing the important efficiencies in financial management,” she added. — Bernama

More than 1,300 international Islamic finance leaders heading to WIBC

The 20th Anniversary special edition of the World Islamic Banking Conference (WIBC 2013), which is held under the patronage of HRH Prince Khalifa Bin Salman Al Khalifa, The Prime Minister of the Kingdom of Bahrain and supported by the Central Bank of Bahrainis scheduled to be held in Bahrain from the 3rd to the 5th of December 2013.
The annual World Islamic Banking Conference (WIBC), which over the last 2 decades has established its pre-eminent position as the world's largest and most influential annual gathering of global Islamic finance industry leaders, is set to gather industry pioneers, thought leaders, key regulators and leading industry players for discussions focused on transforming the industry to improve the stability, competitiveness and global growth of the international Islamic finance industry.
Confirming his participation at the event, H.E. Rasheed Mohammed Al Maraj, Governor of the Central Bank of Bahrain, noted that "the global Islamic finance industry has undoubtedly undergone significant change over the past two decades, playing an ever increasing role in the international financial system. The industry has also grown significantly in geographic coverage, now encompassing even more new jurisdictions and emerging markets as well as the deepening and mainstreaming of its footprint in its core markets. However, in order for Islamic finance to continue to be successful as well as robust and resilient across all phases of the economic cycle, a genuine transformation is now required in order to progress to the next level of development."
"The annual World Islamic Banking Conference has over the last two decades, played a key role in shaping the global Islamic financial industry providing a solid foundation for the industry leaders to chart the progressive growth of Islamic finance. As WIBC celebrates its 20th anniversary this year, it will be the most opportune platform for the industry leaders and key regulators to not only look back at the industry's achievements over the past two decades but also discuss new initiatives to further strengthen the industry foundations and set targets for the next two decades of continued growth and resilience. As the strategic partner of this prestigious event, the Central Bank of Bahrain would like to invite the industry leaders to the Kingdom of Bahrain and be a part of this special 20th anniversary edition of this unique global gathering," added the Governor.
Speaking to the media ahead of the event, David McLean, Chief Executive of the World Islamic Banking Conference said that "growing awareness of and demand for investing in accordance with Shari'ah principles on a global scale has been a major catalyst towards making Islamic financial services a flourishing industry with total assets now in excess of US$1.3 trillion. With the evolving life cycle of the Islamic finance industry, the business models and strategies, regulatory and supervisory frameworks, and legal structures must also evolve to ensure that further progress is achieved. For the last 2 decades, the World Islamic Banking Conference has been a significant platform for the global Islamic finance industry to converge and discuss the way forward, catering to the ever evolving needs of the industry. From a mere 120 pioneering delegates at its launch way back in 1994, the 20th Anniversary WIBC is set to continue its tradition of supporting growth, excellence and innovation in the industry - and is poised break new records in 2013 with more than 1,300 attendees from over 50 countries set to join over 100 high-profile speakers and 65 market-leading partners and sponsors for a very special and unique event that will celebrate the tremendous achievements made thus far and prepare the industry to forge ahead with more success in the years ahead. As the World Islamic Banking Conference now celebrates its 20th Anniversary, we are looking forward to hosting the leaders of the global industry at this important gathering to celebrate the success that our dynamic industry has achieved and also deliberate on what needs to be done to further strengthen its global growth".
The three day event will commence on the 3rd of December 2013 with a series of pragmatically focused pre-conference summits led by experienced and respected international industry standard-setting bodies and experts. The main WIBC 2013 conference, which begins on the 4th of December 2013, will be inaugurated by H.E. Rasheed Mohammed Al Maraj, Governor of the Central Bank of Bahrain . The inaugural address will be immediately followed by a special keynote address by H.E. Dr. Mohammad Y. Al-Hashel, Governor of the Central Bank of Kuwait.
This year's WIBC features the most impressive line-up of speakers in the conference's 20 years of history. Key highlights of WIBC 2013 include the interactive dialogue with H.E. Sheikh Saleh Abdullah Kamel, Chairman and Founder of Dallah Al Baraka Group; one of the genuine pioneers of the industry and widely acclaimed as the father of contemporary Islamic finance, who will share his perspectives of Islamic finance past, present and future during an onstage conversation with acclaimed media personality Turki Al Dakhil of Al Arabiya News Channel.
In addition, much attention will also be on the special guest address by Sir Howard Davies, Former Chairman, Financial Services Authority; Former Deputy Governor, Bank of England and Professor, Sciences Po, Paris. The keynote session featuring Sir Howard Davies will provide new insights on the future of banking regulation and its implications for Islamic financial institutions.
WIBC 2013 will also include a high profile Industry Leaders' Power Debate featuring internationally respected CEOs and decision-makers from the key players in the industry. Led by Ashar Nazim, Partner, Head of Islamic Banking Excellence Center, Ernst & Young and featuring Badlisyah Abdul Ghani, Executive Director/Chief Executive Officer of CIMB Islamic Bank Berhad; Afaq Khan, Chief Executive Officer, Standard Chartered Saadiq; Toby O'Connor, Chief Executive Officer of the Islamic Bank of Asia; and Steve Troop, Group Chief Executive Officer of Barwa Bank, the power debate session will analyse what changes the Islamic finance industry must undergo in order to adapt and evolve to meet the evolving needs of the end-user.
The eagerly anticipated World Islamic Banking Competitiveness Report, an original research project led by Ernst & Young's award winning Global Islamic Banking Center, will also be launched on-site at WIBC 2013. This year's special anniversary edition of the WIBC Competitiveness Report will analyse the performance of the industry, the missed opportunities, the strategic priorities, and the transformation that is underway to move the industry to a sustainably profitable path.
'The World Comes to WIBC Initiative' has also been further expanded this year and will feature official delegations representing exciting jurisdictions for Islamic finance including Bahrain, Luxembourg, the United Kingdom, Canada and Azerbaijan. WIBC 2013 will also feature a special ceremonial awards function that will recognize excellence, innovation and pioneering initiatives in the global Islamic banking and finance industry looking back over the past 20 years of WIBC.
The 20th Anniversary special edition of the World Islamic Banking Conference (WIBC 2013) is set to convene more than 1,300 industry leaders representing over 50 countries in the Kingdom of Bahrain from the 3rd to the 5th of December 2013 to not only celebrate the tremendous growth that the international Islamic finance industry has achieved over the past 2 decades but also to revisit and re-mould the critical success factors that will enable the industry to achieve the next set of milestones.

Thursday, November 28, 2013

Islamic Banks need to showcase ethics to continue rapid growth, says CEO of ADIB

Islamic banks need to position themselves as ethical banks with universal appeal in order to continue on their rapid growth path, Abu Dhabi Islamic Bank (ADIB) Chief Executive Officer Tirad Al Mahmoud told a global economic summit in Dubai on Tuesday (26 November).
Al Mahmoud said the Islamic banking industry, which has its roots in the 1970s, is approaching a natural level of maturity following a period of accelerated expansion, especially since the global economic crisis. The biggest 20 Islamic banks have increased their assets by an average 16 per cent annually over the last three years, but the pace of growth is slowing down.
A survey commissioned by ADIB this year shows that between 12 and 20 per cent of people in key predominantly Muslim countries -- the UAE, Egypt, Turkey and Indonesia -- wanted only to bank with a sharia-compliant institution. But as many as half of the population of these countries are seeking higher ethical standards than they are currently experiencing from their banks.
"I believe we are coming to the natural end of a growth cycle, and the question is now, can we take Islamic banking to the next level? We shouldn't be complacent just because we've had strong growth," Al Mahmoud told the Global Islamic Economy Summit in Dubai.
"But I am hopeful. Islamic banks have a unique opportunity, because they put ethics at the heart of their business. In the long term, ethical businesses are stronger and more successful. Our future growth will come from focusing on substance, rather than form, keeping our products and services simple and straight forward, and being inclusive, so that all communities feel welcome when they bank with us."
ADIB's "Banking as it should be" survey of 1,000 people showed that customers of all banks find that the gap between expectations and reality is widest in the areas of ethics, particularly around the questions of whether banks keep promises to its customers and always have the best interests of their customers in mind.
Al Mahmoud was participating in a banking industry leaders' debate, which also featured Dr. Adnan Chilwan, CEO of Dubai Islamic Bank, Hussain Al Qemzi, CEO of Noor Islamic Bank, Mohammad Al Omar, CEO of Kuwait Finance House, and Rafe Haneef, CEO of HSBC Amanah, Malaysia.
The two-day Global Islamic Economy Summit, organised by the Dubai Chamber and Thomson Reuters, attracted over 2,000 delegates. ADIB, the world's fourth largest Islamic bank by assets, was a title sponsor of the event.

KFH: Islamic Banking set to participate in development projects in region

Kuwait Finance House (KFH) CEO Mohammed Al-Omar asserted that the GCC countries have a great opportunity to take advantage of the growth and development of Islamic banking that has become a pivotal sector of the global economy; he applauded the UAE for turning Dubai into an international centre for Islamic banking.
Al-Omar, who took part in the Global Islamic Economy Summit that was held in Dubai on November 25th and 26th under the auspices and presence of Prime Minister the Governor of Dubai His Highness Sheikh Mohammed Bin Rashed, said that Kuwait and the UAE witnessed the birth of two Islamic banking giants 35 years ago, which are KFH and Dubai Islamic Bank (DIB).
 He added that this industry grew in the gulf region by the establishment of new Islamic banks and other numerous corporations that now operate in many countries worldwide. He went on to say that Islamic finance industry is rapidly progressing, where the total assets is expected to reach USD 1.8 trillion by the end of 2013, which is 12.5 per cent y-o-y, compared to USD 1.6 trillion in 2012. Market indicators show that this industry will push past the USD 6.5 trillion barrier by 2020.
Moreover, Al-Omar stated that Islamic financing witnesses rapid expansion in the world financial system, where there are 600 Islamic financial institutions in 75 countries. He explained that this economic model is highly demanded because Islamic banking focuses on real economy; thus leading to the development and prosperity of societies.
Furthermore, he noted that Islamic banking can play a prominent role in providing financial sources and in participating in mega projects that are targeted by the Middle East region. He revealed that contracts worth USD 225.8 billion will be granted up until the second half of next year. The biggest 100 projects in the Middle East include Saudi Arabia with USD 74.5 billion, Iran USD 69 billion, UAE 48.5 billion, followed by Qatar. This shows that three GCC countries rank top three in volume of projects in the region. He stressed that Islamic banking can fund those projects in collaboration with regional and international banks; especially after KFH laid the legitimate and legal foundation to combine conventional and Islamic financing in one project, such as the Equate project for petrochemicals in Kuwait.
Al-Omar underlined the importance of Sukuk as a financing instrument that meet the requirements of companies and governments, since Sukuk are the Islamic counterpart of bonds. He remarked that Sukuk has been enlisted in many global markets and has received a credit rating, which encouraged many countries in Europe, east Asia, and the Middle East to use Sukuk to fund projects. He mentioned that KFH took part in arranging and issuing Sukuk worth USD 5 billion in sovereign Sukuk for western governments, and other Sukuk for major corporations worldwide.

Wednesday, November 27, 2013

DED-Malaysia deal to promote halal

According to the MoU, the two sides will cooperate in developing and introducing policies as well as an institutional infrastructure to the halal industry. 

The Department of Economic Development, or DED, in Dubai and Malaysia’s Halal Industry Development Corporation, or HDC, have decided to jointly promote business and investment in their respective halal sectors and support halal companies on both sides to explore partnerships. 

A memorandum of understanding was signed in Dubai by Sami Al Qamzi, director-general of the DED, and Jamil bin Bidin, chief executive of the HDC, during the 5th Exporters’ Forum recently hosted by Dubai Exports, the export promotion agency of the DED. 

“The economic direction of Dubai and the global potential of the halal industry represent a sustainable growth formula. Dubai is determined to further leverage its hub status to add new economic sectors and position itself as the capital of Islamic economy,” Al Qamzi said in a statement on Saturday. “With the diversity of economic activity and the presence of a sizable SME population, Dubai has vast resources which we can utilise for the benefit of the local and global halal industry. Our partnership with the Halal Industry Development Corporation is part of our efforts to share knowledge and expertise with the pioneers and leaders in this sector,” he added. 

According to the MoU, the two sides will cooperate in developing and introducing policies as well as an institutional infrastructure to the halal industry and also encourage their halal companies to engage in trade and investment partnerships. It has also been agreed to organise joint halal promotion activities and provide background checks on companies on both sides. 

Bin Bidin said that cooperation between Malaysia and Dubai would be a game-changer in the evolution of the global halal industry as Malaysia is a strategic hub of Asia while Dubai enjoys a similar position in the Middle East and North Africa region. “Currently, there is little supply of halal products compared to the Muslim population in the world as few countries qualify as halal producers and the logistics are inadequate. There is a need to establish a global supply chain for halal products and the MoU between Dubai and Malaysia is an effort in this direction as it will create a hub-to-hub kind of relation,” he said. 

Underlining the importance of the small and medium enterprise sector in the halal segment, the memorandum states that Dubai and Malaysia will encourage SMEs to develop and grow a halal chain for all relevant industries.

Islamic Asset Management sector has potential to grow

DUBAI The Islamic fund industry manages about $46 billion, which in the context of the total global asset management figure, which stands at $60 trillion according to Thomson Reuters, is minuscule. If the Islamic asset industry were to tap just one per cent of the total global asset management, it would mean Dh600 billion, which would represent a massive boost to the relatively nascent industry. But can this be a possibility in the years ahead?
That was the question posed to the panelists at the first Global Islamic Economy Summit 2013. They suggested that there are few issues, both within and without, that needs be addressed for the Islamic asset management and investments to grow in the post global financial crisis period.
Performance of the funds is key to bringing in clients, both institutional and retail.
The performance of these products and their track record is important, said the Hasan Al Jabri, chief executive of SEDCO Capital. The Saudi based asset manager and provider of Sharia compliant investment solutions.
Monem A. Salam, president of Saturna Capital, based in Malaysia, and which has $4 billion assets under management and is retail, said that unlike performance at an institutional level, which is relative performance to an index, the investors here just want to make money and not lose any.
In a region, such as the GCC, where retail component is extremely small, funds have to ensure whether they are capturing all the sectors in the market, said Al Jabri. For example, sovereign wealth funds, pension funds etc. Less than one per cent of the total population invest in mutual funds in a Saudi Arabia, for example. Also, savings ratio in Muslim countries is low and awareness of mutual funds among retail groups is very low.
“We may have from some of the countries but then it may differ from some of the other countries,” he said. “What I see there is a lot of potential—if we do the right strategies, right performance, to secure support from the sovereign funds and pension funds and the governments, the sector may grow substantially.”
“If you are going after retail market you have to be a consistent performer,” said Salam.
But he also emphasised on marketing, getting out the product to the people. And finally, “you have to be with the audiences—or where investors are.”
In this regard, Saudi-based Jadwa Investments’ chief executive Ahmed Al Khateeb struck a note of disappointment with some of the other players.
While he is pleased with what is going on Saudi Arabia and Malaysia, which are among the top three in Islamic asset management, he said “I am not really happy with level of activities of banks, institutions and regulators are doing to support the industry. We can do much, much more to increase the number.”

Lanka’s Islamic Finance market tops Rs 300 billion

The Islamic Finance market has an estimated market of around Rs 300 billion and with the operation of current five commercial licensed banks, three finance companies and other institutions,Sri Lanka’s total deposit base is nearly Rs 35 billion and the total loan base is Rs 24.8 billion,a top financial analyst said.
To tap a huge market potential of this size there is certainly much room for development in the Sri Lankan industry such as new products, product developments and liquidity and integrating with the country’s development needs, Head of Credit MCSL Financial Services Limited Leonard Perera said.
“It is essential that we raise funds and investments from the international markets. We have to search for new markets, institutions and entrepreneurs to open out channels to bring in investments to the country. Therefore Islamic Finance would be an ideal fund generator in the international markets,”Perera told the Daily News Business.
He further said that Islamic finance was one key opportunity, which we can make use of to bring in funds via different agencies, countries and foreign currencies. Introducing new Shariah-compliant instruments and bringing in our own new products are important in expanding the Islamic finance industry in the country, he said. The expansion in the banking, finance and insurance sector will not only assist to build the economy, but also to build the nation collectively,” he said.
Perera said Islamic finance industry is an ideal solution to the Sri Lankan market in order to enhance its banking, finance and insurance with different products and investments because Islamic Finance is not only to Muslims but also for every person. During the recent past the country has made remarkable progress in the Islamic finance industry and still has a huge market potential, he said.
“Sri Lanka can grow in the Islamic finance has lot of potential, but it is important that the industry has a plan and grow steadily. The thrust has to build among the public in taking the industry to the next level could be done since it could be distinguished from traditional banking system where its main advantage is it is risk free, interest free in interest asset and service backed and contractual certainty,’’he said.
Sri Lanka is one of the few non Islamic countries that available this business has a lot of potential in the market it is one of the growing sectors in the world, he said. According to industry sources that Islamic Financial sector has evolved and grown to reach US$ 1.3 trillion with a growth of 15 percent, which operates in 42 countries including15 non Islamic countries including USA, UK, Canada, and Switzerland Australia are top end countries that operate this instrument, he said. Perera said that major banks such as HSBC, Standard Chartered Bank ABN Amro have dedicated Islamic Banking subsidiaries or Islamic Banking windows, he said.
In Sri Lanka the Banking Act No 30 of 1988 was amended in March 2005 to accommodate the concepts of Islamic banking is recognized by IMF, World Bank, Basel Committee premier global bank regulator and funding body, he added.
Daily News Sri Lanka

1,300 global Islamic Finance leaders set for Bahrain talks

More than 1,300 international Islamic finance leaders are heading to Bahrain next month for the 20th anniversary special edition of the World Islamic Banking Conference.

Sheikh Saleh Kamel and Sir Howard Davies are expected to headline the most impressive line-up of speakers ever at WIBC, organizers announced.

The World Islamic Banking Conference (WIBC 2013) is scheduled to be held in Bahrain from December 3 to 5. 

It is held with the support of Prince Khalifa bin Salman Al-Khalifa, Prime Minister of Bahrain and supported by the Central Bank of Bahrain. 

The annual World Islamic Banking Conference (WIBC), which over the last two decades has established its pre-eminent position as the world's largest and most influential annual gathering of global Islamic finance industry leaders, is set to gather industry pioneers, thought leaders, key regulators and leading industry players for discussions focused on transforming the industry to improve the stability, competitiveness and global growth of the international Islamic finance industry.

Confirming his participation at the event, Rasheed Mohammed Al-Maraj, governor of the Central Bank of Bahrain, said: "The global Islamic finance industry has undoubtedly undergone significant change over the past two decades, playing an ever increasing role in the international financial system."
He added: "The industry has also grown significantly in geographic coverage, now encompassing even more new jurisdictions and emerging markets as well as the deepening and mainstreaming of its footprint in its core markets. However, in order for Islamic finance to continue to be successful as well as robust and resilient across all phases of the economic cycle, a genuine transformation is now required in order to progress to the next level of development."

Speaking ahead of the event, David McLean, chief executive of the World Islamic Banking Conference, said: "Growing awareness of and demand for investing in accordance with Shari'ah principles on a global scale has been a major catalyst toward making Islamic financial services a flourishing industry with total assets now in excess of $1.3 trillion."

Zawya News

Gulf investors plan first Euro Zone Islamic Bank

Luxembourg: Private investors from Gulf countries, including a royal family from the United Arab Emirates, plan to establish the first full-fledged Islamic bank headquartered in the euro zone, an executive said yesterday.

The investors aim to launch the venture, named Eurisbank, in Luxembourg during the last quarter of 2014, said Ammar Dabbour, managing partner at Excellencia Investment Management.

$80m initial capital
With initial capital of 60 million euros ($80 million), the bank would offer retail, corporate and private banking services, and would open branches in Paris, Brussels, the Netherlands and Frankfurt.

In addition to the royal family from the UAE, Eurisbank will be owned by a bank from a country in the Gulf Cooperation Council (GCC) and other private investors, said Dabbour, who declined to name them.

Excellencia, an Islamic fund manager based in Luxembourg, has been contracted with consultants Deloitte to handle all the procedures for establishing Eurisbank, he said.

The founders of the bank plan to apply for a licence in January and expect to obtain regulatory approvals by April, Dabbour told reporters at the Global Islamic Economy Summit in Dubai.

"A large untapped customer base with more than 20 million Muslims in the EU represent a significant market growth potential for Islamic Finance, and with the strong support of the European governments and regulatory authorities of the Islamic Finance Model, the unification of the regulatory framework within the European Union is a significant advantage to serve Muslim and non-Muslim communities across Europe," he added further.

Successfully marketed
Islamic finance, which bans interest payments and pure monetary speculation, has been slow to develop in Europe, but Luxembourg has successfully marketed itself as a centre for issuing and trading Islamic bonds.

Since the global financial crisis, some European governments have shown more interest in Islamic finance, partly because it could be a way to attract cash-rich funds from the Gulf and southeast Asia.

The European Central Bank (ECB) and the Malaysia-based Islamic Financial Services Board (IFSB)  worked this year on a joint study on policies affecting Islamic finance in Europe. Munich-based FWU Group, which offers Islamic insurance solutions, has issued Islamic bonds since last December.

Gulf Daily News
Times of Oman News

Tuesday, November 26, 2013

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Azerbaijan aims for Islamic banking law in 2014

Nov 26 (Reuters) - Azerbaijan's largest lender, International Bank of Azerbaijan (IBA), is working with national authorities on a draft Islamic banking law and a final version could be presented to parliament in 2014, a senior executive said.
Islamic finance has developed slowly in the former Soviet state, where an estimated 93 percent of the 9 million people are Muslim. But IBA's Islamic banking business is now growing strongly, which is encouraging authorities to take action.
"The main aim is legislation. The cabinet of ministers of Azerbaijan has already started the project together with the ministry of economic development and IBA," Behnam Gurbanzada, IBA's director of Islamic banking, told Reuters.
With strong state support, the draft legislation could be ready by May with a final version presented to parliament by the end of 2014, Gurbanzada said on the sidelines of the Global Islamic Economy Summit in Dubai.
"It covers banking, taxation...It covers some specific issues like civil law." Among other provisions, Islamic banking bans interest payments and pure monetary speculation, and the structures which it uses to achieve this can be expensive unless special tax arrangements are made.
IBA now offers sharia-compliant products through an Islamic window, but legislation would pave the way for a stand-alone Islamic banking unit, Gurbanzada added.
The bank, 50.2 percent owned by Azerbaijan's Ministry of Finance, holds 40 percent of banking assets in the country.
"By the end of 2013 we will reach $200 million of Islamic banking assets and with a goal for 2014 of around $300 million to $350 million," Gurbanzada said. The bank held $60 million of Islamic banking assets last December.

Next year, the lender plans to open four dedicated Islamic banking branches, Gurbanzada added. (Editing by Andrew Torchia)

Japan to Boost Muslim Tourists

TOKYO: Japan is boosting efforts to attract more Muslim tourists and many of its companies are looking to Malaysia for help.

An increasing number of Japanese tourism industry players are brushing up on Islamic practices and culture to tap the rapidly-growing Muslim travel market, reportedly worth RM390 billion last year.

According to Japan’s Foreign Affairs Ministry Second Southeast Asia division director Naoki Kumagai, Malaysia is seen by many Japanese companies as a gateway to the lucrative Middle East market.

“Japanese businesses find Malaysia a comfortable place to learn and invest, thanks to the relationship between the two countries as well as Malaysia’s status as a peaceful and stable Muslim nation,” he said, here, recently.

Akmal Abu Hassan, a Malaysian entrepreneur based in Japan, has been at the forefront of efforts to help Japanese companies develop halal products and obtain halal certification.
As the managing director of Malaysia Halal Corporation Co (MHC), Akmal has been hard at work explaining not only the requirements of halal food production but also introducing Islam to Japanese businessmen.

“Halal food is not just about the method of slaughter (of meat) or avoiding alcohol, but also about ensuring good hygiene and safety.

“In that sense, Japanese businesses have an advantage since they already adopt a high standard in food preparation.

“The challenge is convincing them to include Islamic requirements and this involves explaining to them why those requirements are necessary,” he said recently.

He said MHC’s motto is “Halal for All”, which makes it clear that halal need not mean catering exclusively to Muslims but also includes the average Japanese consumer.

He said the approach involves compromises while ensuring that religious requirements are heeded.

“For example, you cannot tell Japanese restaurants not to serve alcohol as drinking is an integral part of their lives.

“But we can tell them to use separate utensils and storage and halal ingredients so that Muslim customers feel safe dining in their establishments.”

Akmal, who has lived in Japan for more than two decades, said MHC issues halal certification adapted from regulations developed by the Federal Territory Islamic Religious Department.

Hotel Granvia, Kyoto’s top luxury hotel, last July became the first hotel in western Japan to be certified by MHC.

In addition to halal menus at its restaurants, the hotel also prepares prayer mats for Muslim guests and can convert its banquet hall into a mass prayer facility if needed.

Hotel Granvia’s overseas marketing director Shiho Ikeuchi said she has since been flooded with enquiries from around the world, indicating the high demand for such facilities from Muslim travellers.

The Japan National Tourism Organisation is also planning to create an official guidebook for Muslim tourists, listing halal restaurants and places of worship

Read more: Tokyo taps KL to boost Muslim tourism