Islamic Economics, Banking and Finance

Why Islamic banks escaped crisis: Capital FM

2009-05-20T06:10:00.000-07:00

BY CHARITY KATAGO
Updated 20days 23 hours 6 minutes ago

NAIROBI, Kenya, Apr 28 - The current global economic downturn would never have happened if the banking sector had pegged its business on the Islamic banking, an industry player said on Tuesday.

Gulf African Bank CEO Najmul Hassan says none of the 375 banks that practice Islamic banking globally has been affected by the crisis so far.

“The reason for this is that Islamic banking does not go into the products that got these banks into this downfall. Look at Societe Generale, it lost billions in speculative transactions; Somitu Corporation lost because it was speculating on prices of copper,” Mr Hassan explained.

“These are the very things that Sharia banking disallows.”

Mr Hassan noted that Islamic banking is based on neither speculation nor interest but real growth.

“All the trading that happens in this world is not interest-based; there is real trading taking place. Some assets are purchased, you add value, and you sell them out. That is what Islamic banks do,” he said.

Mr Hassan explained that Islamic banks buy assets, add value and sell them on deferred payment and make their profit from taking part on real economic activity in a society as opposed to conventional banks which makes money on fractional lending which he described as ‘paper business’.

For more on this article, please click on the following link: Why Islamic banks escaped crisis: Capital FM

Alkhaliji opens Islamic bank branch; plans more products: Gulf Times

2009-05-20T06:09:00.000-07:00

Alkhaliji yesterday launched its Islamic banking branch to cater to the wholesale business, including small and medium enterprises.
The move comes as part of efforts to cash in on the growing appetite for Islamic banking, which has 20% share in Qatar’s total banking assets and loans, and about 17% in deposits in third quarter of 2008.
The new branch ‘Alkhaliji al Islami’ at Al Jazi Tower in West Bay, offers a range of products and services of Islamic current account, foreign currency exchange, domestic and international funds transfers in eight foreign currencies and commodity Murabaha.
“Islamic banking and finance is no longer a niche market in the international arena. It has reached the status of mainstream banking as more and more countries across the continents have established players in their own markets,” Alkhaliji chairman Sheikh Hamad bin Faisal bin Thani al-Thani said.

For more on this article, please click on the following link: Alkhaliji opens Islamic bank branch; plans more products: Gulf Times

Milestones in rise of Islamic finance: Reuters

2009-05-20T06:07:00.000-07:00

Islamic finance has grown to a $1 trillion industry, after taking off in the private sector in Gulf states such as Dubai in the 1970s.

The sharia-law-compliant system, which prohibits interest, is the national norm in Sudan and Iran, and in a parallel banking system in Malaysia, Bahrain and a few other Gulf States.

Here are some key moments in the modern sector's development:

1950s-1960s: First experimental Islamic banks develop interest-free savings and loans societies in Pakistan and the Indian subcontinent. Egypt and Malaysia see pioneering ventures in 1960s. New banks develop during the 1970s as oil money pours into Gulf states.

1975: First commercial Islamic bank opens, the Dubai Islamic Bank (www.dib.ae). Close to 30 such banks set up over the next decade.

In October 1975, the umbrella Islamic financing institution, the Islamic Development Bank (www.isdb.org) opens in Jeddah, Saudi Arabia. Between 1975 and 2005 it funds more than $50 billion worth of projects in Organization of the Islamic Conference (OIC) member countries.

1979: Pakistan becomes first nation to "Islamize" banking practices at state level. Process continues until 1985.

July 1983: Malaysia opens its first official sharia-compliant bank, Bank Islam Malaysia. Other banks also offer Islamic products and are supervised by the central bank, which is advised by a board of sharia scholars.

For more on this article, please click on the following link: Milestones in rise of Islamic finance: Reuters

RBS sees big growth in Islamic finance: Reuters

2009-05-20T06:06:00.000-07:00

DUBAI (Reuters) - Royal Bank of Scotland sees big growth opportunities in Islamic investment banking, expecting asset growth rates to remain 15-20 percent annually and profitability levels to increase, a leading executive said.

Navid Goraya, RBS' global head of Islamic banking, said margins have increased as financing costs have fallen, putting the Islamic sector on a solid footing this year.

"Profitability has not been hurt," he told the Reuters Islamic Banking and Finance Summit on Monday. "You could see profitability go up."

In the six countries of the Gulf Cooperation Council -- the world's biggest market for Islamic financial services -- asset growth will remain at 15-20 percent annually, despite the global wealth destruction caused by the financial crisis, he said.

For more on this article, please click on the following link: RBS sees big growth in Islamic finance: Reuters

A Tale of Two Shari'a Finance Articles: Europe News

2009-05-20T06:05:00.000-07:00

By David J. Rusin

Journalistic skepticism is rare when it comes to Shari'a banking. In January this blog highlighted an Associated Press puff piece on the subject, deeming it an early "contender for the most one-sided story of 2009." However, a new frontrunner has emerged: another Shari'a banking article.

Stephen Magagnini's March 30 piece in the Sacramento Bee presents Islamic finance as a panacea, a "socially responsible" way of doing business which has ensured that "the recession gripping the nation has taken less of a toll on American Muslims who follow age-old Islamic laws." The money quote can be found in the third paragraph:

"If everybody was Shari'a-compliant, there would be no recession," said Farouk Fakira, a Yemeni immigrant who moderated a discussion on Islamic finance [in Sacramento].

The next eighteen paragraphs feature not a single voice to scrutinize this stunningly saccharine assessment and not a single hint of Islamic banking's many troublesome aspects: that unaccountable clerics determine which arrangements are Shari'a-compliant; that charitable donations required to "purify" proceeds have been used to fund terror in the past and could leave investors legally liable for attacks in the future; or that Shari'a banking is a modern invention designed by Islamist thinkers to propagate their radical, separatist ideology.

For more on this article, please click on the following link: A Tale of Two Shari'a Finance Articles: Europe News

Islamic insurance to grow up to 40 percent: Reuters

2009-05-20T06:03:00.000-07:00

By Jason Benham

DUBAI (Reuters) - The emerging Islamic insurance or takaful industry could grow at 30-40 percent annually in the next three to five years as more people switch from conventional to Islamic insurance, a senior executive said.

"I think the takaful industry is in a growth mood for two reasons," Noor Takaful's managing director Ahmed al-Janahi told the Reuters Islamic Banking and Finance Summit in Dubai on Tuesday.

"Every day, people need to insure and there is a departure from conventional insurance. A lot of people are switching," he said. "Growth is expected at 30-40 percent going forward as people in Muslim countries are switching from conventional to takaful."

For more on this article, please click on the following link: Islamic insurance to grow up to 40 percent: Reuters

Islamic banking attracts rising number of non-Muslims: Expert: Peninsula

2009-05-20T06:02:00.000-07:00

Source ::: THE PENINSULA / BY MOBIN PANDIT

DOHA: An increasing number of non-Muslim expatriates here are getting attracted to Islamic banking, says a senior Doha-based banker.

R Seetharaman (pictured), CEO of Doha Bank, told world leaders of Islamic banking at a key convention here yesterday that Islamic banking windows of commercial banks in Doha had grown at an impressive 18 percent annually over the past three years.

Qatar, unlike some other countries in the region, allowed hybrid banking and a significant development had been that a lot of non-Muslim customers were ‘deflecting’ from commercial to Islamic banking, he said.

“I can clearly see that more and more expatriates are trying to open accounts in Doha Islamic (the Islamic banking arm of Doha Bank).”

For more on this article, please click on the following link: Islamic banking attracts rising number of non-Muslims: Expert: Peninsula

Islamic mortgages for all faiths: Scotsman

2009-05-11T04:01:00.000-07:00

By GRAHAM BURNSIDE

THE need to return to traditional banking values is a debate that has been well and truly reignited by the economic crisis.

Ethics and responsible lending are high on the agenda as we come to terms with the fallout from the crises that have hit some of the world's leading banks. It is therefore not surprising that attention is turning increasingly to Islamic finance as a stable alternative.

While "toxic" debts have swamped conventional banks across the world, Sharia'a compliant financial products have continued to expand. Islamic institutions have avoided massive writedowns in their assets because they carried no exposure to complex financial instruments or derivatives.

Following its ethical principles, all financial transactions within an Islamic finance system must be connected to a tangible asset. Islamic banks use their own funds and will not issue interest-bearing instruments to finance loans; they avoid transactions which are essentially speculative and trading in unowned assets (such as short selling) is prohibited.

But it would be a mistake to think that Islamic finance is only for the Muslim community. It is open to all faiths and Scotland's new Islamic mortgage could, for instance, provide a novel stimulus to support Scotland's property market.

For more on this article, please click on the following link: Islamic mortgages for all faiths: Scotsman

Islamic banking gains ground in Pakistan: Dawn

2009-05-11T04:00:00.000-07:00

LAHORE: Islamic banking is fast gaining ground in Pakistan because it is risk free as compared to conventional modes of banking.

This was stated by chief executive officer AlBaraka Islamic Bank Mohamed Isa Al Mutaweh while talking to Lahore Chamber of Commerce and Industry president Mian Muzaffar Ali here on Thursday.

He said that Islamic financing products such as Murabaha, Ijara, Musharaka and Islamic Export Refinance were catering to a diverse cross-section of the economy, including the corporate, SMEs and consumer sectors.

Speaking on the occasion the LCCI president said that more than two hundred and fifty Islamic financial institutions were operating worldwide from China to US. Western banks through their Islamic units in UK Germany, Switzerland, and Luxembourg were also practicing Islamic banking.

For more on this article, please click on the following link: Islamic banking gains ground in Pakistan: Dawn

Islamic banks ‘doing well’: Daily Nation

2009-05-06T10:45:00.000-07:00

By NATION Correspondent Posted Wednesday, April 29 2009 at 18:38

The Central Bank of Kenya on Wednesday said Islamic banking had managed to bring more of the unbanked population into banking halls. Speaking at the first East African Islamic banking conference at a Nairobi hotel, Ms Rose Detho, who is in charge of bank supervision at the CBK said the concept had largely succeeded.

The first two fully-fledged Islamic banks, Gulf African Bank and First Community Bank were licensed mid last year. Five other conventional banks have introduced Islamic banking products. “The Central Bank is impressed that the Islamic banks that have operated for hardly a year have made milestones,” she said.

For more on this article, please click on the following link: Islamic banks ‘doing well’: Daily Nation

New $10 billion Islamic bank planned for Bahrain: Market Watch

2009-05-06T10:43:00.000-07:00

By Tahani Karrar

Of ZAWYA DOW JONES

DUBAI (Zawya Dow Jones) -- Persian Gulf investors plan to launch a new $10 billion Islamic bank by year-end in Bahrain, Adnan Ahmed Yousif, Chairman of Union of Arab Banks said Sunday.

The institution will be called "Istikhlaf Bank" and its shares will be listed on the Bahrain Stock Exchange and Nasdaq Dubai via an initial public offering, he said.

"We call it the godfather of Islamic banks," Yousif told reporters on the sidelines of a banking conference in Dubai, United Arab Emirates.

The creation of the new bank comes amid a severe downturn in Islamic banking in the region. Global issuance of Islamic bonds, or sukuks, tumbled 37% in the first quarter of the year to $1.8 billion, according to the latest data compiled by the Zawya Sukuk Monitor.

It may also struggle to compete with larger more established rivals such as Saudi Arabia's Al Rajhi

the Middle East's largest-traded Islamic bank with a market value of $25.2 billion, according to Zawya.com.

Still, Islamic banks, which comply with Sharia laws that prohibit the charging of interest, are on the rise in the Middle East where conventional banking practices are being held partly responsible for the global economic downturn.

The bank "will be established with a $10 billion capital and right now we are at a stage of forming the shareholders, there will be a private placement of $6.5 billion and we plan a $3.5 billion initial public offering for the bank," he added.

For more on this article, please click on the following link: New $10 billion Islamic bank planned for Bahrain: Market Watch

INTERVIEW: Islamic finance comes to Kazakhstan: BNE

2009-05-06T10:39:00.000-07:00

Clare Nuttall in Almaty
May 6, 2009

Fattah Finance was launched in March, immediately after Kazakhstan's law on Islamic finance came into force. By moving quickly, the firm hopes to carve out a large share of the market for Sharia-compliant financial services.

A subsidiary of Almaty-based financial services provider Almaty Financial Centre, Fattah currently offers only brokerage services, but plans to expand its range of activities later this year as it grows its team. It offers its clients shares that are listed both in Kazakhstan and in other markets. "It doesn't matter where the shares are listed, only whether they are Sharia compliant or not," says Ussenzhan Turdiev, head of Fattah's information and analysis department.

The firm works in accordance with internationally accepted standards to determine whether a product is suitable to invest in. Key criteria include that the company isn't active in areas such as alcohol, cigarette production or gambling, that the debt-equity ratio does not exceed 33%, and that accounts receivable are no more than 45% of the company's capital.

According to Turdiev, Fattah can't yet provide any bonds from the Kazakh market where only conventional bonds are available, but it will offer Islamic bonds - sukuks - from other countries. The company hopes to see revisions to the law on Islamic that would make it easier to issue sukuks in Kazakhstan. Currently, only Islamic banks and national holdings, or companies 100% owned by national holdings, can issue sukuks. "It would be a great opportunity for us if the situation concerning sukuk issues was changed in Kazakhstan. If we issued some sukuks here, we could easily sell them," says Turdiev. "For example, Indonesia, which has a lower sovereign rating than Kazakhstan, carried out a $650m sukuk offering, and demand was seven times higher than supply."

For more on this article, please click on the following link: INTERVIEW: Islamic finance comes to Kazakhstan: BNE

Islamic banks take position to reap from crisis: Business Daily

2009-05-06T10:37:00.000-07:00

Written by James Makau

May 4, 2009: Islamic banks are stepping up their foray into Sub -Saharan Africa, riding on the confidence crisis facing conventional banking models.

This comes as cash laden Islamic states increase trade ties with the continent while African countries turn towards the Middle East for financing deals.

Islamic banks and financing institutions are now positioning themselves in the region while mooting the idea that the way out for global financiers is to embrace the Islamic financing and banking.

“In hindsight, Islamic banks are looking quite attractive,” says Najmul Hassan, the chief executive officer of Gulf African Bank, an Islamic bank operating in Kenya.

During the first Islamic Banking conference for East and Central Africa, Mr Hassan argued that the conventional financial sector has become too far removed from the real economy.

Islamic Financing, Mr Hassan said, has a sound general practice and a detachment for conventional banking procedures that place an emphasis on debt rather than equity.

For more on this article, please click on the following link: Islamic banks take position to reap from crisis: Business Daily

Islamic banks have weathered sub-prime crisis well: Regulators: Asia One

2009-05-06T10:34:00.000-07:00

By Gabriel Chen

ISLAMIC banks and financial institutions managed to avoid the fallout from the sub-prime crisis, largely because they refrained from investing in toxic assets that were deemed 'un-Islamic'.

And this prudence has put Islamic finance in good stead with investors looking for safe havens, said Professor Rifaat Ahmed Abdel Karim, secretary-general of the Kuala Lumpur-based Islamic Financial Services Board (IFSB).

The IFSB is an umbrella group of Islamic financial regulators. It was formed in 2002 and counts Saudi Arabia, Qatar, Indonesia, Bahrain, Sudan, Pakistan and Singapore as members.

Prof Rifaat, who is in Singapore for the IFSB summit this week, told The Straits Times yesterday that a lot of lessons could be learnt from the financial crisis.

For more on this article, please click on the following link: Islamic banks have weathered sub-prime crisis well: Regulators: Asia One

Mauritius launches first Islamic banking window: African Manager

2009-05-06T10:32:00.000-07:00

The Hong-Kong and Shanghai Bank (HSBC) Ltd. launc hed Tuesday the first Islamic banking services window in the island, PANA learnt from banking sources.

"Today is a historic date as we launch HSBC Amanah islamic banking services that respond to the principles of the Sharia," Sandeep Uppal, CEO of the bank said.

Uppal emphasised that the new service is being offered to global business client s "as there are many opportunities in the offshore sector."

Uppal estimated that Mauritius can offer value to eventual clients in the Middle -East.

For more on this article, please click on the following link: Mauritius launches first Islamic banking window: African Manager

Much Interest In Malaysia's Financial Sector Liberalisation: Bernama

2009-05-06T10:30:00.000-07:00

KUALA LUMPUR, May 6 (Bernama) -- There has been much interest in the financial sector liberalisation announced recently, said Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz here, today.

"There have been a lot enquiries in all the areas announced under the liberalisation, such as new licences and an increased foreign stake in domestic financial institutions," she said, when asked about the response to the liberalisation.

"Some institutions are already in preliminary discussions," Zeti said, after the opening of the Asia Regional Forum on Policy and Regulation of Financial Inclusion here, Wednesday.

Last week, Prime Minister Datuk Seri Najib Tun Razak announced a significant package of measures to liberalise the financial sector.

For more on this article, please click on the following link: Much Interest In Malaysia's Financial Sector Liberalisation: Bernama

'Pak-Qatar' to provide Takaful to Meezan customers: The Nation

2009-05-06T10:28:00.000-07:00

KARACHI - Meezan Bank Ltd and Pak-Qatar Family Takaful Ltd have signed an agreement whereby all customers of Meezan Bank’s Housing Finance (Easy Home) will be provided with Shari’ah-Compliant Life Takaful Coverage. Irfan Siddiqui President and CEO Meezan Bank Ltd and P. Ahmed CEO Pak-Qatar Family Takaful Ltd. signed the Takaful (Islamic insurance) Agreement at a ceremony on Tuesday.
According to the agreement, all housing finance customers of Meezan Bank will be provided comprehensive Takaful that will cover not only life but also accidental and natural disability. Moreover, the premium for the first year will be paid by the bank which is to be adjusted later.
The insurance penetration in Pakistan is only 0.3 per cent of its total GDP, which means just 10 to 15pc families are opting out this facility, while in developing countries 60 to 70pc families go for this.
Speaking on the occasion, President and CEO Meezan Bank Ltd. Irfan Siddiqui said that Meezan Bank has always focused on coming up with Halal Riba-free products and innovative facilities for its customers and the Takaful arrangement with PQFTL is another step in the direction of making Islamic Banking the banking of first choice.

For more on this article, please click on the following link: 'Pak-Qatar' to provide Takaful to Meezan customers: The Nation

Islamic Bank of Asia 'excited' by bank rule changes in Malaysia: Asia One

2009-05-06T10:26:00.001-07:00

By CONRAD TAN

SINGAPORE'S Islamic Bank of Asia (IB Asia) is 'very excited' by the news that Malaysia is opening up its banking sector further to foreign players and will consider taking a stake in an Islamic bank there or applying for a local banking licence in future, chief executive Vince Cook said yesterday.

'That's something we'd definitely be considering,' he told reporters here in a conference call to announce a new product for the bank.

'We've said consistently from the beginning that having some business and some representation in Malaysia is part of being a credible regional player in the Islamic banking space.'

Last Monday, Malaysian Prime Minister Najib Razak said the government would issue up to six new licences to foreign financial institutions this year, including two to foreign Islamic banks, as part of broader, long-term changes to the country's financial services sector.

He also said that foreigners would be allowed to own majority equity stakes of up to 70 per cent in some local financial institutions, including Islamic banks, compared with 49 per cent previously.

'Obviously, it's a bit early to see how those rule changes will be implemented and what it'll actually mean for us, but we're very excited by the prospect,' Mr Cook said.

For more on this article, please click on the following link: Islamic Bank of Asia 'excited' by bank rule changes in Malaysia: Asia One

The Financial Crisis: A Golden Opportunity for Islamic Banking: aawsat

2009-03-19T03:52:00.000-07:00

By Lahem al Nasser

Riyadh, Asharq Al-Awsat-Before the international financial crisis, Islamic banking was marginalized and disregarded by international institutions. International institutions, such as the Basel Committee on Banking Supervision [BCBS] and the International Accounting Standards Board [IASB] that are concerned with financial regulation did not take into account the differences between Islamic banking, and traditional banking, in the setting of these regulations. In addition to this, many Western financial institutions considered the Islamic banking system to be simple and rudimentary, and not attuned to the [modern] times and new [financial] developments such as the innovative and complex financial tools that have dazzled the world. These financial apparatus are based upon mathematical equations and theories formulated by the fore-most mathematicians in the world, some of whom are Nobel laureates hired by large financial institutions to help boost their performance.

The Islamic banking system was looked upon as something that hindered the growth and development of the financial markets of the countries which adopted it. In addition to this, many Western countries viewed it as an ideological financial system based upon religious tenets rather than scientific fact, and therefore deriving its strength and popularity from the faith of those that believe in it, making it inconsistent with contemporary thinking that is based upon empirical knowledge and evidence, thus making it a threat to the principles of Secularism.

However the financial crisis has revealed to the world the invalidity in many of the assets and theories and mathematic equations upon which much of the modern financial system is based. Revealing also that these were the main factors behind the creation, spreading, and impact of the international financial crisis, the likes of which the world has not seen before. This financial crisis caused the collapse and bankruptcy of many firmly established financial institutions, and in the blink of an eye a dozen financial institutions that were internationally regarded as examples of professionalism such as "Lehman Brothers" and "Merrill Lynch" vanished. This crisis not only affected the financial institutions, for its effects expanded to burden many of the economic and industrial institutions as well, such as the pride of the American manufacturing industry "General Motors" which is well on its way to declaring bankruptcy, as well as "Toyota" which has declared losses for the first time in the company's history.

As the financial crisis worsened observers began to notice the stability and resilience of Islamic financial institutions in the face of this, and no Islamic financial institute has yet to declare losses in the financial securities and bonds that were a major cause of the crisis. On the contrary, many Islamic institutions have announced an increase in profits, which resulted in many commending the principles upon which the Islamic banking system is based, and the Shariaa Islamic Laws that regulate it, calling for its introduction to rectify the global financial system. Perhaps the most recent and strongest of these calls was reported in the Bloomberg Agency's report which revealed that the Vatican had stated that Western banks should carefully examine Islamic financial regulations in order to restore confidence amongst their clients at a time of international economic crisis.

This [global financial] crisis that has brought Islamic banking into the spotlight and presented it with a golden opportunity to introduce its fundamental methods and principles and present a practical [financial] model to the world. Islamic banking should capitalize on this opportunity and work quickly in order to expand, and gain a good position itself in the markets that were previously closed to it and which have now become open due to the financial crisis. Islamic banking must therefore seek to exploit the international recognition of its principles and regulatory system by gaining the recognition of international regulatory institutions with regards to its principles and uniqueness by enacting laws to institute [unified] regulatory body such as the BSBS and the IASB.

For more on this article, please click on the following link: The Financial Crisis: A Golden Opportunity for Islamic Banking: aawsat

Scotland urged to create an Islamic finance house: The Scotsman

2009-03-19T03:51:00.000-07:00

By Jane Bradley

Business reporter

SCOTS banking veteran John Wright has called for the creation of a dedicated Islamic finance house in Scotland to attract more investment from the Middle East.

Wright, the retired former chief executive of Clydesdale and Yorkshire Banks, who also headed up the Oman International Bank for seven years, said the presence of an Islamic bank north of the Border would signal an "open door" for Islamic investors to do business in Scotland.

The facility would ideally be a joint venture between Islamic groups with financial backing and an existing Scots banking institution, Wright said. The Scottish Government yesterday said it had had "preliminary discussions" with Islamic organisations about the issue through its Scottish Development International arm.

Islamic banking complies with Sharia law, which prohibits the payment of fees for the renting of money, as well as investing in businesses that provide goods or services considered to be contrary to its principles.

A number of banks offer a range of business and retail banking accounts for the Islamic community, but there is no dedicated Islamic bank in Scotland.

Wright's comments came at the launch of the Scottish Islamic Foundation's Etisal event, a conference of Scottish and Islamic businesses to be held in Glasgow in October. Wright told The Scotsman: "Scotland is a financial centre and, despite the recent setbacks in the economy, we should definitely create a capability in Islamic finance. Given our huge financial services capability, it would be logical to do this here.

"There is a huge opportunity to set up links to sell product and generate investment from the Gulf, which at the moment is left untapped."

He said a number of Scotland's larger companies – such as Weir Group, Wood Group and Aggreko – had a presence in the Gulf, but added that hundreds of other firms were missing out.

He added: "The building blocks are there. Whether there is enough appetite on the part of any commercial bank at the moment, is the question. We need someone to say 'what about forming a joint venture?' Royal Bank of Scotland would be the obvious partner, although this may not be the ideal time for them. An Islamic financial facility would be an open door to investors to show them that we want them to come here."

He added: "In the last few years, it has been clear that it isn't just Muslims who are interested in the principles of Islamic banking. In the current climate, people are perhaps looking for an alternative to the mainstream banks."

For more on this article, please click on the following link: Scotland urged to create an Islamic finance house: The Scotsman

Islamic investors snap up sukuk ijara as risks grow: Alibaba

2009-03-19T03:50:00.000-07:00

KUALA LUMPUR, March 17 - As the global downturn drags on, battering investor confidence and asset values, Islamic finance markets are expected to increasingly favour the certainty of lease-based bonds over profit-sharing structures to minimise risks.

With key sectors such as Dubai property and Malaysian manufacturing in a slump, Islamic banks have grown wary about financing through the once-popular musharaka structure that requires lenders to share a project's risks and rewards.

"Musharaka-based sukuk involve market exposure and not solely exposure to default risk as with ijara sukuk," said Rodney Wilson, an Islamic finance specialist with the Qatar Foundation.

"Given the current uncertainty in equity markets I do not believe many potential sukuk investors would want musharaka sukuk in present circumstances. If the market revives and confidence is restored, this may change, but this is unlikely in 2009."

Issuers and investors are expected to lean towards ijara or rental-based financing where possible, or look to create new lending structures in the $100 billion sukuk, or Islamic bonds, market.

In musharaka, parties contribute capital to a venture with profits to be shared according to an agreed ratio, while losses are generally divided as per the capital contribution ratio.

Sukuk ijara, rental bonds that are embraced by sharia scholars worldwide, were the most popular form of Islamic bond last year, according to rating agency Moody's.

For more on this article, please click on the following link: Islamic investors snap up sukuk ijara as risks grow: Alibaba

Sukuk Ijara, the world’s top Islamic bond: The Peninsula

2009-03-19T03:47:00.000-07:00

Source ::: REUTERS

Sukuk ijara, a form of Islamic bond, became the dominant bond structure in the $1 trillion Islamic finance industry in 2008, ratings agency Moody’s said in a recent report. Bumper oil earnings in the Gulf and rising demand for ethical investments have boosted the profile of the three-decade-old Islamic finance industry in recent years from a niche sector to one with growing international reach. But Shariah debt issuance shrank in the past year as the global credit crisis slashed asset values and battered investor confidence. Here are some questions and answers about Sukuk Ijara and the sector.

WHAT IS SUKUK?

Sukuk are Shariah-compliant bonds that do not pay interest. There are different structures, but in general, Sukuk are certificates of equal value representing undivided shares in ownership of tangible assets, usufruct and services. Islamic principle forbids charging interest (riba).

WHAT IS SUKUK IJARA?

Under this structure, the seller sells assets to the issuer who will issue Sukuk to fund the purchase. The Sukuk represents beneficial rights in the assets and Sukuk holders have an undivided proportionate beneficial interest in the assets.

WHY IS IJARA SO POPULAR?

Its simple structure and the wide range of assets that it can be structured with make it attractive. Both governments and corporates can issue Ijara. Ijara’s popularity has also surged after landmark 2008 ruling by a top Islamic finance body that some hugely popular profit-sharing structures were not Shariah compliant.

For more on this article, please click on the following link: Sukuk Ijara, the world’s top Islamic bond: The Peninsula

Islamic bank heads to PMB: The Witness

2009-03-19T03:45:00.000-07:00

Durban-based Albaraka Bank, which this week posted a pleasing 19,5% increase in profits for the 2008 financial year, is set to appoint a local representative to serve the Pietermaritzburg area.

The CEO of the major Islamic bank, Shabir Chohan, told The Witness that the move is the first step in a process that will ultimately lead to a branch being set up in Pietermaritzburg.

“We recognise Pietermaritzburg as being a very important area for us,” said Chohan.

The bank reported profits of R21,7 million and basic and diluted earnings per share increased significantly to 144,9 cents.

“We have expanded our branch network … and taken a proactive approach to arrears management. In this economic climate, we have chosen to visit clients who are in trouble. One has got to be sympathetic to clients … it is a very difficult time.

“However, while we increased our deposit book by R174,7 million, or 12,1%, as was to be expected in terms of the prevailing trading conditions, our gross advances book experienced a relatively slower growth of 6,9%, or R91 million,” Chohan said.

He added that the implementation of a new R15 million computer system will go a long way toward enhancing efficiency and customer service while ensuring that the bank conforms with international standards.

For more on this article, please click on the following link: Islamic bank heads to PMB: The Witness

Unicorn Bank to make further investment of $12.9m in Dawood Islamic Bank: Online News

2009-03-19T03:40:00.000-07:00

KARACHI: Dawood Islamic Bank Limited has received Rs. 1 billion (US$ 12.9 Million) investment from Unicorn Investment Bank Limited, based in Bahrain , this was stated in a statement issued from Bank’s headoffice in Karachi on Tuesday.

Unicorn already had a 22.2% equity stake in Dawood Islamic Bank prior to the current investment. With the new investment the equity of Unicorn Investment Bank, in Dawood Islamic Bank has increased to 37% percent

Aamir Khan Managing Director and Head Global Private Equity of Unicorn Investment Bank and a founder Director of Dawood Islamic Bank said that the decision to invest in Dawood Islamic Bank, at a time when the global confidence in financial institutions is at its lowest ebb in Pakistan, is based on excellent opportunities that are available in the Islamic banking sector of Pakistan. The stake in Dawood Islamic Bank provides Unicorn with access to the Pakistan market with its 160 million inhabitants, 97 percent of whom are Muslims, he added.

The investment by Unicorn Investment Bank, would further boost the ability of the Dawood Islamic Bank to provide support to trade and industry through its various Riba free banking products Said Rafique Dawood, Chairman Dawood Islamic Bank.

For more on this article, please click on the following link: Unicorn Bank to make further investment of $12.9m in Dawood Islamic Bank: Online News

A Hometown Bank Heeds a Call to Serve Its Islamic Clients: NY Times

2009-03-15T10:43:00.000-07:00

By SAMUEL G. FREEDMAN

Until a stranger without an appointment showed up one day in late 2001, Stephen L. Ranzini was feeling rather pleased with himself. University Bank here, which he led as president, had just won a national award for community service. The honor attested to Mr. Ranzini’s success in working with local black ministers and a nonprofit agency to increase home-ownership in African-American neighborhoods.

Then, disturbing the aura of satisfaction, a well-dressed man arrived and insisted on seeing the president. “If your bank is so outstanding for community service,” the visitor said, as Mr. Ranzini recently recalled, “how come you’re not servicing my community?”

What community, the banker asked, would that be?

“I’m a Muslim,” the man responded.

Mr. Ranzini started to explain that University Bank already had plenty of Muslim customers, hardly a surprise in a college town in the area of southeast Michigan with the largest concentration of Arab-Americans in the United States.

That answer did not satisfy the visitor. Those Muslims, he said, were paying or earning interest.

“So what?” Mr. Ranzini said. Wasn’t interest sort of the whole point of what banks did?

Over the next 10 minutes, Mr. Ranzini, a Roman Catholic executive who had grown up in the vanilla suburbs of New Jersey, started an education that would ultimately transform an otherwise conventional hometown bank into a national leader in the growing specialty of Islamic finance. This year, the bank won an award from the American Bankers Association largely for its service to Muslim clients.

For more on this article, please click on the following link: A Hometown Bank Heeds a Call to Serve Its Islamic Clients: NY Times

Islamic Banking Assets Up 23 Pct: Bernama

2009-03-15T10:42:00.000-07:00

KUALA LUMPUR, March 2 (Bernama) -- The country's Islamic banking system continued to expand last year where assets, deposits and financing recorded annual increase of 23 percent, 26.9 percent and 22.5 percent respectively.

Deputy Finance Minister, Datuk Ahmad Husni Mohamad Hanadzlah said total Islamic banking assets as of to date stood at RM192.8 billion, deposits RM154.6 billion and financing RM104.6 billion.

The risk rated capital ratio meanwhile stood at 15.2 percent and surplus capital was RM8.0 billion as at end of December last year.

Net non performing loans meanwhile declined to 2.4 percent, he said in reply to a question from Dr Dzulkefly Ahmad (PAS-Kuala Selangor) during the question and answer session at the Dewan Rakyat sitting in Parliament Monday.

For more on this article, please click on the following link: Islamic Banking Assets Up 23 Pct: Bernama

Vatican Paper Supports Islamic Finance. France Wants Its Share of Sharia Banking: BJ

2009-03-15T10:39:00.000-07:00

In yet another act of conciliation on the part of Western religions towards Islam, the Vatican newspaper Osservatore Romano has voiced its approval of Islamic finance. The Vatican paper wrote that banks should look at the rules of Islamic finance to restore confidence amongst their clients at a time of global economic crisis. “The ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service,” the Osservatore Romano said. “Western banks could use tools such as the Islamic bonds, known as sukuk, as collateral”. Sukuk may be used to fund the “‘car industry or the next Olympic Games in London,” the article says.

The Vatican article is only one of many articles that have recently appeared on the acceptance by Western governments and bankers of an Islamic financing system. More than accepting it, they seem to be welcoming it, though they are certainly being pressured into this by unnamed forces bowing to the dictates of Islam.

For more on this article, please click on the following link: Vatican Paper Supports Islamic Finance. France Wants Its Share of Sharia Banking: BJ

Islamic Banks Unhurt By Toxic Assets, But Could Suffer As Crisis Evolves: rferl

2009-03-15T10:37:00.000-07:00

By Ron Synovitz

Political and business leaders at the World Islamic Economic Forum in Jakarta this week have been praising the prudence of Islamic financial institutions.

They say Islamic banks have not been hit by the global financial crisis as hard as their Western counterparts because they refrained from investing in toxic assets that were deemed "un-Islamic."

Indonesian President Susilo Bambang Yudhoyono says the financial crisis has proved the strength of Islamic methods of banking and finance. He says Western bankers have a lot to learn from Islamic finance, and he is calling on Islamic banks to take more of a leadership role in the global economy.

The focus on the Koran's prohibitions arguably make it difficult for Islamic financial institutions to work in the same way as a conventional Western bank.

For example, Islamic law prohibits investment in businesses that sell alcohol or pork, or that are involved in gambling. That means an Islamic banker must ensure clients that their deposits are not being reinvested in a firm that does business deemed as "un-Islamic."

For more on this article, please click on the following link: Islamic Banks Unhurt By Toxic Assets, But Could Suffer As Crisis Evolves: rferl

Scandal-hit Dubai Islamic Bank seeks fresh start : The Peninsula

2009-03-15T10:36:00.000-07:00

By Simeon Kerr

Dubai Islamic Bank claims to be the oldest Islamic bank in the world, but it also has a history punctuated by scandal. Its new management hopes the referral of seven defendants to court this week for allegedly participating in a scheme to defraud the bank of more than $500m will end the latest period of uncertainty, which has revived awkward memories of the past.

“We are pleased to close this chapter,” Abdulla al-Hamli, chief executive, said in a statement on Tuesday. The embezzlement case centres on CCH, an Islamic trade finance company, which received financing of about $440m, of which the bank says it provided about $330m. DIB has made provisions of $135m related to this transaction.

The seven defendants - mainly British and Pakistani nationals - are either linked to CCH or were former employees of DIB, and are accused of taking bribes to facilitate the alleged fraud.

DIB also says it has foreclosed on The Plantation, a polo-themed real estate development, which was being developed by one of the defendants in the case. It is also pursuing other assets and receivables in a range of countries. The bank says provisions and collateral already foreclosed or which it is pursuing will be enough to cover its CCH exposure.

“DIB remains a solid and trusted financial institution,” Khaled al-Kamda, group managing director, said in the statement.

For more on this article, please click on the following link: Scandal-hit Dubai Islamic Bank seeks fresh start : The Peninsula

Islamic banking combines morality with commerce: merinews

2009-03-15T10:34:00.001-07:00

Sharia prohibits the payment of fees for the renting of money (riba, usury) for specific terms, as well as investing in businesses that provide goods or services considered contrary to its principles (haraam, forbidden). All forms of interest is prohibite.

CJ: Vishnu Mohan

ISLAMIC BANKING system seems to be catching up in many parts of the world. Perhaps, it is time India should also welcome the concept of Islamic banking, which seems to adequately address the issue of solid economic growth.

First, let’s understand the concept of Islamic banking: Islamic banking refers to a system of banking or banking activity that is consistent with the principles of Islamic law (Sharia). Sharia prohibits the payment of fees for the renting of money (riba, usury) for specific terms, as well as investing in businesses that provide goods or services considered contrary to its principles (haraam, forbidden). All forms of interest is prohibited, whether it is simple or compound, low or high rate, personal or institutional, private or public. The question obviously which would arise is how then is the bank going to make a profit if it is not going to charge any interest based on Sharia!

To avoid interest or riba, Islamic banks have introduced instrument such as Mudaharba and Musharka. Mudaharba means that bank as a rab-ul-mal will provide the funds to an entrepreneur to do business.

But the bank has no right to interfere in the business. The entrepreneur has responsibility to run business and provide whole information to bank. In this kind of contract the bank will share the profit of business according to percentage fixed in contract. In case of loss the bank will bear all loss. In Musharka, both will share the loss and profit. This type of contract is called partnership.

A few special characteristics of an Islamic bank are as follows:

a) Firstly, Islamic finance involves a system of equity sharing and stake-taking. It works on the principle of a variable return depending on the actual productivity and how well theproject performs. The project can be in different forms such as specific or general, individual or institutional, private or public. However, the Islamic principle remains of equity and reward sharing unlike the western concept of loan-interest relationship.

b) Social and ethical aspects are a part of the Islamic economic system. It will ask question such as: What are the objectives for which money is being acquired? Will it benefit individuals, society and humanity? Will it lead to the establishment of a just, honourable, sustainable society; or will it result in exploitation, moral degeneration, social tensions and inequalities? These questions will be as relevant as the profitability and economic viability of the project in the Islamic system.

c) Islamic banking is entrepreneurial driven. It is directed not just towards financial expansion but also towards physical expansion of economic production and services. In the Islamic economy money will not produce money; it is expected to finance talent, innovation and new ideas, skills and opportunities. Whereas, conventional banking operates predominantly on the basis of financial collateral, therefore the more money you have, the more you can get. This means that the viability of a project mainly depends on the financial worth of the borrower; meaning that low collateral can reduce the chance of getting a loan, even if the project is viable and the person has impeccable character.

For more on this article, please click on the following link: Islamic banking combines morality with commerce: merinews

Crossing over to Islamic banking: Times online

2009-03-13T05:15:00.001-07:00

Sharia-compliant finance is prospering in Britain. But how can it stay insulated from the credit crunch?

Alex Wade

As the credit crunch has mutated inexorably into a recession, with bankers having eclipsed politicians, lawyers and even journalists as public enemy number one, the growing number of Islamic finance institutions in Britain might just be sitting pretty.

The UK now has five fully Sharia-compliant banks and another 17 financial institutions have set up special branches or firms. They include the Qatar Islamic Bank (QIB), with its London-based European Finance House in Berkeley Square, and the Islamic Bank of Britain, which has headquarters in Birmingham.

Both have answered Gordon Brown’s call of two years ago for Britain to become the global centre for international Islamic banking; a report by the International Financial Services London even says that Britain’s Islamic banking sector is now bigger than that of Pakistan.

Islamic banks, says Steven Amos, the Islamic Bank of Britain’s head of marketing, are prospering. “Our core business will always be Muslims but the numbers of non-Muslims are really picking up. We’ve had massive interest — and that’s down to a number of reasons, all of which have kept us insulated from the credit crunch.”

He alludes to the nuances of Islamic banking — specifically that Islamic finance has to be Sharia, or Islamic law, compliant. Sharia is taken from the Koran, one of whose central tenets — that money has no intrinsic value — might sound alien to the denizens of the City.

One British businessman believes that adopting Sharia principles might be just what the West needs.Roger Smee, a former professional footballer and now businessman, says the West has “lost the plot. All we have as a success guide is a number of rich lists. Instead of looking down on what we are quick to reject as cumbersome legal restrictions, we should take a page out of the Middle East’s book and use the principles of Sharia to begin building real and sustainable economies.”

Smee, who divides his time between the US, Europe and the Middle East on his real estate and office interiors business, realised six years ago that a financial time bomb was ticking. I was offered a controlling stake in a new US mortgage business. The company was involved in the refinancing of huge numbers of house mortgages, lending at 125 per cent of an already overinflated property value to people who obviously did not have the funds to maintain payments. As we now know, these loans were then packaged up and sold on, earning the mortgage business a 7 per cent fee on each transaction. But the underlying finances were totally flawed.”

For more on this article, please click on the following link: Crossing over to Islamic banking: Times online

Deloitte Chooses Malaysia For Islamic Finance Hub: Bernama

2009-02-26T22:31:00.000-08:00

KUALA LUMPUR, Feb 24 (Bernama) -- Deloitte has set up an Islamic finance centre of excellence in Malaysia to provide consultation on Islamic finance for the Asia Pacific region.

This is the professional services firm's only such centre in the region and one of its three globally together with London and Dubai.

Deloitte's Asia Pacific chief executive officer Chaly Mah Chee Kheong said the company had started to build a team of between eight and 10 professionals to be based in the Kuala Lumpur office and would continue to recruit more.

"The concept of a centre of excellence will be a core of people to understand Islamic finance and all the complexities around this product," Mah said at a media conference here today.

"We have similar teams in the Middle East and London as well," he said.

Deloitte's Islamic finance specialist Daud Vicary Abdullah said the centre of excellence was complementary to Islamic banking services.

"We are not a training centre although we are prepared to train. We do business directly with clients at our level of expertise," Daud said.

For more on this article, please click on the following link: Deloitte Chooses Malaysia For Islamic Finance Hub: Bernama

Islamic banks not unduly challenged by oil price drop and crisis, Moody's reports: AmeInfo

2009-02-26T22:30:00.000-08:00

According to Moody's, the drop in oil prices poses two key challenges for the Islamic finance industry.

Anouar Hassoune, a Moody's Vice-President/Senior Credit Officer and co-author of the report, says:

'Firstly, there is still a vital link between oil prices and Islamic banks as most of the latter operate in hydrocarbon-exporting economies. As they face increasingly limited funding sources, Islamic banks will find it more difficult to grow going forward. Secondly, oil liquidity has been a major driver of the disintermediation process in the Islamic finance industry. With reduced oil liquidity, not only have sukuk issuances been slowing sharply, thereby depriving Islamic banks of much-needed long-term funding, but pricing on such instruments has been distorted.'

However, Moody's believes such concerns are not unduly significant given that, in previous benign periods, Islamic banks have accumulated asset liquidity and capital on their balance sheets. They are currently also using their core asset liquidity to continue to grow their credit portfolios, despite scarcer funding sources. Moreover, large capital bases are helping to buffer asset price declines and possibly also higher delinquency rates in credit portfolios.

For more on this article, please click on the following link: Islamic banks not unduly challenged by oil price drop and crisis, Moody's reports: AmeInfo

Oil Liquidity Crunch Likely to Retard Islamic Banking Growth: Khaleej Times

2009-02-26T22:27:00.000-08:00

Rocel Felix

DUBAI - Growth in Islamic banking is likely to slow because falling oil prices are squeezing long-term sources of funds in many Muslim countries, Moody’s Investors Service  said on Thursday.

“There is still a vital link between oil prices and Islamic banks, as most operate in hydrocarbon-exporting economies,” said Anouar Hassoune, a Moody’s vice-president. “As they face increasingly limited funding sources, Islamic banks will find it more difficult to grow moving forward.”

Due to decreasing revenues for oil-exporting nations, banks have issued far fewer Sukuks, and the pricing on these instruments has become distorted, Hassoune said in a report.

Until crude prices took their drastic plunge in prices last July, revenue from oil exports fuelled a rapid growth in Islamic banking, which is now estimated to be worth $17 billion worldwide.

“Oil liquidity is a key driver of Islamic banks’ growth because Islamic banks contribute to the recycling of such liquidity in the economy,” Hassoune said. “Less oil revenue will mean less appetite for banks to issue and carry Sukuks, at a time when the Sukuk market needs more issuances to itself become more liquid and suffer less from price distortion.”

Limited long-term funding will also make it more difficult for Islamic banks to properly match the maturities of their asset and liabilities, and they will likely be forced to hold more assets with shorter maturities.

For more on this article, please click on the following link: Oil Liquidity Crunch Likely to Retard Islamic Banking Growth: Khaleej Times

Dubai Islamic Bank to accept Air Arabia payments through e-channels: The Paypers

2009-02-25T09:52:00.000-08:00

United Arab Emirates (UAE)-based financial service provider Dubai Islamic Bank (DIB) has partnered with airlines company Air Arabia to launch a ticketing service aimed at Air Arabia in the UAE.

Following the deal, Air Arabia customers are allowed to pay for airplane tickets anywhere in the UAE through DIB's Cash Deposit Machines (CDM).

For more on this article, please click on the following link: Dubai Islamic Bank to accept Air Arabia payments through e-channels: The Paypers

Dubai Islamic Bank posts $471m profit for 2008: Arabian Business

2009-02-25T09:50:00.000-08:00

Dubai Islamic Bank (DIB) has reported AED1.73 billion ($471m) in net profit for 2008, a small decline compared to 2007.

DIB’s total assets as of December 31, 2008, stood at AED84.6 billion, up slightly compared to the end of the same period in 2007.

Financing activity registered strong growth, bank bosses said, with total financing assets reaching AED52.7 billion in 2008 compared to AED 40.4 billion in 2007, an increase of 30 per cent.

Customer deposits increased two percent to reach AED66.4 billion in the 12 months ending December 31, 2008.

The bank said it maintained a financing-to-deposit ratio of 79 percent as of December 31, 2008, which bank chiefs said was a clear indication of DIB’s healthy liquidity position.

DIB’s full-year results reflected total impairment provisions of AED521 million (including writedowns on its investment portfolio) and mark-to-market losses on equity investments of AED277 million.

For more on this article, please click on the following link: Dubai Islamic Bank posts $471m profit for 2008: Arabian Business

Progress of Islamic banking highlighted: The News

2009-02-23T20:51:00.000-08:00

KARACHI: State Bank of Pakistan in collaboration with the Islamic Financial Services Board (IFSB) has organised a three-day workshop (from Feb 23 to Feb 25, 2009), as a part of its capacity building initiative for the Islamic banking industry.

Speaking at the inaugural session of the workshop held at the Learning Resource Centre of SBP here on Monday, Khawla Al-Nobani, Assistant Secretary General of the IFSB, said that she felt encouraged at the healthy growth of the Islamic banking industry of Pakistan.

She appreciated SBP’s role in providing an enabling environment to the industry through the provision of suitable regulatory and supervisory framework. She expressed confidence that the workshop would prove to be very beneficial for the industry players and the supervisory agency in adoption/adaptation of the standards in the country, said an SBP release here.

While inaugurating the workshop, Pervez Said, Director Islamic Banking Department of the State Bank, appreciated the significant role that the IFSB is playing as an international standard setting body thereby helping the Islamic financial services industry to grow worldwide on a sound and stable footing.

He also praised IFSB for the hard work being put in for preparing various standards wherein best international practices are followed through an exhaustive process involving thorough research, discussions, public hearings, workshops/seminars etc. In Pakistan, he pointed out, SBP’s five-year strategy for the development of Islamic banking industry, envisaged rolling out of various international prudential standards developed by IFSB as an important pillar.

SBP has accordingly seized the opportunity by capitalising on IFSB’s expertise through holding such workshops at this juncture, he added. Participants from the local Islamic banking industry and various regulatory and supervisory departments of the State Bank are attending the workshop which is focusing on issues like risk management, corporate governance and supervisory review process.

For more on this article, please click on the following link: Progress of Islamic banking highlighted: The News

How Islamic banks make money: The Standard

2009-02-23T08:44:00.000-08:00

Rudi Prenzlin

A young man makes his career choice and decides to become a successful banker, just like his father.

He wants to prepare for the role and asks his father: "What must I do to become a successful banker, just like you?"

"Son," says the father, "you must follow these three simple rules: first, don't lend money to those who don't have any; second, don't lend money to those who need it badly; and third, the most important, don't lend your own money."

Sound advice in these troubled times. It is a shame that many of today's bankers either never received this sound advice, or ignored it!

In last week's article, "Credit crunch opens doors for other possibilities" I argued that Islamic banking institutions were weathering the present financial crisis comparatively well as they are insulated from the disasters in the interbank market and the mess in the derivatives markets.

For more on this article, please click on the following link: How Islamic banks make money: The Standard

Indonesian Islamic Banking Outlook to 2013 - companiesandmarkets.com adds new report: PR Inside

2009-02-23T08:41:00.000-08:00

With the global financial crisis raising doubts over the world´s conventional financial system, the banking industry in Indonesia stands to benefit from the global downturn and expects to continue rapid growth in the coming years. The financial crisis is having no negative impact on the development of Islamic banking in the country. So far, Islamic banks have not showed any weakening of their performance and we expect both assets and lending would grow at a CAGR of over 50% between 2009 and 2013. This optimistic view is based on its very nature (avoid involvement of interest rates), extremely low penetration and a healthy growth in lending over the past two years.

For more on this article, please click on the following link: Indonesian Islamic Banking Outlook to 2013 - companiesandmarkets.com adds new report: PR Inside

Indonesian Islamic Banks going strong: PRMinds

2009-02-23T08:40:00.001-08:00

Government support, improving confidence on Islamic banking system and comparatively higher panic in conventional banks due to financial crisis will help the Indonesian Islamic banking institutions to procure more deposits.
According to a recent research report, “Indonesian Islamic Banking Outlook to 2013” by RNCOS, a leading research firm, with the government support and improving consumer confidence on the Sharia-compliant financial products, the deposits with the system are expected to grow at a strong CAGR of nearly 47% between 2009 and 2013.

The government representative, Central Bank of Indonesia, is following a blueprint for Islamic Banking Development aimed at creating a strong Islamic banking industry by 2015. Under the blueprint, development of the industry will focus on laying strong foundation for prudential provision and supervision; increasing the efficiency of Islamic banking, with the support of a secure and efficient Islamic financial market (to be established by 2009); conforming to international Islamic banking standards; and integrating Islamic banking into the Islamic financial industry. This development strategy, as well as a broader Islamic religious revival in the country that is helping to increase the popularity of Sharia banking products, will lead to continued strong growth in this sector during the forecast period.

The report also found that the financial meltdown has had no negative impact on the development of Sharia banking in the country. While the global gloomy economic environment is raising uncertainties over the global traditional financial system, the Indonesian Sharia banking industry stands to gain from the world economic downturn and anticipates to continue fast growth in the coming years. This optimistic view is based on it very nature (avoid involvement of interest rates) and a robust growth in deposits in the recent months despite financial crisis in world.

For more on this article, please click on the following link: Indonesian Islamic Banks going strong: PRMinds

Indonesian Islamic Banks going strong: PRMinds

2009-02-23T08:40:00.000-08:00

Islamic banking rising but impact is minimal: The Star

2009-02-23T08:38:00.000-08:00

By ELAINE ANG

Prospects good but it contributes only about 10% to earnings

PETALING JAYA: Although Islamic banking business is expected to remain on the uptrend, its contribution will have minimal impact on the total income of local banks, analysts said.

TA Securities noted that while prospects were still good for Islamic banking in the country, it contributed only 10% to 11% on average to the total income of the country’s nine listed banks in the third quarter ended Sept 30, and 9% in the second quarter.

However, for the third quarter of 2008, Islamic banking income for these banks grew 3.7% versus the second quarter despite a 15.7% drop in the banks’ total income.

For more on this article, please click on the following link: Islamic banking rising but impact is minimal: The Star

Over US$7bn benchmarked to the Dow Jones Islamic Market Indexes: albawaba.com

2009-02-22T01:34:00.000-08:00

Dow Jones Indexes, a leading global index provider launched its first Islamic index in 1999 and commemorating its 10th anniversary it hosted a round table discussion on the changing dynamics of global finance and its impact on economies in the Middle East, the growing importance of Islamic finance and the role it can play in stabilizing local economies.

Moderating the discussion, Mr. Jamie Farmer, senior director operations and exchange relations, Dow Jones Indexes, said “2009 marks the 10th anniversary of the launch of the Dow Jones Islamic Market Indexes. This is an important milestone for Dow Jones Indexes who pioneered the space of Islamic indexes and provided institutions with a tool to benchmark the performance of Shari’ah compliant portfolios. To commemorate what we believe has been a decade of successfully indexing Islamic equities, we today commence our worldwide anniversary events with a round table discussion in Dubai.”

Stating that Dow Jones Indexes was the first index provider who developed a method for screening equity indexes according to Shari’ah law, Mr. Sumeet Nihalani, senior director, Asia-Pacific and Middle East, Dow Jones Indexes, said “Dow Jones Islamic Market Indexes were created to serve as an indication or benchmark for institutional investors when deciding their portfolio or comparing the performance of their portfolios. Today, this index family is used as benchmark and basis for many investment products as they reflect investor sentiment.”

The Dow Jones Islamic Market World Index was launched in February 1999 as the first benchmark to measure the performance of a global universe of Shari’ah-compliant investable equities. Over the past decade, the Dow Jones Islamic Market Index series has expanded to more than 100 indexes for all major established and emerging financial markets, regions and sectors. Amongst these are Islamic indexes for the ASEAN, BRIC and GCC regions as well as for global and Malaysian blue-chips.

For more on this article, please click on the following link: Over US$7bn benchmarked to the Dow Jones Islamic Market Indexes: albawaba.com

Islamic Banking and Finance: Historical Perspective and Future Prospects: Economistan

2009-02-19T13:50:00.000-08:00

Islamic banking and finance had its major beginnings in the year 1975 with the establishment of the Islamic Development Bank. Islamic banking has flourished in various countries since then with Malaysia, Indonesia, UAE, Pakistan and Saudi Arabia being in the forefront. Islamic banking has also recently done rather well in non-Muslim countries with the reported size of UK Islamic banking overtaking that of majority Muslim countries like Pakistan. Islamic banking assets are thought to be anywhere from 700 billion dollars to 900 billion dollars as of 2009. The credit crunch that has affected much of the western world has not taken its toll on the Islamic Banks, mainly because of the nature of the underlying transactions which admonish Riba and encourage instead a partnership based approach. The result is that the actual profit or loss is shared with the shareholders rather than an arbitrary number called Riba or “interest” which they have to come up with to please the investors regardless of the market situation. In this way, Islamic Banking also helps in depicting the true state of the economy.

Islamic indices historically have also been outperforming the other indices with the Dow Jones Islamic Developed World Index outperforming the MSCI World Index consistently over the past few years. Growth in Islamic banking has also been stellar and it has been growing at a healthy rate of 15-20% per year according to estimates. Moody’s has projected that Islamic banking would expand to a total value of $4 trillion dollars in another five years. The reason to this growth can also be attributed to the western banks taking interest in the Islamic banking instruments. Lloyd’s bank in the UK spread Islamic instruments to all of its two thousand branches in 2006 from five branches a year earlier. HSBC, Standard Chartered and Citigroup are some of the conventional western banks which have invested in Islamic banking.

Islamic bonds called Sukuk have been....

For more on this article, please click on the following link: Islamic Banking and Finance: Historical Perspective and Future Prospects: Economistan

UK working to offer sukuk in sterling: Gulfnews

2009-02-17T06:14:00.001-08:00

By Rachna Uppal, Staff Reporter

Dubai: A UK sukuk bond in sterling may well be offered "sooner rather than later", according to the Lord Mayor of the City of London. Ian Luder was at the Dubai International Financial Centre with his delegation, and later addressed students in the Executive MBA programme at Cass Business School.

Twenty-two banks in London already offer Islamic finance services, an indication of the growing importance of Sharia financial products for the UK's financial services industry. Luder emphasised though that there must be an agreed world standard for Islamic finance products for the market to meet its potential.

"We are still working towards amending the legislation for the treatment of the repayment on the sukuk of the coupon, so it's in line with the treatment for the interest on a normal coupon," said a delegation member.

For more on this article, please click on the following link: UK working to offer sukuk in sterling: Gulfnews

KFH wins Best Islamic Bank award from Islamic Finance News magazine: AmeInfo

2009-02-17T06:11:00.000-08:00

The Kuwait Finance House (KFH) won Best Islamic Bank award for the second consecutive year in a poll organized by Islamic Finance News (IFN), where Islamic and conventional banks, investors, and governmental representatives from all over the world participated.

In addition to that, KFH has also won Best Islamic Innovation Bank award and Best Islamic Bank in Kuwait award for the second consecutive year.

The KFH-owned research company that operates in Malaysia (KFH Research Ltd) won the Best Islamic Research Institution award. Votes increased by 65% this year, as KFH continues to reap global awards that exceeded 10 major awards last year in Kuwait and Islamic banks, including the Best Bank in Kuwait award from The Banker.

The Assistant General Manager for Banking Sector Mohammed Al-Fozan thanked during a press release on the occasion of receiving the award all who voted for KFH and commented on the award by saying that this new praise that KFH received, which was symbolized by the award, is considered to be a significant addition to the long list of awards that KFH has won, whether globally or regionally, and also expresses its leading role and outstanding performance. Such awards boost KFH's efforts to achieve more success to meet the high expectations of various related parties.

For more on this article, please click on the following link: KFH wins Best Islamic Bank award from Islamic Finance News magazine: AmeInfo

Islamic finance accelerates into motor policies: The Independent

2009-02-17T06:06:00.000-08:00

Muslim insurance could prove popular with other drivers too, says Chiara Cavaglieri

First it was Islamic current accounts, then mortgages and investment funds, and now we have a motor insurance product that conforms to Islamic law, or sharia.

This move will be welcomed by many of the two million British Muslims looking to buy insurance cover aligned with their faith. But it could also prove popular for non-Muslims who find the notion of an ethical or co-operative insurance product appealing.

Unlike conventional insurance, where risk is transferred from the policyholder to the insurance company, halal [permissable] insurance, or takaful ("guaranteeing each other"), requires all participants to share risk equally. Instead of premiums, participants pay contributions which, as with ordinary insurance, are calculated on the presumed risk of the individual and how likely they are to claim. These contributions are then pooled in a takaful fund which is invested in strictly halal activities. There is also a Shariah Supervisory Committee, made up of sharia scholars, to oversee all activities and to ensure that the whole process is consistent with Islamic principles.

Interestingly, once the fund has been used to pay for any valid claims, any surplus money is redistributed to participants at the end of the year in the form of discounted premiums, which come in addition to any no-claims bonuses.

"What is unique is the ethical nature of what we do," says Bradley Brandon-Cross, the chief executive of Salaam Halal Insurance. "It's a transparent process and the opportunity to get something back is attractive to customers, both Muslims and non-Muslims alike."

But there is no guarantee that there will be any surplus money to share out. Motor insurance firms have been making underwriting losses in recent years: there was a recorded deficit of £267m in 2007 and £204m in 2006.

For more on this article, please click on the following link: Islamic finance accelerates into motor policies: The Independent

Islamic finance in the limelight: The Edge

2009-02-16T09:53:00.000-08:00

by Racheal Lee Mei Nyee

KUALA LUMPUR: Ever since the US housing bubble burst in 2007 leading to the collapse of the global financial system last year, investors have been scurrying to seek alternative investment platforms and Islamic finance is deemed to be one of the viable and attractive options.

Aware of the huge potential in Islamic finance, Malaysia had been preparing the groundwork for a couple of decades and is now poised to become a global Islamic finance hub. Regional fund managers and investors are keeping a keen eye to take advantage of the vast opportunities available here.

It has been reported that Islamic banking assets in the Asia-Pacific account for about US$450 billion (RM1.62 trillion), which is 60% of the global Islamic banking market. The numbers are expected to grow.

According to reports, the Malaysian Islamic finance sector has grown at a compound annual growth rate (CAGR) of 28% in the last 15 years.

As at end-November 2008, the country’s Islamic banking assets rose 18.7% year-on-year (2007: 19.2%) to RM186.6 billion (2007: RM157.2 billion) and accounted for 14.3% (2007: 12%) of total assets in the banking sector.

Bank Negara Malaysia (BNM) wants the Islamic banking industry to constitute 20% of the overall banking and insurance market by 2010.

For more on this article, please click on the following link: Islamic finance in the limelight: The Edge

Emirates Islamic Bank profits leap to 68%: Zawya

2009-02-16T09:25:00.000-08:00

United Arab Emirates, Dubai February 14^th 2009:

Emirates Islamic Bank has announced the results of 2008, recording a net profit, excluding depositors' share, of AED 401 million, an outstanding increase of 68% on compared to AED 239 million for 2007.

Total income for 2008 grew to AED 1.5 billion from AED 961 million in previous year, reflecting strong growth of 56%. As for depositors' share of profit, it reached an outstanding amount of AED 634 million. The Bank's total assets increased by 56% to AED 26 billion compared to the end of December 2007.

The customers' accounts (including banks and government accounts) grew by 60% to AED 23.7 billion, with an increase of AED 8.8 billion than that at the end of December 2007. Shareholders' equity reached AED 1.6 billion at the end of 2008, recording an increase of 19% compared to end of December 2007. Meanwhile, return on capital has reached 43% for 2008.

Commenting on the results, Mr. Ebrahim Al Shamsi, CEO, Emirates Islamic Bank said: "Our success in achieving our strategies led us, Praise be to Allah, to strengthening our stand as one of the fastest growing and developing Islamic banks. The impressive financial results and winning two prestigious awards (The MRM and Ethos Awards) are the best evidence of the ability of the Bank to achieve its targets". The CEO has further added "This has ensured that our customers as well as our shareholders and employees get their due rewards from this success which, with the Blessing of Allah, would not have been possible without them. I take this opportunity to thank them all and would like to say with confidence that we will grow from success to success in the future, In Sha' Allah".

For more on this article, please click on the following link: Emirates Islamic Bank profits leap to 68%: Zawya

Credit crunch opens doors for other possibilities: The Standard

2009-02-16T09:20:00.000-08:00

Rudi Prenzlin

Monday, February 16, 2009

As strange as it may seem, there are financial institutions that are benefiting from the global financial meltdown.

Over the past few months, Islamic financial institutions have been reporting significant pick up in business.

Such institutions increasingly appeal to Muslim and non-Muslim customers alike.

To me, this shows that Adam Smith's invisible hand is alive and well, notwithstanding reports of its demise.

But why are Islamic institutions doing well? For that answer, let us focus on two main reasons behind the global credit crunch.

The first cause was the immense increase in the availability and active trading of derivatives.

In many cases, the paper held was not only highly leveraged but also unlikely to be secured by physical assets directly but by more paper.

As a result, banks increasingly held securities that were far removed from their core activities, with a corresponding increase in risk.

The second cause of the credit crunch was the lack of liquidity.

Up until September 2008, banks were quite content to lend to each other in the global interbank market. Almost overnight, the bankruptcy of the New York based bulge bracket investment bank Lehman Brothers - caused in no small measure by its overexposure to some of the complex derivative instruments - put an end to this in the middle of September 2008.

The resulting lack of liquidity in the interbank market, based on the extreme risk aversion of global banks that could no longer trust each other's balance sheets, had the unwanted outcome of also stopping the global economy in its tracks.

For more on this article, please click on the following link: Credit crunch opens doors for other possibilities: The Standard

Michigan bank operates by Islamic law: SfGate

2009-02-14T08:20:00.000-08:00

Jeff Karoub,Sebastian Abbot, Associated Press

Wednesday, January 21, 2009

(01-21) 04:00 PST Detroit --

Big financial institutions have been battered by mortgages gone bad. But a tiny Michigan bank is getting attention in the industry by turning a profit on loans without even charging interest.

Its specialty: financial products that comply with Islamic law. That means no collecting interest, no short selling and no contracts that are considered exceedingly risky.

It also rules out some of the activity that got Western finance in trouble - subprime mortgages, credit default swaps and the like.

"When you look at the economic crisis we're in, if you were to follow Islamic or Sharia financing, you couldn't have this crisis," said John Sickler, corporate director for the bank, University Islamic Financial Corp. in Ann Arbor.

Islamic finance operations aren't prohibited from making a profit. Far from it. Instead, banks that comply with Islamic law, or Sharia, earn money from fees that are part of the cost of the loan, some paid up front and some over time.

University Islamic Financial has two types of financing: one called a marked-up installment sale, the other a lease-to-purchase sale. Fees in both cases are comparable to interest payments in traditional loans, bank officials say.

For example: A seller who bought a house for $100,000 could sell it for $120,000 or even $300,000, provided that the buyer agrees it's a fair deal. The home could be sold on an installment plan negotiated by buyer and seller.

The bank is a subsidiary of Michigan-based University Bank, and its leaders say they have talked recently with executives from two national banks hoping to learn more about the business.

For more on this article, please click on the following link: Michigan bank operates by Islamic law: SfGate

Bahrain Islamic Bank receives 'Best Islamic Institutional Finance Bank in the Gulf Prize': AmeInfo

2009-02-14T08:15:00.000-08:00

Bahrain Islamic Bank (BisB) has been granted 'Best Islamic Institutional Finance bank in the Gulf region Prize', bestowed on BisB by 'World Finance' magazine, in the context of its annual prizes awards.

World Finance magazine specializes in the banking and finance sector worldwide.

BisB receive the prize as a result of the final decision of the awarding committee which consisted of prominent economic editors, international financial consultants, a number of bank managers and some experts in the field of banking.

The Bank received the prize due to the standards it applies in product and services excellence, originality and innovativeness in its services, customer satisfaction, continued growth in its banking operations plus other important criteria.

Mr. Mohammed Ebrahim, Chief Executive of Bahrain Islamic Bank, stated on this occasion:

'We are proud about receiving this International prize which affirms the leading role of the Bank inside Bahrain and in the Gulf Arab States. This prize is a manifestation to the excellent performance of the Bank and to the reputation which it enjoys in the International Islamic Banking sector. In addition to the success of its vision and its strategic development plan which was based on enhancement of the quality of its services which it introduces.'
For more on this article, please click on the following link: Bahrain Islamic Bank receives 'Best Islamic Institutional Finance Bank in the Gulf Prize': AmeInfo

BLME to cash in on Islamic products and services: Business 24-7

2009-02-14T08:10:00.000-08:00

By Shuchita Kapur on Thursday, February 12, 2009

With the launch of it Shariah-compliant private banking business, Bank of London and Middle East (BLME) aims to extend its wealth management division. The move comes at a time when faith in conventional banking system has shattered.

The new business of the bank will capitalise on the demand it has seen for a dedicated Shariah-compliant wealth management offering and will serve high net worth individuals, who are increasingly concerned about preserving their wealth and will be looking for counsel and best-of-breed services and solutions.

"And as a Shariah-compliant entity, this business of the bank will have a moral responsibility towards the clients. We have a moral responsibility to provide clients with all the information about the asset class/product they are investing in, its risks and potential returns. As a private banker, we are a trusted advisor to our client," Adrian Gayler, the Head of Private Banking at BLME told Emirates Business.

The bank made pre-tax profits of £1,734,888 in the six months to June last year. Pre-tax profits for the start of the year are more than five times greater than the £332,389 made during the bank's inaugural period when it was setting up operations between August 2006 and December 2007.

Islamic finance has not done too well last year and outlook for 2009 is also not too positive. So what makes you launch this business at such a time?

For more on this article, please click on the following link: BLME to cash in on Islamic products and services: Business 24-7

ONE ON ONE: ‘Pent-up demand’ for Islamic finance in Egypt, says expert: Daily Star Egypt

2009-02-14T08:07:00.001-08:00

By Pascale Nader
First Published: January 28, 2009

Amid the gloom of the global economic crisis, many are hopeful that investors will turn to Islamic finance as the less risky option. Meanwhile, the relatively nascent market needs to play catch up with rising demand.

Ibrahim Warde, adjunct professor of international business at the Fletcher School of law and diplomacy at Tufts University, works on the Islamic Finance Project at Harvard University. He has authored three books — including “The Price of Fear: the Truth behind the Financial War on Terror” — numerous articles for Le Monde diplomatique and lectures at institutions worldwide on the topics of banking and finance.

The TREND Training Center, along with the Egypt Stock Forum, invited Warde to instruct the “Islamic Banking and Finance” training program held recently in Cairo. Warde sat down with Daily News Egypt to discuss the development of and challenges facing Islamic financial institutions.

Daily News Egypt: In 2000, when your book “Islamic Finance in the Global Economy” was published, how was Islamic finance being approached and how has it developed?

Ibrahim Warde: Much of what was being written about Islamic finance back then was either saying it was a perfect system or a deeply flawed system. What I tried to do is look at both sides.

It was more about trying to explain a paradox that was right in the middle of globalization. You have this very old system that reappeared, and so the core of what [the book] looked at was how a system of medieval tradition could rise in the midst of globalization. How in the 1970s, because of the oil boom and the rising role of Saudi Arabia, Islamic finance appeared on the scene and then how it has evolved towards more pragmatism.

I did anticipate that Islamic finance would grow very rapidly and continue to grow in the double digits. I didn’t quite foresee the huge growth that has happened… The September 11th attacks had a number of indirect consequences, including the strengthening of Islamic finance.

For more on this article, please click on the following link: ONE ON ONE: ‘Pent-up demand’ for Islamic finance in Egypt, says expert: Daily Star Egypt

Global standards for Islamic banking, finance: The Star

2009-02-14T08:05:00.001-08:00

By Royce Cheah

DOHA: Malaysia has proposed a meeting be held on setting up global standards for Islamic banking and finance.

Prime Minister Datuk Seri Abdullah Ahmad Badawi said he had discussed this with Qatar Prime Minister Sheikh Hamad Jassem Jabor Al-Thani during the Malaysian delegation’s meetings on Wednesday and had proposed the first meeting be held in Kuala Lumpur.

“We had asked that more attention be given to Islamic banking considering its acceptance in the world now.

“The first meeting would be held among experts from countries that have Islamic banking sectors,” he said.

Abdullah said that global standards would resolve problems with a common approach and also eliminate confusion.

“There could be confusion when Islamic banks in different countries have different principles or practices,” he said.

The Malaysian delegation also discussed with Qatari officials the possibility of both countries making joint investments in other countries in their agricultural and halal product industries.

For more on this article, please click on the following link: Global standards for Islamic banking, finance: The Star

Bahrain hub of Islamic finance: Trade Arabia

2009-02-14T08:04:00.000-08:00

While the global financial services industry is in sharp retreat due to the credit crunch, Bahrain's reputation as a global centre for Islamic finance and the financial capital of the Middle East remains solid, a top official said.

This is reinforced by the 25 per cent contribution of its financial services sector to the country's gross domestic product (GDP) - and, in one of the world's fastest growing markets, there is plenty of room for further expansion and investment, Industry and Commerce minister Dr Hassan Fakhro said during the fifth edition of the annual banking and financial technology event Meftec 2009.

"Meftec, the world's leading financial technology event, encourages the use of weightless products and services to move us forward and not to stagnate as an economy," said Dr Fakhro who is chairman of the Bahrain Exhibition and Convention Authority, which is hosting the event.

For more on this article, please click on the following link: Bahrain hub of Islamic finance: Trade Arabia

Islamic banking offers alternative: Inquirer.net

2009-02-14T07:57:00.000-08:00

Agence France-Presse

KUALA LUMPUR, Malaysia -- The global economic crisis has handed the Islamic finance sector a "golden opportunity" to show it is a better alternative to capitalism, Malaysia said Monday.

Although capitalism has been pre-eminent for centuries, "it is becoming obvious that there is now more proof of its weaknesses," deputy Prime Minister Najib Razak said in a speech to an Islamic economic conference.

"We Muslims should see the current situation as a golden opportunity for us to prove the power, strength and effectiveness of the Islamic banking and finance system," he said in an opening address.

Islamic banking, a booming $1.0-trillion global industry that prohibits speculation and high levels of debt, has been relatively unscathed by the credit crunch.

The rules of the sector, which incorporate principles of sharia or Islamic law, prohibit many of the risky activities that triggered the crisis that is felling economies around the world.

"An economic system that is not closely linked to real and productive activities is a threat to the entire system," said Najib, who is also finance minister.

For more on this article, please click on the following link: Islamic banking offers alternative: Inquirer.net

Can Islam Save The Economy?: RD

2009-02-14T07:55:00.000-08:00

By Nathan Schneider

In the midst of a global financial crisis one sector has yet to suffer the fate of the rest. Islamic finance, or Sharia-compliant banking, offers strict moral guidelines for dealing with money. Trading debt and risky speculation are off-limits, as is investment in immoral enterprises like gambling, prostitution, and war profiteering. It might be time to get the muftis on the phone.

Governments worldwide are struggling to manage the global financial crisis, with no end to the downturn in sight. But at least so far, one sector has been unscathed: the $1 trillion-and-growing business of Sharia-compliant banking.

That’s right, Sharia. The same combination of medieval Islamic law and modern post-colonialism that makes the terrorist clique supposedly so hateful of Western freedoms. Where finance is concerned, most muftis—Islamic religious scholars—agree that God prohibits charging any amount of interest on loans. Trading debt and risky speculation are off-limits too, as is investment in immoral enterprises like gambling, prostitution, and war profiteering. Transactions should be highly transparent and risk, as well as return, should be shared by all parties. You can’t trap people into owing more than they can pay. Basically, most everything that caused the current mess isn’t allowed. “Given their constraints, they actually don’t hold any conventional debt or conventional mortgages,” explains Samuel Hayes, emeritus professor of investment banking at Harvard. “They don’t have any of these derivatives or outright subprime loans. There’s no doubt that they have weathered this better than the conventional banks.”

For a world in need of fast, creative solutions to a cascading crisis, might this financial subculture offer a way out? Duke University economist Timur Kuran calls for caution. “I think it’s going to be a year or two before we have enough data to really know if it is the case that the banks are doing better and what explains it.” One way or another, says Bill Maurer, an anthropologist at UC Irvine who studies alternative economies, “this is a really interesting moment for Islamic banking.”

Sharia-compliant banks began appearing in the 1970s, but the concept dates to mid-century in South Asia and the Middle East, as Muslims newly independent from European rule sought to create an Islamic identity that would permeate all aspects of life, public and private. The first banks were small partnerships and development initiatives. In 1975, the Islamic Development Bank was founded by 23 Muslim countries (now 56), combining a World Bank-style mission with interest-free loans to member governments. It lent legitimacy and visibility to the approach. That decade’s oil boom gave a jump start to a new crop of commercial Islamic banks, particularly in the Persian Gulf states. By the ’80s, Pakistan, Sudan, and Iran were making efforts to Islamize their entire economies.

For more on this article, please click on the following link: Can Islam Save The Economy?: RD

Pakistan’s Islamic Banks Plan to Open 230 New Outlets in 2009: Bloomberg

2009-02-14T07:53:00.001-08:00

By Shanthy Nambiar and Farhan Sharif

Jan. 27 (Bloomberg) -- Pakistan’s Islamic banks, which saw assets grow 20 times in the past five years, plan to expand their network of outlets this year to take advantage of rising demand for Shariah-compliant loans.

Islamic lenders may add about 230 branches in 2009, driven by the world’s second-biggest Muslim population, Pervez Said, director of Islamic banking at the State Bank of Pakistan, the central bank, said in a telephone interview today. These banks have 500 branches, after adding 210 outlets last year.

Pakistan is promoting growth in Islamic finance to expand the reach of the banking sector which has less than 25 million deposit accounts. Shariah-compliant loans are forecast to rise to 277 billion rupees ($3.5 billion) this year from 185 billion in 2008, according to central bank data.

“Islamic banking has the ability to take banking to sectors outside conventional banking because of peoples’ beliefs,” said the central bank’s Said, 52, who started the Islamic banking department in 2003.

Pakistan’s Islamic banks expanded assets by 7 percent to 251 billion rupees as of Sept. 30 last year from 235 billion rupees in 2007. Shariah-compliant lenders account for about 5 percent of total banking assets, which the central bank aims to raise to 12 percent by 2012.

For more on this article, please click on the following link: Pakistan’s Islamic Banks Plan to Open 230 New Outlets in 2009: Bloomberg

Islamic Securitization - The Right Way Forward?: RGE

2009-02-14T07:51:00.001-08:00

Heiko Hesse, Andreas Jobst and Juan A. Sole | Feb 13, 2009

1 Introduction

The collapse of the securitization market and the ensuing market turbulence have cast serious doubts on this economic proposition of unbundling, transforming, and re-distributing credit risk via structured finance instruments. In view of sweeping fiscal intervention in the financial sector, a widespread retrenchment of mortgage exposures, and substantial liquidity injections by central banks to support inter-bank money markets, both the scale and persistence of the current credit crisis seem to suggest that pervasive securitization — together with improvident credit origination, inadequate valuation methods, and insufficient regulatory oversight — can perpetuate market disruptions, with potentially adverse consequences for financial stability and economic growth.

After having nearly ground to a halt last year, the market for securitized debt remains moribund and pricing depressed as banks dispose of non-core assets and raise capital to de-lever and bolster their imploding balance sheets. The complexity of securitization structures, which once obscured actual loss exposures, perpetuated benign asset valuations, and incubated fallacious investor complacency, is now debilitating effective banking sector resolution in a time of systemic distress.

As the global credit crisis continues to deepen, the soul-searching in conventional finance has directed attention to alternative modes of structured finance to fill the void of unmet credit demand. In this context, some investors – unsettled by excessive risk-taking and asset price volatility – turned to Islamic finance as market ruptures caused by the headlong flight to safety during the initial phase of the credit crisis seem to recede only slowly. Islamic finance is driven by the general precept of extending religious doctrine in the shari’ah to financial agreements and transactions. Islamic finance is distinct from conventional finance insofar as it substitutes the (temporary) use of assets (or services) by the borrower for a permanent transfer of funds from the lender as a source of indebtedness (Jobst [2007]). Predatory lending, deteriorating underwriting standards, and a series of incentive problems between originators, arrangers, and sponsors, of which all have infested the conventional securitization process, belie fundamental Islamic principles.

In this regard, Islamic securitization, via shari’ah-compliant investment certificates or sukuk, invites a comparison of conventional and Islamic finance principles as to their capacity to sustain efficient capital allocation and financial stability. Sukuk have been affected by the global financial crisis only recently in response to inflationary pressures in the Gulf countries, uncertainty about commodity prices, and the widespread economic downturn. These Islamic investment certificates encompass a broad range of shari’ah-compliant financial instruments and can be best described as participation certificates that grant investors return from actual asset ownership in one or more Islamic contracts that are commonly accepted in the legal tradition. While sukuk are structured in a similar way to conventional asset-backed securities (ABS) or covered bonds, they can have significantly different underlying structures and provisions (Jobst et al. [2008]). Most importantly, sukuk — like Islamic financial instruments in general — need to comply with shari’ah, which prohibits the receipt and payment of interest and stipulates that income must be derived from an underlying real business risk rather than as a guaranteed return from interest.

The following article relates the characteristics of this form of securitization to calls for enhanced disclosure and standardization, ratings agency reforms, and better transparency of origination and underwriting practices in conventional structured finance. In particular, it assesses the potential of conflicts of interest (which became apparent in the U.S. subprime mortgage crisis) to contaminate the integrity of the securitization process if it were conducted in compliance with shari’ah principles.

2 Incentive problems of conventional securitization

The main cause of the crisis can be traced to market failure stemming from conflicts of interests in the securitization process and ill-designed mechanisms to mitigate the impact of asymmetric information. By substituting intermediated lending with capital market finance, securitization creates considerable agency cost (which are ultimately borne by investors) if agents are tempted to pursue their own economic incentives. The U.S. sub-prime mortgage crisis exposed the severity of fundamental incentive problems in conventional securitization and the lack of ex ante market discipline. The attendant market fallout demonstrated that remaining conflicts of interests between stakeholders entail significant agency costs, which — if left unchecked — escalate the adverse effects of deteriorating credit conditions, valuation difficulties, and higher leverage on financial stability. In particular, securitization facilitated excessive risk-taking to a point where the inability of issuers to gauge actual credit risk and the flexibility of asset managers to subvert investment mandates intensified the potential of systemic vulnerabilities to credit shocks.

For more on this article, please click on the following link: Islamic Securitization - The Right Way Forward?: RGE

Derivatives in Islamic Finance: EurekaHedge

2009-02-14T07:47:00.000-08:00

Andreas A Jobst, International Monetary Fund

May 2008

Despite their importance in financial sector development, derivatives are few and far between in countries where the compatibility of capital market transactions with Islamic law requires the development of Shariah-compliant structures. Islamic finance is governed by the Shariah, which bans speculation, but stipulates that income must be derived as profits from shared business risk rather than interest or guaranteed return.

Based on the current use of accepted risk transfer mechanisms in Islamic finance, this article explores the validity of derivatives in accordance with fundamental legal principles of the Shariah and summarises the key objections of Shariah scholars that challenge the permissibility of derivatives under Islamic law. In conclusion, the article delivers suggestions for Shariah compliance of derivatives.

Types of Islamic Finance

Since only interest-free forms of finance are considered permissible in Islamic finance, financial relationships between financiers and borrowers are not governed by capital-based investment gains but shared business risk (and returns) in lawful activities (halal). Any financial transaction under Islamic law implies direct participation in asset performance, which constitutes entrepreneurial investment that conveys clearly identifiable rights and obligations, for which investors are entitled to receive commensurate return in the form of state-contingent payments relative to asset performance.

The Shariah does not object to payment for the use of an asset, as long as both lender and borrower share the investment risk together and profits are not guaranteed ex-ante but accrue only if the investment itself yields income. In light of moral impediments to passive investment and secured interest as form of compensation, Shariah-compliant lending requires the replication of interest-bearing conventional finance via more complex structural arrangements of contingent claims, subject to the intent to create of an equitable system of distributive justice and promote permitted activities and public goods (maslahah).

The permissibility of risky capital investment without explicit interest earning has spawned three basic forms of Islamic financing for both investment and trade:

synthetic loans (debt-based) through a sale-repurchase agreement or back-to-back sale of borrower or third party-held assets
lease contracts (asset-based) through a sale-leaseback agreement (operating lease) or the lease of third-party acquired assets with purchase obligation components (financing lease)
profit-sharing contracts (equity-based) of future assets. As opposed to equity-based contracts, both debt- and asset-based contracts are initiated by a temporary (permanent) transfer of existing (future) assets from the borrower to the lender, or the acquisition of third-party assets by the lender on behalf of the borrower.

Implicit Derivatives in Islamic Finance

From an economic point of view, creditor-in-possession-based lending arrangements of Islamic finance replicate interest income of conventional lending transactions in a religiously acceptable manner. The concept of put-call parity illustrates that the three main types of Islamic finance represent different ways to re-characterise conventional interest, through the attribution of economic benefits from the ownership of an existing or future (contractible) asset by means of an implicit derivatives arrangement.

For more on this article, please click on the following link: Derivatives in Islamic Finance: EurekaHedge

Sharia-compliant derivatives - a contradiction in terms?: FT

2009-02-14T07:45:00.000-08:00

Posted by Stacy-Marie Ishmael on Feb 11 16:11.

Reuters is running an interesting story on Islamic banks’ struggles to develop hedging tools to cope with market volatility.

Not all Islamic scholars believe the use of derivatives is permitted by Sharia law - which leaves more conservative institutions with “few instruments to guard against wild swings in currency and interest rate movements,” according to the Reuters story.

“To the extent there are not enough sharia-compliant liquidity and risk management products, then clearly Islamic finance would be disadvantaged compared to conventional banks and would be less able to manage their liquidity risks,” said Hussein Hassan, head of Islamic structuring at Deutsche Bank .

The $1 trillion industry bans banking structures that are vague or ambiguous to avoid exploitation — a rule which some argue shuts out the use of common hedging instruments such as currency and interest rate swaps and futures contracts.

There are two major schools of thought on derivatives in the the world of Islamic finance. One view is that derivatives are necessarily speculative, and so would contravene the prohibition on gambling. Scholars who take this approach also tend to argue that since it is not always clear what the underlying assets referenced by a derivative are, use of the product violates the prescription that only tangible assets can be bought or sold.

The second, less conservative view is that derivatives are permitted as long as they are used solely to hedge existing positions.

For more on this article, please click on the following link: Sharia-compliant derivatives - a contradiction in terms?: FT

Islamic Banking in Pakistan

2009-02-14T07:41:00.000-08:00

By Saifullah

Banking sector is considered to be one of the important and essential pillars of nation's economy. Present banking system, which is based on the principles of interest, is highly criticised, as it could not offer the appropriate benefits to society. Thus this system is undesirable for lacking to serve human beings and any society. Particularly for Muslims this system is a threat as it operates against the principles and teachings of Islam. Muslim world is one of the major areas where Muslims are struggling and looking for improvement in this field of life. In this regard the elimination of interest from the financial sector is considered to be a major breakthrough. Muslim scholars and many other economists of the world who understand the negative impacts of interest are trying to promote the concept of interest-free banking system as taught by teaching of Islam. By prohibiting interest, Islam has endeavoured to do away with a hideous form of tyranny and injustice prevalent in human society. The institution of interest is a great challenge to all those who are trying to reconstruct the Islamic way of life in modern times. Efforts have been made to develop Islamic banking system and many of the banks operate on the basis of Islamic principles. Yet due to non-availability of the monetary system and Riba-free investment opportunities the Islamic banking system is not free of critics and considered dependent on interest-based system. -Islamic banking system faces a number of challenges. Among the agitating issues the foremost one is that they have not yet been successful in devising an interest-free mechanism to place their funds on a short-term basis. They face the same problem in financing consumer loans and government deficits. Second, the risk involved in profit sharing seems to be so high that most of the banks have resorted to those techniques of financing which bring them a fixed assured return. As a result, there is a lot of genuine criticism that these banks have not abolished interest but have in fact only changed the nomenclature of their transactions. Islamic finance has failed to capture the interest of western writers and it has been developed in isolation from its western counterpart. This deficiency can be rectified by reference to support for prohibition of interest in western literature, in the capitalist economies and evidence on attitudes towards Islamic finance. In Islam, interest is prohibited because the interest on the loan is an augmentation of capital without effort and a false creation of value. The increase of income must result from investment, labour and other activities. There are many arguments about prohibition of interest in Islam. The first argument is that interest rates have no moral foundation. The second is that abstinence from consumption is not a justification of rewards. The third reason is that there is no risk to justify the supplement payment for capital lending if loan is guaranteed. The creditor/debtor relationship is redefined in Islam with the creditor or provider of the funds becoming a partner in the project, assumes the risk activity with the entrepreneur and shares profit at a pre-agreed proportion. It is fairer for the creditor and debtor that they have a share of profits and losses. The creation of incremental wealth justifies the share of profit between the borrower and the lender of money but not fixed return. The banking system of Islamic countries based on Islamic economic principles is fast developing. This system is important due to growth of investment amount in Islamic banks and the consideration given to the system by the Government. Islamic banking is growing rapidly not only in Pakistan but also throughout the world. Islamic banking has a great potential to grow in future in Pakistan and State Bank is committed to the development of this industry. Pakistan has provided a supportive policy and regulatory framework for Islamic banking due to which investors of international repute are coming to establish new Islamic banks in country. The State Bank has set up a dedicated Islamic banking department for the promotion and regulation of this industry. SBP impresses upon the heads of Islamic banks to meet the growing challenges in the development of Islamic banking. The SBP has clarified to the industry there is a level playing field for Islamic Banks and has agreed to look at approaches to develop Islamic interbank market. Steps for Islamization of banking and financial system of Pakistan were started in 1977-78. Pakistan was among the three countries in the world that had been trying to implement interest-free banking at comprehensive/National level. We know that it is a mammoth task; the switchover plan was implemented in phases. Islamic banks face a number of challenges. First, they have not yet been successful in devising an interest-free mechanism to place their funds on a short-term basis. They face the same problems in financing consumer loans and government deficits. Second, the risk involved in profit-sharing seems to be so high that most of the banks have resorted to those techniques of financing which bring them fixed assured return. As a result, there is a lot of genuine criticism that these banks have not established interest but have in fact only changed the nomenclature of their transactions. Of course, it has to be kept in mind that these issues are at their elementary level of discussion. Much work has to be undertaken in terms of procedures, infrastructure and allowing a new framework to develop and mature. The new banking system of Islamic countries based on Islamic economic principles is fast developing. This system is important due to growth of investment amount in Islamic banks and the consideration given to the system by Governments. The developments have encouraged many studies on the Islamic banking system. However, little importance is given to application of modern finance theories to Islamic banks. Islamic economic principles are characterized by the application of managerial techniques and models advanced in the conventional financial framework. Islamic banks operate on a set of principles based on the Islamic law (Shariat). These principles are different from those of conventional banks. Instead of charging a fixed interest rate, Islamic banks use profit sharing principles (PLS) through its two varieties: Musharaka and Mudaraba. Key findings of relating Islamic banking are listed as under: 1. There is a shortage of short-term liquidity management tools and lack of capital markets in the interest-free industry. This hinders the fast growth of the sector. 2. Public appreciate efforts of the State Bank of Pakistan in promoting interest-free banking and wants the government of Pakistan to further facilitate this industry. 3. The current efforts by the government are not sufficient for the industry. Government should take further steps in promoting interest-free banking. 4. Interest-free banking industry has made a promising start with a lot of room for improvement and development. This sector has a great potential of further growth. 5. Results indicate that there is a lack of availability of wide range of interest-free banking products in Pakistan. 6. All the stakeholders of interest-free banking industry in Pakistan prefer interest-free banking to conventional banking system. 7. Interest-free banking requires time to challenge conventional banking in terms of market share and industry volume. 8. To eliminate interest from society, overall economy of Pakistan should be shifted to an interest-free base. 9. Conventional banking system can be converted into interest-free banking system. 10. The two parallel banking systems should run simultaneously and interest-free banking should further be facilitated. 11. People of Pakistan are not satisfied with the Islamic nature of products being offered by the interest-free banking industry and their true compliance with Shariah rules. Interest-free banking is not a new concept anymore. There are financial institutions in the world, which are operating without charging any interest. Even in Pakistan such institutions are in action. However there are hurdles and hindrances, which need to be removed to accelerate the growth of this industry in Pakistan and the world over. While many important issues were highlighted in this paper, it is strongly felt that it would be very helpful for the Islamic banking sector to address the following issues: 1. Planned and scheduled approach: A methodical and market driven approach towards the development of interest-free banking industry involving all the key constituents (including banks, regulators, securities & exchange commission, the Central Board of Revenue, and the Government of Pakistan) should be adopted. This should also facilitate in articulating the short- and long-term growth targets and the expected roles for these targets of this sector. Such a blueprint, publicly available and developed by participation of all stakeholders would be of immense help in growth of the industry. 2. Shariah compliant product range: The interest-free industry should expand its product line to create opportunities for Islamic banks in new markets. There are 12 Islamic modes of financing approved by the State Bank of Pakistan but only a few are functional so far. Innovative steps should be taken to introduce new products based on all the approved modes and consequently identifying new sources for profitable growth of this sector. 3. Capital Market Institutions: In addition to the creation of traditional consumer and commercial banks, efforts should also be made to encourage the creation of other Islamic finance institutions (e.g., investment banks, securities and market firms) and help interest-free banks mange their liquidity in a professional manner. 4. Innovation in Islamic liquidity management: Due to liquidity problems, interest-free banking sector faces a significant strategic and operational disadvantage. A creative focus is required to find ways and needs of Islamic liquidity management. Adopting an integrated Islamic capital market approach might be the right way through which cross border marketability of sukuks and other asset-backed securities. Similarly, integration of conventional and interest-free capital markets as carried out in Arab states would also help in this regards. 5. Partnership with world and institutions: Close relations with other Islamic states of the world should be established to promote this concept and learn from each other's experiences. Also, it would be highly beneficial for Islamic banking sector in Pakistan to maintain close relationship with IDB and IDB-sponsored infrastructure institutions to ensure that we are able to build upon the learning of these infrastructure institutions and, to the extent possible, work with these institutions in developing this sector. 6. Socio-economic factors: The conversion of economy of Pakistan to an interest-free base would have a catalytic effect on the growth of interest-free banking. In this case, both economy and banking would boost each other up resulting in a greater momentum towards growth. Honesty, trust-worthiness, simplicity, truthfulness spirit of sacrifice (Islamic brotherhood) in few important and required traits that should prevail in a society that wants to eliminate the evil of interest. Islamic principles of interest are concerned with issues of fairness and justice rather that of efficiency narrowly defined. These principles focus on the necessity of sharing risk in a fair and stable society, and upon problems of exploitation in markets where power is asymmetric; this is the real Riba Issue. There is a wide scope for interest-free banking system as modern banking system has failed to fill up the income gap and bring socio-economic equability among people, society and even countries and nations. Muslim world is about 25% of world's told population occupying nearly 20% of total area. They own 40% of oil and gas resources; hence there exist a big market for interest-free banking. There is a problem in terms of the lack of Islamically compliant short-term liquidity instruments. There needs to be a truly global-sized liquid inter-bank market where institutions can park their liquidity reserves. Highly ethical, well-regulated and beneficial Islamic financial architecture is possible. Indeed, working in this field with more transparency, with effective corporate governance and with better interaction with relevant international, regional and national institutions, will definitely help all (those) who want to contribute to the welfare of their community as well as to the welfare of the world as a whole. If proper attention and honest efforts are made there is no doubt that an interest-free banking system would increase savings which will result in more investment, more economic growth and above all equal distribution of wealth in Pakistan.

(The Frontier Post)

Islamic finance sector has room to grow: The Star

2009-02-14T07:24:00.000-08:00

By Aziz Tayyebi

ISLAMIC banking has, to a large extent, been shielded from the credit crisis which has devastated conventional banking and finance.

As such, many proponents of Islamic banking, such as Deputy Prime Minister and Finance Minister Datuk Seri Najib Tun Razak, have said the principles of Islamic finance could provide concrete and realistic measures to tackle the financial crisis.

However, the Islamic finance industry still has some way to go before it can be a serious alternative to conventional finance and banking. While Islamic finance is growing at a rate of 5%–10% per year, it still only constitutes a small proportion of the global financial services sector, with a market valued at between US$500mil and US$1bil.

For Islamic finance to take a greater share and to expand in other jurisdictions, it needs to focus on a number of key issues and challenges, such as enhanced risk management and product development, syariah standardisation and human capital development. Critically, many risk management tools, such as complex derivatives, are not available to Islamic institutions.

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