June 2010 Issue

Islamic finance market set to hit $1trn mark

Gulf Daily News, Bahrain

Tunisia Opens First Islamic Bank in North Africa

Global Arab Network

Rise of Islamic Finance in Russia

Ahlulbayat News Agency

There is no doubt of the potential for Islamic finance in Russia and the CIS countries, but the major stumbling block is the absence of enabling legislation and a regulatory framework to facilitate Islamic financial products such as Murabaha, Ijara and sukuk. These sentiments could not have been articulated better at the Moscow Forum on Islamic Finance and Investments, which was held in the Russian capital last
Thursday and attended by a host of local and international participants, including Ali Hassan Jaafar, the Saudi Arabian ambassador to Russia, Arab News wrote.
While the Central Bank of Russia largely remains disinterested in taking the initiative in facilitating Islamic finance in the country, behind the scenes there are some encouraging developments that could speed up the introduction of Shariah-compliant products there.

Islamic banking to be monitored

BDNews24.com, Bangladesh

The central bank has moved to introduce an independent, comprehensive guideline and monitoring system to supervise Islamic banking operations. The initiative has been included in the first-ever five-year strategic plan of the banking sector regulator. The plan was officially unveiled at a programme on Sunday in the capital's Hotel Purbani by Bangladesh Bank governor Atiur Rahman. It says, "A coordinated guideline and monitoring system will separately be developed for Islamic banking."
Seven banks now run Islamic banking operations on a full scale, while a number of local and foreign banks have separate Islamic banking branches. Under this banking system, loans and Amanat operations are conducted through giving profit shares instead of interest. A number of media reports have accused some Islamic banks of funding Islamist militants. State minister for law Qamrul Islam recently asked the government to take control of a number of Islamist Jamaat-e-Islami–backed banks and financial institutions including the Islami Bank, the largest private bank by capital. The plan for the years 2010-2014 also targets to automate majority of the banking sectors and outreach their services to a larger clientele. Atiur Rahman said, "It is our request to all banks and financial institutions in the country to make such strategic plans."

Islamic Finance Set to be a $ 2 trillion Industry within Five Years

Global Arab Network

Islamic Finance is all set to be a $ 2 trillion industry in the next half a decade according to Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters. Speaking at a panel discussion at the MENASA Forum titled ‘The Challenges Ahead for Islamic Finance’, Siddiqui said: “It took the Islamic Finance industry 40 years to become a $ 1 trillion industry. It will take another two to five years to become a $ 2 trillion industry.” However, there are many challenges that need to be overcome for the industry to realise its potential. Panellists said the lack of standardisation in the industry, the lack of consensus among Shari’ah scholars, the a poor “connectivity” between Islamic Finance institutions across the world, and the global shortage of experienced Islamic Finance professionals are some of the challenges facing the industry.

Islamic Finance under Indian Legal System

Redieance Views Weekly, India

It is possible to operate a financial institution following the extant laws and regulations and at the same time ensure that the transactions carried out by the institution comply with the principles of Islamic Shari’ah. The existing statutory regime provides enough leeway to follow the law and Shari’ah at the same time. Thus, it is possible to carry on financing activity based on Shari’ah by constituting;
(a) a co-operative credit society or a non deposit accepting Non-banking financial institution or
(b) a trust or a company registered with SEBI operating as Domestic Venture Capital Fund or
(c) a Foreign Venture capital Fund, registered with SEBI or
(d) run Takaful business (Islamic Insurance as a co-operative Society where the cover is available to members only) or
(e) open an Islamic window in a conventional bank without awaiting any change in the existing laws and regulations and without contravening any of the existing Laws or Regulations.
The easiest way to introduce Islamic Financial system in the Indian Financial market is to start doing whatever is permissible within the extant laws and get noticed.

London can play major role in Islamic financial sector

The Star Online

London can play a major role in the growth and the further progress of the Islamic financial sector due to vast exposure to the sector, said HRH Prince Andrew, Duke of York. United Kingdom, the largest centre of Islamic finance in the Western world, has established a new Islamic Finance Secretariat in March, the first Islamic finance trade body in the country with the aim of coordinating and promoting the services. “It is looking to build upon, for example, the 22 Islamic banks already in operations in London. About 20 sukuk have been issued on the London Stock Exchange which have raised over US$11bil and there are 20 law firms in London which provide specialist services in Islamic finance,” he said at a luncheon talk at the 6th World Islamic Economic Forum yesterday. Prince Andrew said Islamic finance was also an important instrument to strike a balance between risk taking and the requirement to
provide capital to stimulate business in this difficult economy.
“This is relevant because, by whatever measures you apply, the Islamic world constitutes a major and growing part of global population – which includes over two million people in the UK alone. “And Islamic finance will play its part in getting global finance environment back on track and will continue to be used in businesses in the future,” he said, adding that syariah-compliant asset had reached US$400bil as of end of last year.

Bank Islam, Barclays to jointly develop Islamic financial products

International Islamic News Agency

Bank Islam Malaysia Bhd and Barclays Bank plc signed a memorandum of agreement (MOA) on the customisation of Islamic investment products and hedging solutions. Both banks had recently entered into the syariah-compliant deal where Barclays acted as counter-party in the underlying transaction of an investment product, worth RM110 million, that Bank Islam offered to Barclays' customers.
Bank Islam's managing director, Datuk Seri Zukri Samat, said the collaboration would offer an excellent platform for cooperation between the two banks. "The agreement covers syariah-compliant risk management solutions and will formalise the already-established collaboration between the two banks. "Going forward, we hope to launch more products in collaboration with Barclays," he told reporters after signing the MOA at the Sixth World Islamic Economic Forum on Wednesday.
Zukri said more innovative products, such as structured investment, would be introduced in the market to offer customers more options. He said under the MOA, Bank Islam and Barclays would, among others, work together to develop Islamic Treasury products. In addition, he said, Bank Islam was looking at joining forces with Barclays in designing products for its own hedging strategies and purposes. "Each party to the agreement offers a unique set of knowledge and expertise which, when combined, will create a synergy that can catapult this area of Islamic banking to greater heights," he said.

Australia to get Islamic finance friendly

Expressindia, India

Shariat-compliance is fast catching on Down Under too. Australia will outline laws in the second half of 2011 to equalise the tax treatment of Islamic finance and conventional banking, a government official said on Thursday. The comments from Nick Sherry, Australia's assistant treasurer, mark the first time that the government has indicated a timeline for the change. Australia joins a growing number of non-Muslim countries, which include Hong Kong, looking to develop their Islamic finance sector by changing regulations to attract investors who can only put their money in sharia-compliant assets. Islamic financial transactions can be costlier than conventional deals as they often involve multiple sale and purchase transactions, which create a greater tax liability. More countries have been exploring Islamic banking since the global financial crisis and Australia, which is dependent on foreign capital for its growth, is keen to become an Islamic finance centre.

Malaysian Law Firm Welcomes Aussie Move On Islamic Finance

Bernama Malaysia

ZICO has welcomed Canberra's decision to review the treatment of Islamic finance in Australia. "It puts Australia on par with other financial centres, including the United Kingdom, Hong Kong and Singapore, that have tax neutrality provisions to facilitate the development of Islamic finance in their respective jurisdictions," said ZICO chairman and senior partner, Datuk Dr Nik Norzrul Nik Hassan Thani in a statement here. He said the creation of an "enabling environment" for Islamic finance, including a dynamic tax infrastructure, would be a key criterion for the successful implementation of Islamic finance in Australia. Australia's Assistant Treasurer, Senator Nick Sherry on Tuesday announced the Australian Board of Taxation would undertake a comprehensive analysis of the country's tax laws to ensure, where possible, it does not inhibit the provision of Islamic finance, banking and insurance products. Senator Sherry said Australia wanted to create a fair and level playing field for Islamic financial products entering the Australian market. Zaid Ibrahim & Co, the first Asian law firm to gain approval from Australia last December to practice in Sydney and Melbourne, said this was an opportune and strategic initiative by Australia, as it positioned itself as a key player within the global Islamic finance sector. Islamic finance is a rapidly growing part of the global financial system and it is estimated, the Islamic finance, banking and insurance market alone is worth almost RM3 trillion (A$1 trillion) and is envisaged to reach RM15 trillion (A$5 trillion).

Islamic finance growth to pick up by year's end

Emirates Business

Growth in Islamic finance could be slow but is expected to pick up by the end of this year. The sector would see increased focus on innovation and industry players exploring the untapped segments, industry experts said. Retail, consumer banking, SME commercial banking and investment banking are the areas where Islamic banking sector would continue to see growth this year, said Moinuddin Malim, Chief Executive Officer, Mashreq Al Islami, told Emirates Business.
Growth in Islamic finance, he said, could be a little slow this year, but it would pick up by the end of 2010 and further gain momentum by 2011. "Growth in Islamic finance industry could be slow but from historical perspective it has always outgrown conventional finance and it is pure demand from customers. It is supposed to pick up from the end of this year and in 2011 should improve much more." Innovation and exploring the untapped segments are expected to be a focus area in the Islamic finance sector which continues to grow in 2010. There would be a greater push towards finding other areas such as fund management, said Samad Sirohey, Chief Executive Officer of Citi Islamic Investment Bank. "In Islamic finance, which should grow now, there would be a push towards other areas such as fund management. It is still not a big industry but is expected to attract greater focus. Institutions could be looking at managing money on Shariah compliant basis, not necessarily through bank structure but also through fund managers."

Saudi Arabia tops in Islamic loans volume

The Star Online, Malaysia

Islamic finance, which has shown its resilience with uninterrupted growth in recent years despite the challenging global environment, has drawn significant interest from non-Muslims. Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz said interest in Islamic financing was no longer restricted to Muslims but have spread to non-Muslims. Speaking at the Malaysia Showcase Dinner in conjunction with the 7th Islamic Financial Services Board Summit, she said Islamic finance’s sustained and largely uninterrupted expansion had drawn significant international interest. Zeti said this could be seen from the efforts taken by financial centres in London, Hong Kong and Singapore in enhancing the development of Islamic finance.

Islamic funds industry 'ready to bounce back'

Daily News Bahrain

As the curtain came down on the 6th Annual World Islamic Funds and Capital Markets Conference (WIFCMC) yesterday, organiser MEGA Events managing director Davis McLean predicted that next year would see the industry bounce back after a year of stabilisation. "This year we have seen the Islamic funds industry re-invent itself and by 2011 we expect growth to be back on track," he said. "That is certainly the view that came across here from experts from all over the world.
"The industry has not gone backwards but has been flat as it reorganised in the wake of the financial crisis and can now move forward strongly. "We did not see the conference grow this year as it has in the past but we have kept pace and next year this event will be moving ahead again," he said. "The strength of the WIFCMC brand was again evident this year as a record number of market leading institutions came on board in support of the event. "Last year's conference wrapped up with a clear signal that even in challenging times for the global financial markets that Islamic funds and investment markets were solid and that has proved to be the case.

Separate law needed for Islamic banking in India

Times of India

Islamic banking in India is not possible now with the current banking principles based on interest payment, but it can be done though a separate legislation, Reserve Bank of India Governor D Subbarao said here on Thursday. "With the present set of Banking Regulation Act, Islamic banking just cannot take place because many of the banking principles in place are based on interest payments. However, Islamic banking is possible through a separate legislation," Subbarao told reporters here at the end RBI board meeting. Asked about the Kerala High Court ruling asking the state government and its agencies to keep away from a new company that has been registered under the Sharia laws of banking, he said: "Since this is a constitutional issue of whether a government can or cannot enter, we have nothing to say on that." Last month a division bench of the high court asked the Kerala government and its organisations to keep off from the proposed Islamic Bank which has begun preliminary operations in the state.

Kenya sees potential of Islamic banking

The National, UAE

NAIROBI // Kenya is considering allowing Islamic financial products as the east African country tries to tap into funding from the Middle East. The effort by the Central Bank of Kenya comes two years after the country licensed its first Islamic banks. Gulf African Bank, the first Islamic bank in the country, has found its niche and was looking to capitalise on the call for new financial products. Islamic or Sharia-compliant banking is a fast-growing segment of the financial sector in Kenya. Its principles include banking without giving or receiving interest payments and investing in Muslim-friendly enterprises. Gulf African Bank, partly owned by the Dubai equity company Istithmar World, and First Community Bank, Kenya’s other Islamic lender, control 1 per cent of the banking sector’s net assets after less than two years of operation. “This is a testimony of the vast potential of Islamic finance in Kenya, which should be tapped,” said Njuguna Ndugu, the head of the central bank. “Opportunities should be explored in the insurance and capital market segments using Sharia- compliant vehicles.” Mr Ndugu spoke this month at the second East and Central Africa Islamic Finance Conference in Nairobi. The central bank is clearing the way for the issue of Sharia-compliant bonds, known as sukuk. It is also exploring Islamic-based co-operative insurance or takaful.

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