Islamic Finance Today

Pengaktifan Semula IF Blog

2011-10-20T11:31:00.001+08:00

Salam, setelah sekian lama tidak menjengah blog ini, hari ini tergerak hati untuk mengakifkan semula blog ini. Saya bercadang ia dijadikan tempat untuk meluahkan, mengalirkan atau menghadamkan penulisan saya di sini.

Top 500 Islamic Financial Institutions ranking shows Islamic finance continues double digit growth despite global crisis

2009-11-06T16:20:00.001+08:00

Islamic banking assets continued double-digit growth this year, even as conventional bank growth stagnated, according to The Banker's "Top 500 Islamic Financial Institutions" survey, published in association with HSBC Amanah.

Now in its third year, the report is the only annual benchmark of its kind, which ranks over 600 retail, commercial and investment banks, insurance companies and asset managers according to their Shariah-compliant assets.

Assets held by fully Shariah-compliant banks or Islamic banking windows of conventional banks, rose by 28.6%, to $822bn from $639bn in 2008. This is in striking contrast to The Banker's 2009 "Top 1000 World Bank Rankings" released in July, which showed annual asset growth of just 6.8% at conventional banks.

The Islamic finance industry continues to build a solid track record: the compound annual growth rate for 2006-2009 is 27.86%, with assets forecast to hit $1033bn in 2010.

Mr Brian Caplen, Editor of The Banker Magazine, said, "A conservative approach to risk and a close link between the financial sector and real assets has helped shield the sector from the worst of the credit crisis. But finding improved ways to manage liquidity at Islamic banks, as well as harmonising Shariah and prudential compliance between institutions and markets, remain significant hurdles."

David Dew, Deputy CEO of HSBC Amanah, said:

"It is important that the Islamic Finance industry continues to analyse its growth critically if it is to become a truly credible alternative to conventional banking in a significant number of markets."

Dew added, "Our support for this global benchmark reflects HSBC Amanah's status as the premier cross-border provider of Shariah compliant financial services to retail, corporate and institutional clients. It also illustrates our commitment to continue to meet customer needs, which we believe will enable the industry to achieve meaningful scale and mainstream relevance in a growing number of international markets."

The Gulf Cooperation Council (GCC) states remained the dominant segment of Islamic finance, with $353.2bn or 42.9% of the total global aggregate. Iran remains the largest single market for Shariah-compliant assets, accounting for 35.6% of the global aggregate.

Outside the Middle East, Malaysia remains by far the largest player, accounting for 10.5% of the global aggregate, but other markets are expanding rapidly. The UK now accounts for just under 2.5% of global Shariah-compliant assets, and the Syrian Islamic finance market expanded an eye-catching 500%.

Mr Caplen added, "An extra 30 or so banks reported up-to-date data for this year, but transparency and financial reporting remain challenges for the Islamic banking industry if it is to continue its impressive growth rate."

Source: http://www.ameinfo.com/214968.html

Islamic bank assets up 29 percent - survey

2009-11-06T16:16:00.000+08:00

DUBAI, Nov 5 (Reuters) - Islamic banks have attracted more assets than conventional banks in 2009 due to a more conservative approach to risk, according to a survey on Thursday from The Banker Magazine and a unit of HSBC (HSBA.L).

The survey found assets held by Islamic banks or sharia-banking arms of conventional banks rose 29 percent this year to $822 billion.

A similar survey by The Banker on "Top 1,000 World Bank Rankings" in July found annual asset growth at conventional banks of 6.8 percent.

While Iranian banks accounted for about 36 percent of total assets, Gulf banks, led by Al Rahji Bank of Saudi Arabia 1120.SE, are making their mark in the top 10 Islamic banks by assets. [ID:nKLR444665]

The Gulf states account for 43 percent or $353 billion of the total global aggregate. Despite the growth, the sharia-compliant aggregate asset total is less than 1 percent of the Top 1,000 World Banks aggregate asset total.

Vishnu Kant, senior analyst at Sico Bank in Bahrain said: "In the Gulf, Islamic banks will continue to do well. But in the long term, they will face tough competition from conventional banks as the global uncertainty gradually declines".

David Dew, deputy chief excutive officer of HSBC Amanah said: "It is important that the Islamic finance industry continues to analyse its growth critically if it is to become a truly credible alternative to conventional banking in a significant number of markets".

Assets held by Islamic financial institutions are forecast to hit $1.033 trillion in 2010 according to HSBC Amanah and The Banker. (Reporting by Rachna Uppal; Editing by Dan Lalor) ($1 = 3.750 Saudi riyals)

Source: http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSL563189120091105

Islamic Finance: Lower Risk, But at What Cost?

2009-11-06T16:11:00.000+08:00

Posted by: Carol Matlack on November 05

Financial products based on 8th-century religious laws may seem an unlikely haven during a global crisis. But Islamic banking and financial services, based on traditional Muslim laws known as Sharia, are enjoying a major resurgence.

A survey released on Nov. 5 by The Banker magazine found that assets held by Sharia-compliant banks rose 28.6% in 2009 to $822 billion, while assets held by conventional banks grew only 6.8%.

True, Islamic finance still accounts for only about 1% of the global financial-services market, according to the Organization for Economic Cooperation and Development. But Sharia’s strict rules against speculation, hedging, and off-balance-sheet holdings are attracting investors worldwide. Already, some 50% of clients of Islamic financial institutions are non-Muslim, Anthony O’Sullivan, head of private-sector development at the OECD, said at a Nov. 4 conference in Paris on Islamic financing.

Rather than targeting Muslim clients, “We try just to be a good bank,” Lilian Le Falher, executive manager of the Bahrain operations of Kuwait Finance House, one of several Islamic banks represented at the Paris conference. The gathering was hosted by French Finance Minister Christine Lagarde, as part of a push by French officials to promote Paris as a global center for Islamic financial services.

Under Sharia, money can only be lent if fully backed by collateral, and debt cannot be repackaged – restrictions that helped cushion Islamic financial institutions against the worst of the global turmoil last year. Some, though, have been hurt more recently because they have extensive real estate holdings in the Persian Gulf, where property values have plummeted.

Despite its attractiveness as a haven from risk, Islamic finance still has a major drawback: It’s generally more-expensive than traditional forms of financing. Renault Nissan boss Carlos Ghosn, another speaker at the Paris conference, said that if it weren’t for the higher costs, his company would gladly use Islamic financing in countries such as Morocco where it is making major investments.

Because Sharia forbids charging or paying interest, Islamic institutions often set up elaborate arrangements in which borrower and lender form nominal partnerships. For example, a bank making a Sharia-compliant home loan could form a partnership with the buyer to purchase a property, then rent it to the buyer. Such arrangements aren’t always the most efficient.

Still another problem is that authorities in different Muslim countries don’t always use the same interpretations of Sharia, making it difficult to develop financial products that can be sold across borders.

Islamic finance could one day become a major global force. But, as Ghosn put it, before that happens it will have to become “less expensive, simpler, and better understood.”

Source: http://www.businessweek.com/globalbiz/blog/europeinsight/archives/2009/11/islamic_finance.html

Malaysian PM warns Islamic financial sector

2009-11-06T16:03:00.001+08:00

03 November 2009

The fast-growing Islamic financial sector needs strong regulation to ensure it never faces the damage suffered by the global system as a result of the financial crisis, Malaysia's prime minister said yesterday.

Najib Razak, whose government oversees one of the world's largest and most comprehensive Islamic financial sectors, said it was "imperative for the industry to draw upon the lessons learnt to ensure that we avoid any such financial instability in the future".

Mr Najib said the Islamic financial system was attracting growing global attention as conventional financial institutions continued to reel from huge losses.

However, it would remain resilient only with strong governance and risk management systems that could keep pace with sophisticated innovation.

"Although Islamic finance has largely escaped the ravages caused by overzealous financial innovation and imprudent lending practices, which were at the heart of the global crisis, we cannot afford to be complacent," he said at a conference in Kuala Lumpur.

The Islamic financial sector has emerged as a key element of the Malaysian economy following the establishment of a single national sharia advisory council within Bank Negara Malaysia, the central bank, which also oversees the country's parallel conventional financial system.

Malaysian Islamic banking assets account for about $65bn with takaful [Islamic insurance] assets of about $2.6bn and Islamic capital market stocks with a market value of about $235bn.

The country is also a centre for sukuk [Islamic bonds] and is developing an Islamic commodities market.

According to Bank Negara, Islamic assets under management globally amount to about $750bn and are growing at between 15 and 20 per cent a year.

The bank said there was about 680 sharia-compliant funds globally and about $107bn of outstanding sukuk.

Malaysia has signed agreements with a number of countries, including Bahrain, Dubai and Qatar, to collaborate on developing Islamic finance, including mutual recognition of common standards.

However, some muslim academics have said the Islamic sector needs a uniform system of international regulation, including a single sharia authority, to remove the threat of potential instability as innovative products come on to the market.

Dr Abbas Mirakhor, a former executive director of the International Monetary Fund, called recently for a transnational regulatory authority to replace the many sharia councils and individual muslim scholars whose approval is sufficient to allow the launch of a new Islamic product.

"It is possible to standardise and harmonise across borders a system of sharia rulings that would obviate the need for every bank and every instrument to have its own sharia boards," Dr Abbas told the Financial Times.

By Kevin Brown in Singapore

Business Schools World-Wide Add Courses on Islamic Finance

2009-11-06T15:58:00.002+08:00

By BETH GARDINER

As Islamic finance grows into a thriving and increasingly lucrative sector, business schools around the world are adding courses, concentrations and specialized degrees to train students in structuring investments that comply with Quranic law.

The vast wealth of the Muslim world, buoyed by high oil prices, and a Muslim population increasingly interested in investing its money in ways that accord with religious principles have driven a boom this decade in specialized Islamic financial products.

When a sector grows so quickly, "the very first thing that there is a shortage of expertise," says John Board, director of the ICMA financial studies center at the University of Reading's Henley Business School in Britain, which has enrolled about 10 students in the first year of its masters' in investment banking and Islamic finance.

In both Muslim and non-Muslim countries, experts in the field say, there's great demand for practitioners trained to deal in the sometimes complicated products required to turn a profit while obeying strictures like a prohibition on interest. B-schools say the boom is so great that they've even had trouble finding faculty with the required expertise in both financial practice and the principles of Sharia law.

Both large international banks with Islamic finance divisions and specialized Islamic institutions are seeking the business of oil-producing countries' massive sovereign funds and of wealthy Muslim individuals. The schools are eager to train prospective and current employees in both full-time masters' programs and executive-education courses.

Universities in Muslim countries, particularly Malaysia, have added and expanded Islamic finance programs in recent years. Outside the Muslim world, Britain has sought to position itself as the main center for such work, with at least 22 banks providing some Islamic finance products and 55 British educational institutions, including business schools and private trainers, offering courses in the field, says Ruth Martin, managing director of the Securities and Investment Institute, a London-based professional body.

Lebanon's central bank initiated a joint effort by the Securities and Investment Institute and Beirut's Ecole Supérieure des Affaires to create an Islamic finance qualification, Ms. Martin says. The certification, started in 2007, is now being offered by more than 30 business schools in countries including Kuwait, Pakistan, Saudi Arabia and Britain, she says.

Bank Negara Malaysia, Malaysia's central bank, started the Islamic finance university INCEIF in 2006 to help train practitioners.

"We do find a number of Malaysians who work in this area are being snatched like hotcakes by the Middle Eastern countries," says Datuk Dr. Syed Othman Alhabshi, the school's dean.

In Saudi Arabia, the first cohort of students begins studies in March at the women's university Effat in a new executive Islamic financial management degree course run by the Ecole Supérieure des Affaires and Erasmus University's Rotterdam School of Management in the Netherlands.

Cass Business School is among the many British institutions with new programs in the area. The executive M.B.A. it offers in Dubai has given students the option since 2007 of specializing in Islamic finance, and corporate clients also send staff for a shorter-term overview of the field, says Zaher Barakat, who teaches in the program.

One of the central tenets of Islamic finance is its prohibition on the payment of interest, which has inspired a variety of alternatives to mortgages and other loans, as well as creative ways of helping those with capital earn a return.

Techniques like leasing, equity sharing and profit-and-loss sharing offer vehicles through which an investor can, for example, finance a new plant and then lease it to a manufacturer, rather than lending the money to buy it.

Sharia law also requires clarity and openness in all transactions, involving detailed audit trails so that all parties have full information about the sources of the funds involved. Debt cannot be classed as an asset to be sold to a third party, and investments in areas like alcohol, gambling and weapons are forbidden. Islamic bonds and insurance follow their own sets of rigorous rules.

Proponents note that the prohibition on interest charging and the selling of debt shielded the sector from exposure to subprime mortgages and some of the complex debt-backed instruments at the center of the financial crisis.

"There is a lot of reduction in risk," Dean Alhabshi says. "Sharia requires Islamic financing to be asset-based, or at least asset-backed."

And while its inherent conservatism has meant in the past that the potential for profit is lower in Islamic finance, many say that has begun to change. Environmentally conscious investments now earn as much as conventional portfolios, says Mr. Board of the University of Reading. "The same will become true of Islamic products," he says. "It's almost there now; that differential is getting smaller."

Finance isn't the only area where business schools have spotted opportunity in the Muslim world.

At Oxford's Saïd Business School, associate fellow Paul Temporal is researching marketing and branding to Muslim consumers. Almost no study has been done of consumer behavior and decision-making in the Muslim world, hamstringing local and international companies hoping to sell there, he says.

"It's a quarter of the world's population and represents a huge opportunity, but how do we get to them and how do they behave?" he asks.

Based on the results of Mr. Temporal's research, Saïd plans to offer executive education to companies that are based in the Muslim world and need branding expertise. It also hopes to reach large international corporations that want to sell in Muslim nations but lack the cultural understanding to market effectively.

Printed in The Wall Street Journal, page A12\

Source: http://online.wsj.com/article/SB125745015996431565.html?mod=article-outset-box

Islamic finance growth seen 10-20 per cent in three years: study

2009-10-17T09:09:00.000+08:00

By Reuters on Friday, October 16, 2009

Most executives involved in Islamic finance expect the industry to grow by between 10 and 20 percent over the next three years, a survey published by accountancy firm BDO showed on Thursday.

The study, based on responses from 173 financial services executives active in the sector, found that 53 percent expected 10 and 20 percent growth while another 22 percent felt the industry could grow by 20-30 percent or more.

Some 23 percent felt it would experience growth of 0-10 percent, or no growth at all.

The Islamic finance industry is estimated to be worth about $1 trillion and is dominated by the issuance of Islamic bonds, or sukuk. Growth, however, has been held back by a shortage of expertise and poor harmonisation of the criteria applied to products, the survey respondents said.

Islamic products must be endorsed by scholars able to interpret sharia law and understand the technicalities of financial products.

The industry has struggled to agree on a set of common principles as it is governed by a patchwork of national regulators, standard-setting industry bodies and individual scholars ruling on products and contracts.

Due to different interpretations of the sharia or Islamic law in different regions, a financial product accepted by one set of scholars could be rejected by others. These discrepancies make cross-border distribution difficult.

AAOIFI, a Bahrain-based body responsible for accounting, auditing and governance standards in Islamic finance, is setting up a committee which will try to establish common guidelines in the industry.

"We feel that these differences are damaging our credibility severely within the Muslim (world) and outside," said Mohamad Nedal Alchaar, AAOIFI secretary general, who attended the presentation of the survey results.

The committee will include representatives of scholars, lawyers, auditors, regulators and bankers who from next year will sieve through financial products and gauge their compliance with Islamic principles.

AAOIFI's standards are adopted in some Middle Eastern markets, including the Dubai International Financial Centre.

The committee will seek to convince providers to alter products it deems inappropriate but will be prepared to go public with its concerns if no progress is made.

The BDO survey respondents picked out Islamic retail loans as the product with most revenue potential, while Islamic insurance, or takaful, was the next most popular. Sukuk were only fourth on the list, behind Islamic mortgages.

Source:http://www.business24-7.ae

Thailand To Issue Sukuk Bonds

2009-03-27T15:34:00.002+08:00

Source:

BANGKOK, March 26 (Bernama) -- The Islamic Bank of Thailand (IBT) plans to rise between US$70 million to US$200 million via Sukuk Islamic bonds in Malaysia and Middle East countries by this year.Malaysia's second largest banking group CIMB, and its newly acquired BankThai, had approached the IBT to launch the Sukuk bond in Malaysia.IBT chairman Professor Somchai Virunhapol said this would be the first time Thailand was issuing Sukuk bonds, adding that other targeted countries besides Malaysia were Kuwait, Bahrain and the United Arab Emirates (UAE)."We have already held talks with CIMB on the scope of cooperation, but no figures have been discussed as yet. Similarly, we received very good response from the Middle East countries during our visit there a month ago," he said on the sidelines of the Third Thailand Islamic Finance Conference here today.According to reports, in 2007 alone, CIMB arranged more than US$4.96 billion worth of Islamic bonds globally, equivalent to 16 percent of the world market, and of which US$4.67 billion was issued in Malaysia.The global Islamic financing products are estimated at US$1 trillion, with annual growth of between 10 to 15 percent.Somchai said there were big potential for Sukuk bonds and other Shariah compliant financing products in the country.The Thai government, he added, had estimated that about 20 percent of financing for a projected US$100 billion investment in mega projects over the next 10 years, would come from such financing products.About 50 percent of the investment is expected to go towards the transportation sector, namely for the construction of new railway tracks and trains, subway lines and airport, as well as 25 percent each for the energy and other sectors.According to Somchai, even though the world was experiencing an economic crisis, which had affected the conventional financing system, the Islamic bond market remained strong, especially in the cash-rich Middle East countries.He also said that the IBT planned to open three new branches this year from its current 26, adding that it currently has over 100,000 savings account holders."There are about eight million Muslims in Thailand and we are tapping a niche market with very big potential," he explained.Somchai, however, said that the Thai Finance Ministry had to waive taxes such as the specific business tax and capital gains tax before Sukuk bonds could be issued.The IBT was established in 2003 to offer financial services in compliance with Islamic law and to serve the country's Muslim population.The Thai Finance Ministry is the largest shareholder with a 48.54 percent stake in the bank.

Islamic Banking Escaped Crisis

2009-03-02T14:50:00.001+08:00

Source:

March 1, 2009

JAKARTA - INDONESIAN Vice President Jusuf Kalla on Sunday said Islamic banking had escaped the global economic crisis relatively unscathed as he took a swipe at the Western financial system.
'The latest global crisis has taught us that an economic (system) which is based on unreal transactions will be easily ruined,' he told a pre-opening conference of the fifth world Islamic economy forum.
He said the Islamic banking and finance system had proved its strength by escaping relatively untouched by the global financial crisis.
'We all know that Muslim countries with an Islamic economic system during this current (crisis) situation are relatively unaffected by serious problems,' he added.
Islamic banking, a booming 1.0 trillion dollar 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 which triggered the crisis that is felling economies around the world.
Islamic law prohibits the payment and collection of interest, which is seen as a form of gambling, so highly complex instruments such as derivatives are banned.
Transactions must be backed by real assets - not repackaged subprime, or high-risk, mortgages - and because risk is shared between the bank and the depositor there is an incentive for the institutions to ensure the deal is sound.
The annual world Islamic economy forum will be officially opened on Monday by Indonesian President Susilo Bambang Yudhoyono and Malaysian Prime Minister Abdullah Ahmad Badawi.
Organising committee chief Tanri Abeng said thousands of delegates from 30 countries would attend the four-day meetings with the main focus on food, energy and financial security amid the global economic crisis. -- AFP

Home Loans More Affordable

2009-03-02T14:47:00.003+08:00

Source:

Sunday, Mac 1, 2009

By JOSEPH LOH and YUEN MEIKENG
The reduction in Base Lending Rates means that homeowners with outstanding loans can pay less every month or have their loan tenure shortened, both of which will save them money.
AMIDST the gloom of an economic downturn, there is some good news for Malaysians. Homeowners with outstanding loans will now save money as well as shorten the tenure of the loan due to a reduction in Base Lending Rates (BLR).
In a scenario of a RM200,000 home loan over a tenure of 20 years, borrowers stand to save RM19,575 and shave one year and one month of the loan tenure – provided they pay the same monthly instalment before the reduction.
Alternatively, they can maintain the loan repayment period of 20 years, and pay less every month, but still stand to save RM10,954. (See chart)
Bank Negara Malaysia (BNM) brought down the Overnight Policy Rate (OPR) from 2.5% to 2.0% on Feb 24 to allow for more disposable income in the hands of the public. This reduction will be reflected in a lower BLR.
BNM slashed its OPR by 75 basis points to 2.5% last month, its single largest cut since the OPR was introduced in April 2004, outlining its growing concern on economic growth.
Several local banks have followed suit and lowered their BLR from 5.95% to 5.55% (a reduction of 0.4%) per annum, with most taking effect next week.
The Association of Banks in Malaysia (ABM) executive director Chuah Mei Ling says, “As and when the OPR is revised, banks will announce their own BLR based on their respective cost structure and business strategies.”
Rajen Devadason, CFP, a Securities Commission-licensed financial planner with MAAKL Mutual Bhd, predicts that the revised BLR would be around 5.55% to 5.6%.
He says that banks are not obligated to ensure that the reduction in OPR is reflected in respective BLRs.
“BNM operates on a moral suasion basis that makes it very clear what is expected of banks. Banks do drop their BLR when the OPR is lowered, though it is clear that some choose to drag their feet in this regard,” says Devadason, who is also CEO of corporate mentoring consultancy RD WealthCreation Sdn Bhd.
“It has always struck me as morally suspect that banks tend to lower the interest rate paid to savers, say on FD accounts, almost immediately upon an OPR cut. This means they act quickly to ensure they pay out less money for the use of their depositors’ funds.
“However, have you noticed how they take their time lowering their BLR, which is linked to the amount they receive from borrowers? The net effect of doing so is to allow the banks to fatten their margins a little through the time delay between the two acts,” says Devadason.
He adds that with an OPR cut of 50 basis points, banks similarly cut its fixed deposit rates, for instance, by that same amount
“From what I’ve gathered, they have only chosen to cut their BLRs by about 40 basis points. This permits a 10 basis point fattening of their margins,” he says.
Banks are left to their own devices when it comes to implementing a lower BLR.
Explains Chuah, “Banks have the option of either retaining the tenure of the loan and reducing the monthly loan repayment instalments, or shortening the tenure of the loan whilst maintaining the amount of their customers’ monthly loan repayment instalments.”
However, she says that banks have proceeded with the former, and will officially notify their customers on the quantum of reduction of the monthly instalments and the effective date.
“Customers have until then to decide. In addition, bank customers who have made up their minds already at this juncture that they would prefer to retain the amount of their monthly loan repayment instalments may contact their banks immediately,” adds Chuah.
This means that the onus is placed on the borrowers to notify their respective banks if they do not wish to reduce their monthly instalments.
Accountant Ho Hock Doong, 36, who prefers to maintain his monthly instalment amount, says, “I have already budgeted for it and will maintain it – unless I get a pay cut or lose my job.”
Ho does not believe he will benefit from reducing his monthly instalments. “If I reduce repayments and put it in my bank account, what is the point? Interest rates for savings are lower than that for loans. I will lose money!”
Opines Devadason, “Individuals who are wise should always think about saving and investing. Saving should be done first, particularly in this crisis environment, where cash is king.”
He says that the borrower has a choice. “For individuals who still have their jobs and normal income levels, it would be wise to maintain their monthly repayment sum so that they finish paying off their loans as fast as possible. With lower interest rates, each Ringgit channelled toward paying down a home mortgage will pay down more principal simply because the interest component will be lower.
“However, for those in dire straits, maintaining the loan tenure while reducing the monthly payments will help them reduce their monthly outflow of cash. So, what to do depends upon the current circumstances of the individual,” he adds.
However, those with Islamic loan facilities may have obtained it at a higher profit rate than it is currently. Devadason believes that there will be reductions in the rate, but reductions tend to be smaller than the BLR cut.
According to Association of Islamic Banking Institutions Malaysia executive director Mohamed Rithuan Datuk Mohd Shamsudin, Islamic loans are fixed rate loans, and rates are locked in up front, and remain the same for the duration.
He clarifies, “We do not lend money, rather we trade with rates fixed to a selling price. We have a calculation to do this and the BLR is used as a basis.”
In the light of the lowering of the OPR, Mohamed Rithuan explains that, “The industry is recalculating their selling prices to accommodate the reduction. It will be adjusted by the end of this quarter, but by what quantum we are not sure.”
But it is possible for customers to benefit from the reduced OPR. Says Mohamed Rithuan, “They have to talk to their bankers or approach the branch they obtained the facility from and discuss it with them. It is not a difficult procedure.
“Alternatively, they have the option of switching to another facility with floating rate elements, but there might be additional costs involved. It is up to the individual if they want to seek a lower price.”
Ryan Ong, 35, who has switched from the Islamic facility to a conventional floating-rate loan, says: “There are many banks that will charge no moving cost when you switch facilities, so you pay almost close to nothing and get to enjoy better rates.
“If you took a loan 10 years ago, the rate would have been BLR plus (one or two percent), now it is BLR minus one or two percent.”
Consumers generally welcome the lower OPR as they would be able to pay for cheaper loans and have more cash in their pockets.
National House Buyers Association (HBA) volunteer Derek Law says he was happy with the move as it would lead to lower financing costs for Malaysians servicing house loans.
“This is especially useful during the current economic crisis as we will not only be able to pay less but also pay off our loans faster,” he says.
Law is advising house buyers who wish to change their loan schemes to do some “shopping” and research on which financial institution offered the lowest BLR.
He is also urging banks to stop charging interest for housing loans on projects which have been already been abandoned.
“It is only right for consumers to pay the principal amount for houses they bought. But it is burdensome for them to pay interest for houses which will not be used, especially during these challenging times,” he says, adding that house buyers would also still have to pay rental for the roof above their heads.
As of 2005, there were 58,685 house buyers affected by projects with a total value of RM8.04bil.
Consumer Research and Resource Centre CEO Paul Selva Raj says that while he supported the OPR cut, he hopes banks would show goodwill by reducing the interest for consumers servicing fixed rate loans.
“Consumers on dynamic loans will be able to benefit from the lower rates as the interest is adjusted according to the market. But this is not the case for borrowers of the fixed rate loans who are bound by contract,” he says.
Asked to comment on fixed deposit interest rates being reduced in tandem with the cut in OPR, Selva Raj says this was not too significant especially for those who have long-term investments.
“However, prudent spending is necessary because the lower BLR will enable consumers to have increased disposable income,” he says.
He adds that the Government should boost consumer confidence to spend as the current general sentiment was to exercise more caution.
“The Government should give the people confidence that they are in control of the economy and are focused on making it stronger,” Selva Raj says.

BNM Governor proclaimed as INCEIF's Chancellor

2009-02-19T06:51:00.002+08:00

Source:

16/02/2009

Bank Negara Malaysia (BNM) Governor Tan Sri Dato' Sri Dr. Zeti Akhtar Aziz has been proclaimed as the first Chancellor for the International Centre for Education in Islamic Finance (INCEIF).

The proclamation is in accordance with the constitution of INCEIF where Tan Sri Zeti, who is the Chairman of INCEIF's Board of Directors, shall assume the position of Chancellor. Meanwhile the Chairman of INCEIF Governing Council, Dr. Rozali Mohamed Ali has been proclaimed as the Pro-Chancellor.

Bank Negara Malaysia (BNM) Governor Tan Sri Dato' Sri Dr. Zeti Akhtar Aziz proclaimed as INCEIF's Chancellor.
The proclamations were made by INCEIF's President and Chief Executive Officer Mr. Agil Natt, on behalf of the Ministry of Higher Education at the inaugural convocation where 32 graduates of the Chartered Islamic Finance Professional (CIFP) programme received their degrees from the Chancellor.

The CIFP which is INCEIF's flagship programme, is recognised by the Malaysian Qualifications Agency (MQA) as equivalent to a Masters degree. Combining the academic rigour and hands-on practical industry experience, the programme is developed for professionals in the Islamic financial services industry.

The 32 graduates were the Bright Scholars, who enrolled in June 2007 as full-time students and they were fully sponsored by INCEIF. Ten of the 32 graduates were international students, of which three were from Indonesia and one each from Ghana, Uzbekistan, Pakistan, Bangladesh, Yemen, Nigeria and Thailand.

The inaugural convocation also witnessed a non-Muslim being awarded the President's Award. That affirmed INCEIF's conviction that it provides equal opportunities to study Islamic finance, regardless of any creed or faith. Currently, 11 per cent of the total of 977 registered students of INCEIF is non-Muslims.

The Malacca-born Adelene Teo Yee Ming was awarded based on her achievement as the student with the most number of distinctions in the CIFP examinations. An accounting graduate from Multimedia University of Malaysia, Ms. Teo was privileged to be interned at BNM's Department of Islamic Banking and Takaful.

Meanwhile, Ms Nighat Tanveer from Pakistan was awarded the Dean's Award for having achieved academic excellence by scoring the highest total marks in the whole CIFP programme. A member of the Pakistani Engineering Council and an MBA holder from the Karachi-based Institute of Business Administration, Ms Tanveer is currently attached to the State Bank of Pakistan as a Joint Director in the Exchange Policy Department.

The inaugural convocation was attended by several dignitaries, amongst others, the Sri Lankan Deputy High Commissioner and other university representatives including from University Tun Abdul Razak, International Islamic University Malaysia and Universitas Air Langga, Indonesia.

RHB Banking, Hong Leong revise rates

2009-01-29T10:39:00.001+08:00

Published: 2009/01/28

THE RHB Banking Group will revise the base lending rate (BLR) for RHB Bank Bhd and RHB Islamic Bank's base financing rate (BFR), from 6.5 per cent per annum to 5.95 per cent effective Febraury 3.In a statement today, group managing director Michael J Barrett said the revision is in line with Bank Negara Malaysia's recent move to lower the overnight policy rate by 75 basis points to 2.5 per cent.Meanwhile, Hong Leong Bank Bhd and Hong Leong Islamic Bank Bhd said the BLR and Islamic Financing Rate (IFR) would be reduced by 55 basis points from 6.5 per cent to 5.95 per cent. - Bernama

Islamic Studies Chair for Carolina Students

2009-01-27T22:05:00.000+08:00

Source: http://globalislamnews.blogspot.com/

Monday, January 26, 2009

CAIRO — The University of North Carolina (UNC) is creating an endowed faculty chair in Islamic studies to meet the growing hunger for information on Islam and Muslims in the post-9/11 world."At Carolina, we're proud that our academic strengths include the study of diverse religions since that helps our students and the public better understand other cultures," Holder Thorp, the university chancellor, told the Herald Sun on Monday, January 26.Along with money granted from the state tax, fundraising effort would be led by Cemalnur Sargut, president of the Turkish Women's Cultural Association in Istanbul."We're grateful that our distinguished friends from Turkey are providing a new opportunity to further enhance the university's expertise in Islamic studies," Thorp said.Named after Turkish writer Kenan Rifai, who advocated women education and development in the 20th century, the chair aims to raise awareness about Islamic studies and the Muslim world."It's not teaching religion the way you might do it in Sunday school," notes Dee Reid, director of communications of the College of Arts and Sciences."It's not for a practitioner of Islam, it's for an expert in Islamic studies…for the academic study."Chartered in 1789, the UNC was the first public university in the US and the only one to graduate students in the 18th century.Today, it is a public, multi-campus university dedicated to the service of North Carolina and its people.It encompasses 16 diverse constituent institutions and other educational, research, and public service organizations.Growing InterestThe Islamic studies chair aims to meet the growing interest among American students for information about Islam and Muslims."There's increasing interest in this among students," explains Reid, the College of Arts and Sciences communications director."I think since 9-11 there's been tremendous interest in learning Arabic and learning about people who practice Islam in different parts of the world," added the official."It's an emerging field. Students are tremendously interested in going abroad because of this."A recent Pew Research Center and the Pew Forum poll showed that the majority of Americans know very little about the practices of Islam.The Islamic studies chair has drawn a "wait-and-see" stance from the Christian groups at the university."I'd really rather not comment on it until I have a chance to look into it and think about it," Lee Sullens, campus minister with Carolina Baptist Campus Ministry, told the newspaper."We would be interested in understanding it more," agreed Miles O'Neill, campus director of Cornerstone Campus Crusade for Christ."It's not the type of thing we're going to protest."

Can Islam Save The Economy?

2009-01-26T22:33:00.001+08:00

Source: http://www.religiondispatches.org/

By Nathan Schneider January 26, 2009

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. Thus far Dow Jones and others have offered an Islamic Index for tracking these business, but it might be time to get the muftis on the phone.

Crowded floor at the Kuwait stock exchange
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 and prostitution, as well as weapons in most circumstances. 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 U.C., 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.
In the last decade, the industry has expanded dramatically. Dow Jones now offers an Islamic index for tracking halal businesses. Networks are growing among the religious scholars who sit on the banks' regulatory boards. The sharia-compliant line of financial instruments continues to grow, each known by its Arabic name: {takaful} insurance and {sukuk} bonds are already feeding the construction boom in the Gulf states. Islamic banks are opening across the Muslim diaspora, in places like London and Pasadena, California. Even big conventional banks are feeling the Islamic fever. Citicorp, Deutsche Bank, and HSBC have all opened Sharia-compliant subsidiaries. In 2006, the BBC reported that socially-conscious, non-Muslim Londoners were opening Islamic accounts to keep their money from financing immoral businesses.
Meanwhile, governments that fear the power of Islamist movements, such as Egypt and Tunisia, have been reluctant to put their support behind the industry. There are some loose connections to radicalism. Sayyid Qutb, a hero of Osama bin Laden's, was an early advocate. In Iraq, Muhammad Baqir al-Sadr, the father-in-law of Muqtada, made important theoretical contributions on the Shia side of the movement. The fledgling Islamic banks in the United States have come under increasing official scrutiny since 9/11. But aside from the cadre of vigilantes whose sense of purpose depends on seeing a never-ending "Islamofacist" threat, observers agree that there's no credible link between these banks and Al Qaeda-type bad guys. Read the founding theorists of Islamic economics, in fact, and you'll find a decidedly pacifist tone.
A golden age, in theory
From the view of Islamic law, writes Umar Chapra, a leading economist in Saudi Arabia, "while economic growth is essential, it is not sufficient for attaining real human well-being." Rather, we depend on "spiritual health at the core of human consciousness, and justice and fair play at all levels of human interaction." Much more than a business model for specialty banks, he and many others believe that Islamic economics offers a much wider vision. The conventional view of the {homo economicus}—super-rational, selfish utility maximizer—dehumanizes people, denying the divine stamp on our nature. A truly Islamic economic theory, they believe, should restructure consumer preferences, ensuring that basic necessities are plentiful and luxuries come only after everyone is provided for. People should feel motivated to work by knowing that they share equitably in the produce of their labors. Sharia guidelines for inheritance distributes wealth among families in ways that prevents too much accumulation. More than an economics in the usual "dismal science" sense, this is a comprehensive guideline for playing well with others. It also claims its authority from God.
The theory has something in mind for governments as well. They are responsible for administering the zakat tax, one of the Five Pillars of Islam. Though often translated as "almsgiving," it literally means "that which purifies." Though believers are encouraged to give over and above, the classical jurists developed a system of minimum annual requirements for a person's accumulated wealth. The rate of zakat varies depending on the resources one owns; it can range between 2.5% and 20%. These funds should be directed primarily toward redistributive purposes, to soften the market's burden on the poor. However, they can also be used to fund religious causes, a fact which medieval regimes sometimes used to usurp zakat funds for expansionary warfare. But modern Islamic economists, by and large, discourage military spending wherever possible.
The distribution of charitable giving is one of the many high hopes Islamic economists have for government. There is, in the literature, expectation for a kind of elixir effect. "The question of dishonest practices in the case of zakat is quite unexpected," writes the Pakistani economist M.A. Mannan, "because of zakat's religio-economic character." This, at least, is an impression they share with the Taliban and the ayatollahs: if you make the society religious in name and appearance, it automatically becomes religious in character. With corruption so widespread across the Muslim-majority world, it isn't hard to see the appeal of such a pious panacea.
Islam, the theorists believe, offers a distinct alternative to the other big-picture political economic options, capitalism and communism. By incorporating both markets and redistribution, they see it as the best of both worlds. After the two mega-ideologies spent the Cold War fighting over the allegiances of Muslim countries, the Soviet Union collapsed and now global capitalism is grinding to a halt as well. Islamists suspect that the reason Muslim countries remain impoverished is a fundamental incompatibility between these Western economics systems and the values that Muslim cultures hold dear. Now, perhaps, is the time for a third option to have its chance.
At the very least, suggests Boston University anthropologist Robert Hefner in a recent essay, these theories "provide a fascinating point of entry into the thoughts of Muslim leaders on global capitalism."
Are the fundamentals sound?
The most tangible outgrowths of Islamic economic thought, the banks, tend to be rather quiet about the visionaries' grand ambitions. Their spokespeople sound like bankers anywhere: optimistic, practical, and fond of jargon (in this case, specialized Arabic terms mixed in with the English vocabulary of international finance). By peppering business deals with the language of the Qur'an, the transaction seems to take on the endorsement of a higher power. Preachers take on the role of marketers by exhorting their congregations to purify their savings from interest. "Is 'Islam' merely a sort of brand name attached to products for marketing to a Muslim niche?" asks Bill Maurer in his book, Mutual Life, Limited.
If it is, the brand has its consequences. "In their investing options and the lack of diversification that they have to live with," Samuel Hayes says, Islamic investors "pay a price, no doubt about it." On a large scale, risk-sharing arrangements mean slower growth and, potentially, less short-run security for individual depositors. In one Muslim country, Jordan, the central bank has been reluctant to approve many new Islamic institutions for fear that they might add an unstable element to the bourgeoning financial industry. The banks that already do exist there have poor reputations. Because of cases like this, most observers doubt that Islamic finance will broaden its appeal beyond the pious. But according to Mohammad Ismaeel, the Director of Global Marketing for HSBC's Islamic arm, this may be changing. He claims that more than half of his bank's customers in the Asian market are non-Muslim Chinese. "They haven't come to us for Islamic reasons," he insists, "but because it is a sound financial product. They've taken it on for those reasons and those reasons only."
In the process of becoming competitive, though, Islamic banks may have lost some of the values they claim to be founded on. The theorists' original hopes for fostering more ethical consumer preferences hasn't taken hold in the banking culture. Bill Maurer, who has studied Islamic banks in South Asia and the United States, says these institutions aren't much different from other banks, despite some conspicuous signs of piety like prayer rooms and conservative clothing. Working at one doesn't mean joining a monastery. "A lot of the time," adds Maurer, "it's the same kind of drudgery and tedium that any old bank employee is dealing with."
Among those in the West who have been following the progress of Islamic finance, Turkish-born Timur Kuran is the most skeptical. "Endeavoring to implement Islamic economics," he writes in his book Islam and Mammon, both bankers and governments inevitably "recognize its unrealism." While the earliest experiments depended on genuine partnerships and risk-sharing, the bulk of today's Islamic transactions use instruments that differ only in name from what a conventional bank offers. In one of the most popular and long-practiced of these, murabaha, the bank buys an item for the client, who then in turn buys it from the bank, along with a premium that cleaves suspiciously close to the conventional interest rate. Religious scholars agree that the transaction is acceptable, even if the bank owns the item for just a millisecond. Pure in God's eyes, perhaps, but there is nearly no difference in economic terms. Kuran and others have also pointed out that during the medieval period, when the Sharia guidelines for commerce were developed, nothing resembling a modern bank existed. There was no legal provision for such an institution to outlive individual owners, as nowadays a bank of any scale must.
In light of the Islamic sector's competitive disadvantage, and even questionable adherence to its own ideals, Kuran advocates for making its target audience more aware of the risks. Potential customers should know, he believes, that "its political importance and symbolic importance is more important than its economic essence." But symbols and politics are never far from the machinations of economy. One need look no farther than the vagaries of investor confidence or the political imperatives that shaped the bailout plan this fall.
From constraints to creativity
Kuran nevertheless suspects that there is something to learn from the experience of Islamic finance and that the current crisis would be a good time to learn. "It may be possible through Islamic banking, or something similar to it," he says, "to reach out to the subprime borrowing population in a safer way, in a way that makes the risks more transparent and allows better risk diversification." With or without the utopian theories, the constraints imposed by interpretations of a bygone religious law have given rise to a laboratory for different ways of doing business. Because of its religiously-obligated client base, Islamic banking remains insulated, in part, from the conformity that competition enforces on the rest of the financial industry.
Maurer agrees, but he doubts that anybody from the Federal Reserve will be calling up the muftis. "What I think will happen," he says, "is that people in the conventional finance world are going to arrive at things that may look more like Islamic banking as it has already been practiced." Advocates of Islamic finance will probably celebrate the change as triumph for their convictions, even if the resemblance is coincidental. "Depending on where you stand, they're right, or not."
Maybe it is time to get the muftis on the phone after all. In the United States, at least, religious leaders and politicians have deferred some of society's most pressing ethical concerns to the wisdom of the market. Calls that the "end of history" lies with neoliberal capitalism are being heard as far as the People's Republic of China. Not without reason, the 20th century's question of why free markets has been replaced, especially in the developing world, with how to get there. But this year's collapse is one more reminder that the market won't be our brother's or our sister's keeper for us. The shock waves of harm spread through global markets in ways that "love thy neighbor" doesn't seem to equip us for. Now is a good time to tinker with alternatives, and keeping an eye at models that already exist at the fringes of the global economy are a good way to begin. Peculiar conditions give rise to possibilities that couldn't develop on their own in the mainstream. Looking more closely at what Islamic economic thought has to offer, too, opens the door to more of the elusive "dialogue among civilizations" that leaders talk about but rarely do.
"Certainly asking questions about the ethical boundaries of finance is in order," says Ibrahim Warde, a professor of political science at Tufts University. There is any number of ways to think about economy in terms of right and wrong, but the Islamic case is different in an important way. "Unlike other pockets of ethical finance," he points out, "it does exist in institutions," which are competitive enough to survive and available for study.
Warde makes sure to add, "We should not go overboard, though."

Nathan Schneider is a writer who lives in Brooklyn, New York. He holds a master's degree in religious studies from the University of California, Santa Barbara, and a bachelor's in the same subject from Brown University. Nathan blogs at The Row Boat

2008 Sees Worst Decline in Sukuk Market, Improvement in Islamic Syndicated Lending, Says IFIS

2009-01-25T10:36:00.000+08:00

Source: http://www.menareport.com

Posted: 24-01-2009 , 06:12 GMT
Sukuk or Islamic bond markets have witnessed a dramatic decline during 2008, especially during the 4th Quarter, according to the Islamic Finance Information Service (IFIS). Global sukuk issuance in Q4 2008 was the lowest since 2002, and 2008 was a worse year for sukuk than both 2006 and 2007.

The decline in sukuk has been global, affecting both South East Asia (SEA) and the Gulf Cooperation Council (GCC). For Q4 2008, we saw no issuance in US Dollars at all, and we saw the amount of sukuk issued dropping to a mere USD 584 million, which makes Q4 the worst quarter since Q4 2002, before the boom in the sukuk market. South East Asia was more severely impacted than the GCC in 2008, with issuance falling by 76% down to USD 6.57 billion for the entire year. The decline in the GCC was quite severe as well, however, with issuance falling to USD 9.06 billion, a 51% drop. The global total for sukuk issuance, USD 15.77 billion, was 66% lower than the figure for 2007. This is the first year on year drop in sukuk issuance since the year 2000.

Islamic Syndicated Lending:
Islamic syndicated lending did better than the sukuk market, with borrowing expanding from USD 19.6 billion in 2007 to USD 27.2 billion in 2008, a 32% expansion. In the GCC, Islamic syndicated lending provided the debt market with some buffer against the drop in sukuk issuance. Lending in the GCC rose from USD 17 billion in 2007 to USD 22 billion in 2008. This rise, while significant, is not enough to compensate for the drop in sukuk issuance, however, which had dropped by USD 9 billion in 2008 compared to 2007. And as with credit markets worldwide, Islamic syndicated lending froze almost completely in Q4 2008.

It would be too early to express optimism based on the increase in syndicated lending in 2008, however. The most likely explanation for this increase is that as sukuk markets contracted, investors turned to syndications as a better alternative for two reasons. First, the rise in LIBOR rates that accompanied the first stages of the credit crunch made sukuk borrowing more expensive. Second, as the sukuk market dried up, relationship-lending filled in some of the gap. Borrowers with a strong relationship with their banks could continue to borrow through syndications. But after credit markets globally froze in the last quarter, Islamic syndicated lending was hit just as badly as other markets. It is more difficult to analyse Islamic syndicated loans outside the GCC, due to the relatively small number and value of deals. However, it would appear that Islamic syndicated lending for projects in North Africa and Europe was still active in the first quarter of 2008, before slowing down in Q2 and Q3 and practically freezing up completely in Q4. Bookrunners and Arrangers: The top two sukuk bookrunners in 2007, CIMB Islamic and HSBC Amanah, maintained their respective places on the top of the list. Of the top ten bookrunners, four were local banks while six were international banks. More significantly, the average amount credited to a bookrunner on the annual top ten list dropped from USD 2.379 billion in 2007 to USD 936 million in 2008, a 60 % drop.

In syndicated lending, the top ten arrangers were mostly local, with only three international banks making the top ten in 2007 and in 2008. For 2008, Al Rajhi Bank took the first place, jumping from sixth place in 2007. Noor Islamic Bank had an impressive first year, coming in second place. Interestingly, even though the number and value of Islamic syndicated loans increased in 2008, the average amount of lending arranged by each of the top ten arrangers went down from USD 1566.86 billion in 2007 to USD 1132.14 in 2008. With the ranking of the top ten arrangers varying considerably between 2007 and 2008, this is further indication that unlike the sukuk market, there are no truly established leaders in the syndicated lending market. This market is far more open for competition.

Forecast 2009
Islamic bond issuance grew enormously between 2004 and 2007, with total issuance growing year on year by 49% in 2005, 153% in 2006 and 79% in 2007. 2007 sukuk issuance hit a record of USD 46.65 billion. These results, though impressive, came at a time of easy access to credit and benefited from oil prices that were at historical highs and rising. This led to ever increasing issuance, especially from the GCC. As the GCC bond market flourished even after the initial impact of the subprime mortgage crisis in 2007, there were those who thought that Islamic finance can withstand this downturn intact due to the nature and features of Islamic banking and finance, and therefore of the sukuk market. This led to some unreasonable expectations for the industry. Some industry observers thought that Islamic finance had successfully separated from global conventional credit markets, which was an Islamic variation on the now debunked decoupling theory. Others claimed that Islamic markets were now mature, independent markets, not related to the price of oil. A third view that was sometimes expressed was that lower leverage and emphasis on holding and selling real, tangible assets will save the industry from the full impact of the subprime crisis and subsequent credit crunch. Essentially, all of the above emphasises the fundamentally different natures of Islamic finance and conventional finance. But the evidence counters this. Sukuk have not done well in the past year. Total issuance in 2008 dropped by 66% compared to 2007, showing no immunity from the global downturn. The impact was felt across the board, with GCC issuance dropping by 50% and South East Asian issuance dropping by 75%. Financial institutions in the Gulf have been suffering a great deal, and both Islamic and non-Islamic institutions have run into trouble. Most of Asia, including Malaysia, has been hard hit by the global economic downturn, and financial institutions have and will continue to suffer as a result. This will continue to affect the sukuk market until the financial sector recovers.

The increase in relationship lending that we saw in the syndicated loans market will not be sufficient to reverse this. Our opinion is that syndicated lending simply lagged the sukuk market, and will probably not behave too differently from the sukuk market in 2009. For both, IFIS does not expect a recovery before the recovery in conventional markets. Notably, whereas in the West the crisis was first limited to the banking sector and then spread to the real economy, the crisis in the GCC and in Asia is different. The GCC is suffering because the price of oil, the main source of revenue for the region, collapsed. With its collapse, and with the global financial crisis taking hold in the rest of the world, the GCC too experienced severe liquidity shortages. This lack of liquidity has severely constrained the credit hungry construction sector, which had fuelled the GCC growth story in recent years and towards which much of the proceeds of sukuk and syndicated lending have been directed. With world real estate prices generally on the decline, investors are questioning the soundness of real estate investments, especially in markets perceived to be overheated. This impression certainly exists in the GCC, and there is significant anecdotal evidence that indicates a rapid fall in real estate prices in Dubai and other places. It is not clear exactly how much exposure do banks have to the sector, and until it is clear, we do not expect confidence to be restored. As such, we expect banks to hoard cash and restrict lending in the GCC as they have in other markets. Moreover, the lack of disclosure in the region makes events such as the sudden collapse of Khaleej Bank, the troubles of Investment Dar and the default of Global Investment House more likely. These and other considerations have prompted international rating agencies such as Moody’s and Fitch to downgrade the credit rating a significant number of GCC financial institutions, Islamic and otherwise.

These considerations all make raising funds more challenging and reduce confidents in the markets and in borrowers’ ability to repay their debts. However, mainly due to the enormous currency reserves accumulated in GCC countries over the past few years, we do not expect the severity of the crunch to be comparable to that experienced by Western credit markets. Therefore in all likelihood, we will start seeing a recovery in the GCC in the second half of 2009, but it will not be a far better year than 2008. Malaysia is in serious trouble as well. The government had budgeted for oil at USD 125 per barrel, which today seems hopelessly unrealistic. If oil averages USD 45 dollar per barrel, Malaysia would lose some 29% of its total revenues and will probably suffer a large deficit. It is beyond doubt that the government would need to review and reduce its spending as a result, but doing so in the face of a global recession carries enormous risks. Moreover, the country is a net commodity exporter, and is now receiving far less for its exports. As such, the Malaysian economy is in trouble and the sukuk market will be affected accordingly. Until the macro conditions in the Malaysian economy improve, no change will be seen on the sukuk market. We do not expect 2009 to be much better than 2008 for Malaysia.

© 2009 Mena Report (www.menareport.com)

Major Islamic bank set for launch by June

2009-01-25T10:16:00.003+08:00

Reuters, Friday January 23 2009

By Liau Y-Sing and Loh Li Lian

KUALA LUMPUR, Jan 23 (Reuters) - The world's largest sharia lender will be launched by June, an industry body said on Friday, as the sector tries to address a shortage of large lenders it needs to become a global alternative to conventional banking.
The Bahrain-based bank would have a paid-up capital of $11 billion, with the Islamic Development Bank (IDB) as its largest shareholder, said Sheikh Saleh Abdullah Kamel, chairman of the General Council of Islamic Banks and Financial Institutions.
Sheikh Saleh said the Organisation of Islamic Conference (OIC) countries would also invest in the bank, adding that it was the right time to set up the bank despite tough financial market conditions worldwide.
"I think it is the best time to push and to encourage people to invest in the real economy ... industry, agriculture, but not to invest in markets and derivatives and these blow-up things," Sheikh Saleh told Reuters on the sidelines of briefing in the Malaysian capital.
Islamic finance is based on the sharia, or Islamic law. It avoids the interest-based formula of conventional banking and argues that gains must be derived from ethical investing and for profits and losses to be shared between venture partners.
Once a niche market serving devout Muslims, Islamic finance has gained in popularity as the global financial crisis has prompted some investors to rethink the merits of conventional banking.
The bank, which has yet to be formally named, has been in the pipeline for several years and is currently undergoing final review by IDB on its capital input.
"I hope minimum they will contribute $300 million," Sheik Saleh said.
While a total of $1 billion will be raised by private investors, including IDB, the other $10 billion is expected to come from an IPO on the Bahrain stock exchange, he said.
Sheik Saleh said the bank aims to fund economic development in Muslim countries and increase liquidity in the Islamic financial sector, a weakness in the Islamic financial system.
"The third, and very important, goal is to create an Islamic financial paper market. Now there is no real Islamic market. As a secondary market, there is none because there is no good financial Islamic paper market," he said.
This is a role that has been undertaken by other development banks in emerging economies such as the European Bank for Reconstruction and Development, a body set up to finance the reconstruction of ex-communist eastern Europe.
It undertakes issuance in debt markets in domestic currencies so as to set benchmarks and boost trading. (For more Reuters coverage of Islamic finance, click on [ID:nISLAMIC]) (Editing by David Chance and Lincoln Feast)

Bank Negara cuts interest rate to lower borrowing costs

2009-01-22T18:27:00.001+08:00

Thursday January 22, 2009

KUALA LUMPUR: Bank Negara cut its benchmark interest rate by a record 75 basis points yesterday and also reduced the statutory reserve requirement (SRR) in a move to lower borrowing costs.
The central bank said it had reduced the overnight policy rate (OPR) from 3.25% to 2.5% and reduced the SRR from 3.5% to 2% effective Feb 1.
“With the heightened downside risks to growth, the magnitude of the reductions in the OPR and the SRR are aimed to be pre-emptive in providing a more supportive monetary environment for the domestic economy,” it said in a statement. Other points in the statement included:
> Urgent implementation of policy measures crucial to ensure positive growth.
> Inflation continued to decelerate to 4.4% in December. Deceleration expected to continue with weaker demand and lower imported inflation.
> The Malaysian banking system remains fundamentally sound.
> Focus is to ensure access to credit to all sectors of the economy.
Meanwhile, the Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) said the proposed second stimulus package must focus on the manufacturing and construction sectors to avert more retrenchments.
ACCCIM president Tan Sri William Cheng said the stimulus plan must be implemented quickly as the two sectors would be the most affected by the global financial crisis during the first-half of this year.
He also called for a reduction in prices of gas and electricity and a reduction in employers’ contribution to the Employees Provident Fund from 12% to 9%.

Abdullah: Need For Standardised Islamic Banking Worldwide

2009-01-21T22:15:00.002+08:00

Source:

January 21, 2009 20:06 PM

By: Ramjit
DOHA, Jan 21 (Bernama) - Prime Minister Datuk Seri Abdullah Ahmad Badawi today made a call to the Islamic banking sector worldwide, saying that there was a need to standardise in terms of practices and principles adopted so that it will be more easier for the people to understand the system.He said this was among the issues he had discussed during his meet with the Prime Minister of Qatar Sheikh Hamad bin Jasim bin Jabir Al-Thani where both leaders agreed that efforts were needed to increase the acceptance of Islamic financing and banking especially in the countries where the system is used."It will be really great if all the Islamic banks used the same standard, practices and principles when resolving a problem."If the Islamic banking system moves in different directions it will be more difficult for the people to accept or understand it," he told reporters before ending his two-day official visit to Qatar.He said Qatar had also suggested that Malaysia be a driver in the standardising of the Islamic banking system by organising discussion sessions that will bring together officers and experts from the countries practising the system.Abdullah said Qatar and Malaysia had also agreed to jointly invest in third world countries particularly in the agriculture and halal food industries.He said Qatar had also indicated its readiness to invest in Malaysia.Meanwhile, in his address when opening the "Malaysia-Qatar Business Opportunities" forum here, Abdullah said Qatar has embarked on an economic diversification programme to reduce its dependence on oil revenues and huge investment had been made in infrastructure real estate and tourism."These developments present significant opportunities for Malaysian companies and I note that Malaysia already has a strong presence in Qatar such as construction, oil and gas and the provision of professional consultancy services."Abdullah said major Malaysian companies such as Sime Darby Engineering, UEM Builders, Gamuda Bhd, Muhibbah Engineering and the Holiday Villa Hotel Group are involved in projects valued at more than US$3 billion.The Prime Minister said trade between Malaysia and Qatar has grown progressively over the past decade rising from US$45 million in 1998 to US$319.68 million in 2007.During that period, he said Malaysia's export to Qatar increased from US$36.5 million to US$295.8 million and imports increased from US$8.5 million to US$23.7 million.As of November last year, Abdullah said the trade volume reached US$503.8 million, an impressive increase of 59 per cent from 2007.Abdullah said Malaysia and Qatar can take the advantage of OIC links and use the mechanism it has developed to promote trade among OIC members.He said trade and investment between the two nations can also be enhanced through the mechanism of a free trade agreement.Malaysia recently proposed to the Gulf Cooperation Council (GCC) to commence negotiations to conclude a free trade agreement with Malaysia."I understand that the business communities from both sides welcome this proposal. We hope that negotiations will begin soon and a mutually beneficial agreement reached in the near future," Abdullah added.A total of 32 Malaysian representatives from the Malaysian public and private sector attended the forum where they discussed various trade and business opportunities with their Qatari counterparts.-- BERNAMA

Singapore Issues Islamic Sukuk

2009-01-20T22:30:00.004+08:00

Source:

By IOL Staff

"Singapore is committed to the development of Islamic finance," said Keat. (Google)CAIRO — The Southeast Asian city-state of Singapore launched on Monday, January 19, its first sukuk (Islamic bond) program with an eye on promote Islamic banking and establishing itself as a new Islamic finance hub in the region.
"This sukuk is the Shari`ah-compliant equivalent of Singapore Government Securities (SGS), and is of the highest credit standing," Heng Swee Keat, Managing Director of the Monetary Authority of Singapore (MAS), told the Singapore Sukuk Signing Ceremony.
Sukuks, which conform to Islam's prohibition of receiving or paying interest, typically work as profit-sharing vehicles.
Companies that issue Islamic bonds make payments to investors using profits from the underlying business, instead of paying interest.
But money can not be invested in alcohol, gambling, pornography, tobacco, weapons or pork.
"The sukuk, which is based on the Al-Ijarah structure, has been carefully studied by the eminent Shari`ah scholars advising the Islamic Bank of Asia and Standard Chartered Bank for its full compliance with Shari`ah principles," stressed Keat.
The program, worth a total of S$200 million ($134 million), allows the central bank to issue Islamic bonds if there is demand from investors.
Singapore has an eye on Middle Eastern petrodollars and rising demand for ethical investing.
"Sukuk issuance is still gaining acceptance in the Gulf as one of the preferred means of investment and financing, at a time when infrastructure project spending in the Gulf is estimated to reach $1 trillion," notes Afaq Khan, CEO of Standard Chartered Saadiq; the global Islamic banking business of Standard Chartered Bank.
The Sukuk market has reached $111.9 billion in the eight years to 2008 and a further $69 billion is expected to be issued in 2008/2009, according to the International Islamic Financial Market.
New Hub
Singapore, Southeast Asia's financial capital, wants to establish itself as a new hub for the globally-thriving Islamic banking industry.
"Singapore is committed to the development of Islamic finance," said Keat.
"The financial industry has encouraged us to develop Shari`ah compliant financial services, by building on our existing strengths in banking, trade finance, capital markets and asset management."
Singapore will face a major challenge from neighboring Malaysia, already a hub for Islamic banking and finance.
Islamic finance is already one of the fastest growing sectors in the global financial industry.
The Islamic banking industry, which began almost three decades ago, has made substantial growth and attracted the attention of investors and bankers across the world.
Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2013.

Murabaha contracts overused in Islamic financing

2009-01-20T22:23:00.001+08:00

Source:

Reuters, Tuesday January 20 2009

The commodity murabaha contract is one of the most common financing structures in the Islamic industry and is frequently used to secure sharia loans.
Some Islamic scholars think this structure should be avoided as much as possible, saying it closely resembles an interest-bearing transaction.
The Accounting and Auditing Organisation for Islamic Financial Institutions is of the view that the commodity murabaha while not invalid, is not ideal.
Does the commodity murabaha violate Islamic principles?
Is there a better alternative financing structure?
Zubair Hasan is professor of Islamic economics at INCEIF, an Islamic finance university based in Kuala Lumpur.
The views expressed in this article are those of the author and should not be seen as representing the views of Reuters News:

By Zubair Hasan

KUALA LUMPUR, Jan 20 - Commodity murabaha is one of the most commonly used financing contracts in Islamic banking.
But some recent court decisions ruling Islamic banks in Malaysia against its use have put people in a quandary. It is being increasingly asked if commodity murabaha defies Islamic requirements.
The answer is, in principle, it does not. Commodity murabaha falls in the same generic category of 'uqud al-mu'awadhat', or exchange contracts that cover all types of transactions that Islam allows.
In exchange contracts, a given quantity of one commodity is traded for a given quantity of another commodity, including money.
The money value of a commodity is called its price. The exchange of a commodity and the payment may be on the spot or the obligation of one of the parties may be deferred to a future date.
Commodity murabaha belongs to the deferred contracts' group. For example, a client may request a bank to purchase a car for him on a cost plus basis. The arrangement per se does not contain any element of interest.
Islam does not grant a time value for money in contracts if money is exchanged for money, which is the basis of banning interest.
However, the mark up in commodity murabaha is allowed on the ground that "time has a share in price" (lil zamani hazzun fil thaman).
Indeed, it is this juristic pronouncement that constitutes the justification for allowing the deferring of either the payment or the delivery in Islamic contracts.
Even courts that did not throw out the cases seemed to allude to the above on pure juridical basis. The structuring of contracts was more to blame. Thus, the causes of current discomfiture have to be sought elsewhere.
In the Islamic system, economic development has many social implications, especially on the fulfilment of basic needs and achieving distributional equity.
Islamic banking operations are not contributing to these goals as they are essentially guided by profit considerations. Admittedly, profit is important, rather imperative, but cannot be the sole criterion in evaluating their performances.
Commodity contracts may not individually defy the sharia norms, but their overwhelming use is disquieting.
The use of murabaha contracts seems to have already been carried too far. Of late, even Malaysian central bank chief Zeti Akhtar Aziz has advised Islamic banks to curb the use of fixed return transactions.
Presumably, it is time to apply the principle of saad-al-dharai that closes the potential avenues for circumventing the objectives and spirit of the sharia.
It is not the permissibility of murabaha contracts per se but their defective structuring and indiscreet use that are fuelling the perception that Islamic banks are providing cover to the taking of interest from the back door. (Editing by Kazunori Takada)

Finance the Islamic way at small US bank

2009-01-16T10:07:00.001+08:00

Wednesday January 14

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.University Bank President and Chairman Stephen Lange Ranzini, standing, talks with banking consultant Nabeel Shahid at the bank in Ann Arbor, Michigan - APFar 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 and 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 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.Islamic law says money cannot grow by itself, the way it does with compounding interest.Trade is acceptable as long as the equal amounts of money are traded or two different things are swapped with a fairly negotiated price.So a dime for an apple would be considered "halal,'' or religiously acceptable, while one apple for two apples would be "harem,'' or unacceptable.Even at University, not everyone is on board.Some customers have closed their accounts when they learned it was engaging in Islamic finance.Some employees who objected to the move quit.The bank also stopped having a Christmas party and no longer serves alcohol at after-hours events.The Michigan bank focuses on contracts that clearly spell out the risk and reward between lender and borrower.University Islamic Financial says it's the nation's first to offer Sharia-compliant, federally insured deposits.Islamic banking is more common overseas, but some U.S. banks and credit card companies are exploring the idea of branching out into Sharia products to reach out to the growing Muslim population.So Islamic banking is only expected to increase in coming years.Already, Citigroup offers Sharia products and services to clients overseas, and Visa says it has worked with banks around the world to offer Islamic-compliant products.The conventional banking system could learn a lot from the idea, said Jawad Ali, a finance lawyer based in Dubai and London who specializes in structuring Sharia-compliant deals."We haven't made as much money as the conventional banks because we can't, for example, sell what we don't own,'' he said."We have to own it before we sell it. We may have missed out on gains in good times ... but we haven't suffered any losses.''Of course, there's no guarantee that banks will find immunity in Islamic finance from a severe global downturn."I am not doing banking on Mars,'' said Afaq Khan, the head of Saadiq, the Islamic banking arm of Standard Chartered Bank, based in London."If real economic activity slows down significantly, the Islamic banking industry will also be affected.''A Sharia-compliant mortgage is like rent-to-own: There is no note, or mortgage, but typically part of each month's payment is held toward the ultimate purchase.The property is titled to an individual trust, or limited liability corporation. Deutsche Bank estimates total assets in the Islamic finance market at $1 trillion - a tiny fraction of global financial assets, but the bank said in a recent report that the sector been growing at a clip of 15 to 20 percent per year.Most big international banks already have Islamic banking arms, and a November report by Moody's Investors Service shows that Islamic banks have been fairly resilient to the global economic downturn.The U.S. banking industry has not embraced Sharia banking.Wachovia, Wells Fargo and JPMorgan Chase said they have not adopted Sharia practices and declined to comment about what they may do in the future."As far as the future, we are always looking for opportunities to better serve our customers, but our specific strategy is proprietary,'' Wells Fargo spokeswoman Lisa Westermann said.University Bank President Stephen Ranzini declined to name the U.S. banks that University Islamic has talked to.But he said his bank soon plans to offer its services such as residential lending to other banks and credit unions nationwide.Sharia banking is an idea "that is long overdue in this country,'' said Amal Berry-Brown, vice president at Comerica, a Dallas regional bank that has talked with Ranzini."At the same time, there really is quite a bit of work to be done.''Comerica has a strong customer base around Detroit, home to the nation's most concentrated Muslim population.One issue: There is "a big variance'' within Sharia law about exactly which financial practices are considered good and bad, said Mustafa Gultekin, a finance professor at the University of North Carolina at Chapel Hill.For University Islamic, the niche appears to be paying off.Ranzini said he expects it to generate more than 25 percent of the overall bank's revenue this year, up from about 20 percent last year. - AP

Seminar on Islamic Finance

2009-01-09T06:57:00.001+08:00

The IFSB is organising its first Seminar in Korea, entitled Seminar on Islamic Finance, which will be held on 13 - 14 January 2009

Check out details on http://www.ifsb.org/korea/index.html

Happy Seminar...

Don: Better knowledge of Islamic financing needed

2009-01-08T23:30:00.000+08:00

KUALA LUMPUR: The lack of understanding of Islamic financing needs to be addressed so that people are not confused and misguided, says International Centre for Education in Islamic Finance (Inceif) chief academic officer/dean Prof Datuk Dr Syed Othman Alhabshi.

He said even some employees who worked at Islamic banks couldn’t fully understand the concept of syariah-compliance.

“We need to address this matter so that everyone will fully understand and have a clear picture of Islamic finance,” he told a press conference yesterday.

Syed Othman Alhabshi

Syed Othman said as the world was currently facing a financial crisis, Islamic banking could be an alternative for the conventional banks to regenerate their business.

“I’m not saying that Islamic banking is the only solution for the current problems faced by the conventional banks. However, if this system can be a vehicle or a better solution to help them, why not,” he said.

Inceif, in a joint partnership with Britain’s University of Reading, is offering a 12-month masters course on investment banking and Islamic finance. The first intake, which commenced in September, is one of the steps taken to produce more experts in the field.

At the event yesterday, University of Reading director of the ICMA Centre Professor John Board said whatever banking system being used by the banks, at the end of the day, it was all about the attitude of the people.

“If people are greedy, whatever system you use would surely collapse as what we can see now from the global financial crisis,” he said, adding that if the Islamic banking system could become a good vehicle to uplift the financial industry by raising more capital to run businesses, there should be no objection to implementing the system.

Board said as more conventional banks wanted to offer Islamic banking and finance, it was important to educate the professionals in the banking line to master the system.

Bankers’ institute cuts back on training

2009-01-07T08:21:00.000+08:00

This is as some institutions may not want to hire more yet

KUALA LUMPUR: The Financial Sector Talent Enrichment Programme (FSTEP), an initiative of Bank Negara and the financial services industry, is cutting back on scholarships for 2007-2010 from 3,000 to 1,500.

Institute of Bankers Malaysia (IBBM) chief executive officer Dr Mohd Kamal Khir said the scheme was reviewed due to the current economic situation, as some banks might not want to employ more people as yet.

“Looking at the current situation, we want to emphasise on the quality of graduates that we want to offer to the industry,” he told a media briefing yesterday after presenting scholarships to 110 recipients, who were the third batch of the programme.

Mohd Kamal said the programme would now include an intensive one-month English course provided by trainers from the British Council.

According to him, most banks were unsure when the full impact of the financial crisis would affect Malaysia.

FSTEP, which aims to address the shortage of skilled talents in the industry, provides a one-year intensive training in four core banking and insurance streams, including Islamic finance and takaful.

The talent scheme, supported by the financial services industry through the Industry Staff Training Fund, provides each participant with RM2,200 in allowance per month.

Despite the global financial crisis, there would still be movement within the financial industry even though companies might not hire new staff, he said.

He added that there was a likelihood that some employees might opt for other fields or start their own businesses.

An IBBM survey showed there were about 3,000 vacancies in the financial services industry last year.

About 60% of the 290 participants who completed their course in December had found jobs. The second batch of 280 will graduate in June.

IBBM is governed by Bank Negara, the Association of Banks in Malaysia, the Association of Finance Companies of Malaysia and the Malaysian Investment Banking Association.

FSTEP, which has an intake every six months, is now open to applicants for its July intake.

PM: Islamic Finance looks promising

2009-01-06T17:08:00.000+08:00

Thursday November 13, 2008

By NG CHENG YEE

KUALA LUMPUR: There are many opportunities for Islamic Finance to lead the financial fraternity into a new growth era, said Prime Minister Datuk Seri Abdullah Ahmad Badawi.
He said Islamic Finance needed to quickly integrate itself with the international financial system and prove itself a viable alternative to the conventional financial system practised in most parts of the world.
“Many observers are increasingly considering the Islamic Financial system with renewed respect and admiration, as such, Islamic Finance must be prepared to take on a new dimension to meet the changing demands of business in an increasingly globalised environment,” he said at the launch of Standard Chartered Saadiq Berhad yesterday.
Abdullah said Malaysia was prepared to lead any attempt to reform the global financial system by infusing concepts and themes borrowed from Islamic Finance.
The recent global financial meltdown illustrated a desperate need for a system based on the principle of profit-sharing, where both parties in the contract are subjected to potential losses and returns.
“It is a system that is both fair and equitable as both parties are presented with a win-win situation where losses would not burden one party only,” he said.
He said by transforming into an essential element of global finance, Islamic Finance would surely end its perceived position as a niche or boutique financial service.