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Gassner's picture

Bitcoin: The Islamic discussion arrives - some aspects!

Dear Readers,

Following up on my previous posts on Bitcoin, this one is an attempt to gather and link up with the increasing discussion on the subject matter from an Islamic perspective.

My latest post was:
http://www.islamicfinance.de/?q=node/10303

My personal view is critical on bitcoin, as I do not see any other use than payments, hence no intrinsic value. Value does not come from costs creating something but in my understanding from utility, rather than price and appreciation - but may be this point is more my thinking than a Shariah argument...

Further light on Fiqhi points are given in this paper:

http://darulfiqh.com/wp-content/uploads/2017/08/Research-Paper-on-Bitcoi...

Please check the following sources and my initial attempt for some comment, well taking in account that any summary will be deficient due to time constraints:

Diyanet, the Turkish religiouos authority has spoken out against bitcoin. See

http://www.euronews.com/2017/11/28/bitcoin-is-not-compatible-with-islam-...

A transaction apparently complying with Islamic finance rules which dismays most Muslims who look at it

In this article Mohammed Amin discusses a structure which sidesteps Shariah rules but nevertheless was approved by Shariah scholars. He encountered this structure at a recent conference and the paper was titled "The Doomsday Fatwa". The "total return swap" structure would allow Muslims to achieve the same economic returns as investing in any identified asset. For example, a Muslim could achieve the economic results of investing in brewery shares without ever owning them. The "Shariah conversion technology" underlying the transaction appears to violate any purposes which underlie Islamic finance.

Malaysian firm adds Islamic certification to #cryptocurrency

#Malaysia-based firm HelloGold has received a Syariah-compliant certification for its gold-backed cryptocurrency and plans to launch its online gold platform in Thailand. HelloGold's chief marketing officer Manuel Ho said the cryptocurrency product was named GOLDX and received certification from Amanie Advisors. GOLDX involves the issuance of a token backed by physical gold stored in a Singapore vault and transactions must be completed within a defined time period. Over the past year, the firm has also rolled out a mobile app in Malaysia that is based on blockchain. The mobile app, which allows users to buy and sell physical investment grade gold, was also certified by Amanie Advisors. Manuel Ho added that HelloGold would expand its gold platform into Thailand in coming months, while potentially adding a third market by the end of the year.

Gassner's picture

Public Lecture in London, Wednesday 21st February 2018, SOAS University of London 7.00 PM-8.30 PM

Happy to meet in real life! PUBLIC LECTURE ON ISLAMIC FINANCE: The meaning of Shari’ah compliance goes to the heart of Islamic finance and its value proposition.

SOAS University of London
SOAS Main Building, DLT Lecture Theatre
Wednesday 21 February 2018, 7:00-8:30pm

More details in the attached pdf file.

Best regards,

Michael Gassner

Dubai State Holding Firm Is Said to Seek $1 Billion #Refinancing

Investment Corporation of Dubai (ICD) is seeking to raise a $1 billion loan to refinance its existing debt. The state-owned holding company aims to raise a five-year loan to partly repay a $2.55 billion facility that matures in June. ICD owns stakes in some of Dubai’s biggest companies including Emirates, Emaar Properties and Emirates NBD. The company raised the loan in 2013 and it includes a $875 million facility and a 6.15 billion dirham ($1.7 billion) portion. HSBC Holdings, Citigroup, Standard Chartered, Emirates NBD and Dubai Islamic Bank were among lenders that provided the original loan.

Islamic Development Bank joins forces with #China-led AIIB - Financial Times

The Islamic Development Bank (IDB) is set to form a partnership with the China-led Asian Infrastructure Investment Bank (AIIB) to address the large infrastructure gap in developing countries. IDB president Bandar Hajjar said the bank would co-finance many projects with AIIB in the future in Africa to finance infrastructure projects. Co-operation between the AIIB and the IDB is set to create a new force in development finance for several developing countries. Many of the IDB’s 57 member countries overlap with the AIIB’s approved membership of some 80 nations.

#Fintech News from the Middle East and North Africa (MENA)

Here’s a round up of recent fintech news from the MENA region. Saudi Arabia’s central bank has signed a deal with Ripple to use distributed ledger technology to settle payments. Dubai Multi Commodities Centre (DMCC) reports that gold trader Regal RA DMCC is the first company in MENA to gain a licence to trade cryptocurrencies. Honeywell launches Middle East industrial cybersecurity center. International Data Corporation reports that MENA spending on blockchain technology will grow to $80 million this year compared to $39 million in 2017. By 2021, regional blockchain spending is expected to reach $307 million. Monami Tech introduces digital payment service, Lendme, while Monetary Authority of Singapore and Central Bank of Egypt forge fintech partnership.

#Qatar Islamic #Insurance posts gain in gross written premium to QR316.6mn in 2017

Qatar Islamic Insurance has reported more than 1% year-on-year rise in gross written contribution (premium) of QR316.6mn in 2017. The company’s earnings-per-share was QR4.13 compared to QR4.23 a year ago. The policyholders’ surplus registered more than 100% growth to QR16.2mn in 2017 compared to QR7.9mn in the previous year. Chairman Sheikh Abdulla bin Thani al-Thani said the company would distribute, for the eighth consecutive year, 20% surplus to all the eligible policyholders for 2017. The management of Qatar Islamic Insurance achieved these results despite a very challenging environment in 2017 due to negative impact of low oil prices on national economy.

Comic explainer: how does Islamic finance work?

In this comic the University of Queensland’s Mamiza Haq explains the foundations of Islamic fincance and the Dana Gas sukuk case.

Wealth protection and succession solutions for wealth families

Dynastic planning is increasingly topical in the Middle East as founders focus more attention on ensuring that the family remains in harmony. According to Laurence Black, Regional Director at Asiaciti Trust, establishing a structure to manage family dynamics and ensure a smooth transition of assets helps minimise family conflict. As families become more global from their Middle East bases, there are more and more issues to consider. Families are looking further out in wealth transitioning as well, thinking about their personal legacies, such as philanthropic interests. Well-structured dynastic planning helps mitigate dangers that might arise due to political instability or other forms of fragmentation like foreign ownership rules. Cross-border issues are ever more prevalent as asset classes and geographical dispersion become more diverse. Trust structures and other special vehicles are ideal for protecting assets and can maintain control for the principals in their lifetimes.

Islamic legacy planning – evolution or revolution?

The typical GCC merchant family is facing many challenges to the maintenance, expansion and inter-generational transitioning of its wealth. According to Yann Mrazek, Managing Partner at M/HQ, there is some gradual increase in investment outside the region, but nearly three-quarters remains in the region. The focus remains concentrated on only three asset classes, the family’s own business, real estate, cash or deposits. While times are clearly changing and people from the GCC are spreading out further, their assets seem to become more concentrated. Moreover, the UAE economy is more open than ever before, implying greater competition for businesses. All this represents a wonderful opportunity for firms such as M/HQ. An estimated 30% of families are not thinking about estate planning, while 70% are receptive to legacy matters. For those with offshore assets, a trust or a foundation are likely to be compatible. For domestic assets, there are new tools being rolled out in the region. These include new SFO, trust and foundation regimes.

Managing wealth for a new generation

Tariq Bin Hendi, Ph.D., Executive Vice President of Emirates NBD, discussed the challenges that lie ahead for Private Banking. Bin Hendi said that approximately 200,000 ultra-high net-worth individuals are going to be passing down almost 30 trillion US dollars to their children. In addition, there will be millions of people passing down more moderate wealth, from the entrepreneurial and business fields. In the UAE, the older generation still prefer real estate and equities to the private equity and technology sectors that their children and grandchildren favor. Wealth management institutions are changing the way they interact with the new generation of clients. They need to better equip themselves with more nimble technology, from AI to Robo-advisors to ATMs, so as to not lose ground to the new startups. Bin Hendi suggests a new generation of products and services, which include a combination of human and AI interaction. Emirates NBD is spending 1 billion Dirhams over the next 3 years to bring about this technological revolution.

Tapping the Islamic banking potential in Africa

Africa represents a huge untapped market for Islamic Banking. The demand for Sharia-compliant products in Africa has been growing for both Muslims and non-Muslims. Most countries such as Senegal, Uganda, Morocco, Kenya, Gambia and Nigeria have already reformed banking laws to allow the setting up of Islamic institutions. While there is a large demand for Islamic Banking, the availability of Islamic Wealth Management Products is still relatively small, leaving a large opportunity for UAE banks. At Noor Bank, for example, each international client is assigned a dedicated relationship manager and customer service officer. Going forward, the African market holds great potential for the UAE Banking sector. Latest forecasts indicate that Africa’s GDP will grow to 3.7% in 2018, according to the African Development Bank.

An example of the risk to international investors from local country legal regimes

The Dana Gas sukuk case illustrates the dangers of local country courts favouring domestic companies. Wherever possible, international investors should avoid local law. The most commonly used is English law, even for commercial arrangements that have nothing to do with the UK, because English law is well-developed and English courts have a deserved reputation for legal competence and impartiality. Dana Gas raised money from international investors by issuing sukuk. The money so raised was invested in a mudarabah agreement with Dana Gas, written under UAE law. Dana Gas also entered into a purchase undertaking, written under English law. Under UAE law, sukuk investors would have been sunk, having to litigate about whether the commercial arrangements were or were not Shariah compliant. However, they were saved by the purchase undertaking being under English law.

SECP introduces auditing #standards for Islamic finance sector

The Securities and Exchange Commission of Pakistan (SECP) introduced three new international auditing and accounting standards. According to the commission, the AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) shariah standards have been notified after a thorough consultative process. The adopted standards include Shariah Standard No 17-Investment Sukuk, Shariah Standard No 18-Possession (Qabd) as well as Shariah Standard No 23-Agency and the Act of an un-commissioned agent (Fodooli). The commission said it has been playing a proactive role in providing an enabling regulatory environment for the growth of Islamic finance in the country.

#Sukuk Issuance in Africa: A Prospect for Further Growth

The burden of financing Africa’s infrastructure projects is shifting away from banks towards the Sukuk market. To date, Africa has witnessed a growing share of sovereign Sukuk issuances. While states such as Sudan and Gambia have issued Sukuk in the past, it was in 2014 that Senegal debuted the region’s largest Sukuk issuance (USD 208 million). Soon South Africa and Cote d’Ivoire followed suit. In June 2016, Senegal launched its second Sukuk issuance, valued at USD 350 million. Togo issued its maiden Sukuk worth USD 277 million with a 10-year maturity and Cote d’Ivoire issued its second sovereign Sukuk valued at USD 263 million in August 2016. Several African countries are in the midst of preparing legislation to facilitate Sukuk issuances and facilitate Islamic finance in their respective financial market.

Leverage attributes in Islamic banking are the same as in conventional banking

For an Islamic bank, Shariah compliance is a foundation attribute, not a leverage attribute. Islamic banks need to give an impression of strength and stability. They also need to be accessible for customers. Historically, a physical branch network was needed, but today Islamic banks compete by providing electronic access, remote deposit facilities and smart phone apps. The key leverage attribute of any bank is accurate credit assessment, so that the bank can charge appropriately for the risk of customer default. A further leverage attribute is to have bankers whose connections in the business community are so strong that they can create deals, such as corporate takeovers or partnerships. It is a leverage attribute for Islamic banks to be able to innovate and devise new Shariah compliant offerings not provided by competitors. The challenge is both in devising those offerings and in preventing their intellectual property being copied by competitor Islamic banks.

#Innovations in Islamic Banking and Finance

The next phase of growth in Islamic banking will be driven by differentiation driven by innovation. There has been a remarkable 11% growth in global Islamic banking assets over the last 5 years. The opening up of a regulated Islamic banking market has allowed for banks to serve an untapped segment. Islamic banking drove innovation through a new set products and services that were Shari’ah compliant. In the future, developing a distinctive customer segment such as age groups or focus groups will be critical. A part of the customer base is quite indifferent to the Shari’ah angle, but more sensitive to the overall experience and the value proposition offered. While customer segmentation, product positioning and partnerships are all helpful, the piece that can make a significant impact is the technology-driven innovation, that is the right omni-channel experience for the customer.

Al Rayan Bank #UK’s £250mn #sukuk priced at 80 bps over 3-month Libor

Al Rayan Bank UK has priced its £250mn Islamic bond "Tolkien Funding Sukuk No 1" at 80 basis points over three-month Libor (London Inter-bank Offered Rate). The transaction is secured by a portfolio of prime UK, first-charge, owner-occupied, home purchase plans, originated by Al Rayan Bank. The sterling-denominated sukuk has an expected called weighted average life of three years. Proceeds raised from the sukuk issuance would be used by Al Rayan Bank to fund further growth in its asset book, which has increased by more than 23% over the last 12 months. Such residential mortgage backed securities (RMBS) are relatively rare in Islamic finance. The bank believes that there would be more opportunities to issue sukuk in the future and a higher potential for other Islamic banks to tap into the RMBS market.

For Islamic banks, Shariah compliance is a foundation attribute

Because Shariah compliance is essential for all Islamic banks, it does not distinguish one Islamic bank from another. Hence it is a foundation attribute. About 25 years ago, Price Waterhouse made a distinction between foundation attributes and leverage attributes. Foundation attributes convey no competitive advantage. Al Rayan Bank is the only Islamic bank in the UK which targets ordinary retail customers. The bank's homepage gives very prominent coverage to its Shariah compliance. That is because Al Rayan is not competing against other retail Islamic banks but rather seeking to create a retail Islamic finance market where none has existed before.

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