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Malaysia's stimulus plans hampered as Islamic yield curve steepens

Prime Minister Najib Razak’s plan to revive Malaysia’s faltering economy is getting no help from the country’s Islamic bond market.
Yields on government 10-year sukuk, used by companies to gauge the cost of Shariah-compliant financing, are at their highest level in 18 months relative to two-year securities, according to data compiled by Bloomberg. And with the slide in Brent crude prices sapping Malaysia’s oil-export revenue against a backdrop of looming U.S. interest-rate increases, investors say longer-term borrowing won’t be getting cheaper anytime soon.
“With the U.S. expected to raise interest rates soon, Malaysia’s yield curve will remain steep next year,” said Elsie Tham, a senior fund manager at Kuala Lumpur-based Manulife Asset Management Services Bhd who oversees more than US$1 billion. “Companies will find it challenging to raise funds because of slower economic growth.”

Funding shortfall of $13bn seen for Mena SME Islamic financing

More than one-third of small and medium enterprises in the Middle East and North Africa are out of the purview of banking sector and there exists a funding gap of up to $13bn for SME Islamic financing in the region.
Moreover sukuk, or Islamic bonds, have gained real momentum with many non-Muslim countries raising funds through these instruments, said Malaysian Premier Dato Sri Mohamad Najib bin Tun Haji Abdul Razak at the 11th World Islamic Economic Forum (WIEF), which got underway here yesterday and attended by more than 3,000 delegates from 98 countries.
“35% of SMEs in the Mena are excluded from the formal banking sector. Indeed, there is a financing gap of up to $13bn for SME Islamic financing in this region,” Razak said, quoting a study by International Finance Corp (IFC).

Source: 

http://www.gulf-times.com/eco.-bus.%20news/256/details/461501/funding-shortfall-of-$13bn-seen-for-mena-sme-islamic-financing

Islamic finance to fuel China’s Belt and Road initiative: Prince Turki

Finance from Islamic nations wants to play an important role in China's Belt and Road initiative, Turki bin Faisal Al Saud said at the International Finance Forum in Beijing on November 7.
Also known as Turki Al Faisal, Prince Turki is a member of the Saudi Arabia royal family, one of the founders of the King Faisal Foundation and chairman of the King Faisal Center for Research and Islamic Studies.
"I'm glad to see that the AIIB (Asian Infrastructure Investment Bank) is considering taping Islamic funds," he said. "Islamic finance is very suitable for infrastructure financing, and we want to contribute to the One Belt One Road."
The initiative is composed of infrastructure development across Asia and Europe. It's estimated that China will invest a total of $900 billion and spur a regional input of $300 billion.
Chinese banks having been raising clout in the Gulf such as issuing bonds. The country is also strengthening its trade relations with Islamic countries.
However, the plan comes with risks, as Chinese companies have to first become familiar with Islamic finance, which has complex rules.

Badlisyah: Islamic finance to continue strong growth

Malaysia’s Islamic finance industry will continue to grow strongly despite the withdrawal of some Islamic finance-related incentives in Budget 2016.
Chartered Institute of Islamic Finance Professionals (CIIF) president Badlisyah Abdul Ghani said the country’s Islamic financing market has grown positively over the years, attributed to the tax incentives provided for Islamic financing in previous budgets.
“(But now) the Islamic finance no longer requires that assistance to penetrate the market. (Previously) the incentives were there to create the momentum to build nderstanding and acceptance of Islamic finance,” he told a press conference after the launch of CIIF last Friday.
Badlisyah said the CIIF, a professional body for qualified practitioners in the Islamic finance industry, was established following the increasing need for a global reference point for professional talent in the industry, as it expands internationally.

Islamic finance assets to reach US$3.2t by 2020, says Thomson Reuters

The global Islamic finance assets are projected to grow to US$3.2 trillion (RM13.6 trillion) by 2020, says Thomson Reuters, the world’s leading provider of intelligent information for businesses and professionals.
Its Head of Islamic Finance, Mustafa Adil said Islamic finance was considered the most developed sector within the various pillars of the Islamic economy and its growth in the global industry was broadly measured by the value of Islamic finance assets.
As global acceptance of Islamic finance continues to grow, he said more corporates and non-Muslim sovereigns were announcing Islamic finance initiatives such as ethical finance or Shariah-compliant regulations, as well as sukuk issuances.

Islamic finance gains traction in search for alternative models

Islamic financing is gaining traction even among non-Muslim countries in a bid to use sustainable and equitable form of alternative models, the Malaysian Prime Minister said on Tuesday. London issued its second Islamic sukuk after its first bond issue was oversubscribed 14 times. In addition to London, Luxembourg and South Africa, Hong Kong has also issued sovereign sukuks.
“Ever since the global financial crisis in 2007-08 there has been a sharp demand for alternative economic and business model that reduces the level of speculation as conventional model that has inherent weakness,” Najib Razak told journalists. “Over-leveraging is believed to have been the root cause of the disaster — but again, that is prohibited in Islamic finance. As a result, Islamic banks remained strongly capitalised and resilient against financial market volatility, while continuing to contribute positively to equitable and sustainable growth,” he said.

Demand for Islamic finance grew after 2008 economic crisis

Prime Minister Datuk Seri Najib Razak credited the 2008 global economic crisis, reportedly the worst since the Great Depression, for paving the way towards the growth of Islamic finance. He said the 2008 financial crisis, which was triggered by the bursting of a housing bubble in the United States and later contributed to the European sovereign-debt crisis, made alternative financial systems more sought after.
“Ever since the global economic crisis in 2007, 2008, I think there’s been a sharp demand for alternative economic and business models, specifically financial models that reduces the level of speculation. “Conventional model has that inherent weakness and more to kind of a genuine partnership, you share the risk and you share the profit. So Islamic finance has gained a lot of traction,” he said during a press conference at the 11th World Islamic Economic Forum in Kuala Lumpur here.

Islamic Finance: Ushering in a New Era of Growth for Africa

Markets across Africa now offer a world of exciting growth opportunities, with experts projecting that 7 out of the 10 fastest growing economies in the world will be in Africa. Djibouti is rapidly becoming an important hub for Islamic finance in Africa, with strong support coming from the President.
The Central Bank of Djibouti is leading the way in terms of driving the practical legal and regulatory framework. Djibouti's strong commitment to Islamic finance is further cemented by its drive to connect with memberships in important international industry organizations, such as the Islamic Financial Services Board and the General Council for Islamic Banks and Financial Institutions.

Special Report: The shariah debate on Islamic financing

Zaki (fictual name) is a former civil servant who was declared bankrupt by the civil courts when he did not repay hundreds of thousands of ringgit to a bank. It all started when he was offered a bai’ bithaman ajil (BBA) scheme by a local bank to buy a new home costing RM90,485 and was expected to repay the bank over 25 years. When the unlicensed developer abandoned the project, Zaki stopped paying his monthly bank instalments. As a result, the bank recalled the facility and filed a civil suit against Zaki. The claim amount was lose to three times the buying price of the home, even though the bank had only disbursed RM36,000 to the errant developer.
His predicament is neither new nor uncommon. Many like Zaki signed up for the BBA — a home financing scheme that had been in existence for more than three decades until it was phased out in 2013 — and only learnt of the perils when they defaulted.

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The lack of equity finance - really a problem of moral hazard?

Michael Gassner, Editor of IslamicFinance.de presented on the 3ème Congrès International de la Finance Islamique “Les Banques Islamiques et le Financement des Entreprises: Pratiques et enjeux théoriques” en Marrakech, 25/26 Mai 2015.

The presentation discussed that exponential growth of debt in Islamic finance is ruled out, nevertheless, debt and equity finance exists. The specific significance of equity finance (musharaka, mudaraba) lies in need for solid debt/equity ratio, as Muslims shall never die being in debt. Still Islamic banks barely provide any equity finance and the reason often given are moral hazard costs. This is denied as debt as well as equity has specific moral hazard problems, and if anything, even conventional banks would offer a mixture of debt and equity. Rather the assumed reason appears to be in the regulation (capital weight) and taxation (interest deductibility), which makes equity financing from a bank 2-4 times at least more expensive than debt finance, and thus not worth being offered.

The attached presentation is in French.

“Fundamental reform of the monetary system must be considered.” Says head of Iceland Parliament's Committee for Economic Affairs

31.3.2015

Monetary Reform - A better monetary system for Iceland

Frosti Sigurjonsson, Member of the Parliament of Iceland and Chairman of the Committee for Economic Affairs and Trade, today published a report outlining the need for a fundamental reform of Iceland's monetary system.

The report, commissioned by the Prime Minister, considers the extent to which Iceland's history of economic instability has been driven by the ability of banks to ‘create money' in the process of lending.

The Icelandic economy has struggled with inflation and unstable exchange rates. Iceland also suffered one of the costliest banking crises in history.The report describes how commercial banks in Iceland created far more money than was needed for economic growth. The Central Bank failed to bring the money supply under control using conventional means.

Working Paper: Why does financial sector growth crowd out real economic growth?

As Islamic finance emphasizes the connection between real economy and financial activity this BIS Working Paper is very interesting and supportive for the understanding:

Abstract:
"In this paper we examine the negative relationship between the rate of growth of the financial sector and the rate of growth of total factor productivity. We begin by showing that by disproportionately benefiting high collateral/low productivity projects, an exogenous increase in finance reduces total factor productivity growth. Then, in a model with skilled workers and endogenous financial sector growth, we establish the possibility of multiple equilibria. In the equilibrium where skilled labour works in finance, the financial sector grows more quickly at the expense of the real economy. We go on to show that consistent with this theory, financial growth disproportionately harms financially dependent and R&D-intensive industries."

InFocus Inaugural newsletter of the General Council for Islamic banks and financial institutions

Inaugural issue reporting about the work and new strategic plan of CIBAFI, the General Council for Islamic banks and financial institutions.

JKAU - Islamic Economics Journal uploaded

Islamic Economic Journal of King Abdulaziz Journal online: http://iei.kau.edu.sa/Pages-CVOL28.aspx

JKAU: Islamic Econ., Vol. 28 No. 1, 230 Pages (2015 A.D./1436 A.H.)
DOI: 10.4197/Islec. 28-1

Contents
Glossary

Articles
- Islam?c Wealth Management in History and at Present
Murat Çizakça ............................................................................................. 3
- Loan Loss Provisioning in OIC Countries: Evidence from Conventional vs. Islamic Banks
Ali Ashraf, M. Kabir Hassan, and Syed Abul Basher .......................... ..... 23
Discussion Paper
Factors Influencing the Behavioral Intentions of Muslim Employees to Contribute to
Cash-Waqf Through Salary Deductions
Anwar Allah Pitchay, Ahamed Kameel Mydin Meera and
Muhammad Yusuf Saleem …………………… ……….................. 63
Discussion Forum
- Severe Financial Crises and Fundamental Reforms: The Benefits of Risk-Sharing
Hossein Askari ....................................................................................... 101
- Why Economists (and Economies) Should Love Islamic Finance

ICD Thomson Reuters Islamic Finance Development Report 2014: Harmony on the Horizon

This report is an annual barometer of the health and development of the Islamic Finance industry worldwide, based on the ICD Thomson Reuters Islamic Finance Development Indicator.

The Sharing Economy: Make It Sustainable

Reselling, giving, swapping, short-term renting and lending are all models that can help to increase the usage duration of resource-consuming goods. They are part of a real sharing economy that is undergoing regeneration due to the development of digital technologies. Public authorities should build an economic and regulatory framework that is favourable to virtuous models. Sharing economy entrepreneurs should analyse and improve their environmental performance. Users have a particularly important role in the case of peer-to-peer models. Environmental impact depends heavily on user behaviour and on the values that drive their actions.

Securities Commission Malaysia: Biannual Newsletter - Islamic Wealth Management

Jan - June 2014 issue of the Malaysian ICM bulletin published by the Securities Commission Malaysia (SC) is now available online.

Islamic fund and wealth management is an integral component of Islamic financial system. This is attributed to the significant rise in income and wealth of certain Islamic countries over the last four decades as well as the emergence of Islamic finance as a viable alternative to conventional finance. The benefits of Islamic fund and wealth management cut across racial and religious boundaries as it not only benefit Muslims who wish to see their wealth preserved and enhanced within the Shariah framework, but also to non-Muslims who may view this from an ethical perspective of managing wealth.

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Relaunch IslamicFinance.de Newsletter - Free Download

Dear Reader,

On the occasion of the 10th anniversary of IslamicFinance.de please find at the hyperlink below the relaunch of the newsletter.

http://www.islamicfinance.de/files/20140529%20IslamicFinance%20dot%20de%...

Any new issues will be announced to our registered users of IslamicFinance.de and to the members of the related LinkedIn Group of IslamicFinance.de.

If you wish to register please go to http://www.islamicfinance.de/?q=newsletter/subscriptions or become member of the LinkedIn Group: http://www.linkedin.com/groups?mostRecent=&gid=147616&trk=my_groups-tile...

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NB: I appreciate feedback to improve the content and better understand what readers are looking for. Please allow time for reply, which I may not be able to give to all enquiries after sending out the newsletter.

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Michael Saleh Gassner

Bi-annual Bulletin on the Malaysian Islamic Capital Market by the Securities Commission Malaysia

Contents
Revised Shariah Screening Methodology: 1
Expands ICM’s Global Reach
SHARIAH
New Shariah Advisory Council Resolutions 3
DEVELOPMENT
Region’s First Structured Covered Sukuk 7
Royal Award for Islamic Finance Calls for Global 9
Nominations
SC and Autoriti Monetari Brunei to Strengthen 9
Efforts in Greater Cross-border Activities
SC Leads Islamic Finance Taskforce to Publish a 10
Report on Enhancing Infrastructure for ICM
REGULATORY
IFSB-IOSCO-SC Collaborate on Disclosure 11
Requirements for ICM Products
SC Revises Equity Guidelines for SPACS 12
Technical Note on the Application of SC’s 13
Guidelines In Relation to Non-Tradable and
Non-Transferable PDS and Sukuk
FEATURES
2013: Another Resilient Year for the Global 14
Islamic Finance Industry
Global Islamic Funds Industry: Achieving 18
Growth Under Challenging Times
Harmonisation of Shariah Rulings 22
in Islamic Finance
News Round-up 29
STATISTICAL UPDATES
Malaysian ICM – Facts and Figures 32
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