The National

Inherent tension in #sukuk market, says analyst

The Dana Gas controversy has shown that Sharia-compliance driven structural complexity can expose investors to legal risks that do not apply to conventional instruments. The industry has struggled to harmonise, given the fractured nature of the Islamic capital markets. Most current market participants seek to replicate the risk, return and rating profile of the corresponding conventional instrument. In the current sukuk market there exists an inherent tension between the underlying equity and asset financing principles encouraged by Islam and the current investor/issuer demand for a debt-like instrument. If implemented, standards would reduce the costs for investors and issuers. Issuers can re-use already endorsed market structures saving costs and hence encouraging them to issue more.

Wahed Invest: a Sharia-compliant #investment #robo-adviser

Robo-advisers are opening up investment advice to the masses. They can provide sound investment advice for a fraction of the cost of their human counterparts, making it affordable enough for those with as little as US$100 to invest. Junaid Wahedna has taken the robo-investment concept a step further, making it available for those looking for Sharia-compliant investment options. Wahed Invest charges far lower fees than those charged by a conventional wealth manager. The robo-advisor Betterment has accrued over $10 billion worth of assets under management in the US since its launch in 2008. Currently, all of Wahed’s clients are from the US and Mr Wahedna says it plans to start accepting international customers. The company has 50 full-time employees and it has offices in New York, London, Dubai and Mumbai. The company sees a lot of potential in India, having seen strong demand for Islamic investing in the country from its pre-registered clients.

Dana Gas says appeal against BlackRock joining #sukuk trial rejected

The English Court of Appeal has refused Dana Gas' appeal against fund manager BlackRock to participate in English court proceedings. Dana is refusing to redeem its $700 million outstanding sukuk on the grounds that they are no longer sharia-compliant and therefore unlawful in the United Arab Emirates. Courts in both Britain and the UAE are hearing the case. On November 17 the English High Court ruled in favour of the sukuk holders. Dana plans to set aside this judgement on the grounds that the company was not permitted to represent itself in court. Regardless of the result of that application, additional legal proceedings in England are expected.

#Bahrain to launch compulsory risk regime for Islamic banks

The Central Bank of Bahrain (CBB) will publish a consultation on a proposed risk assessment framework for Islamic banks in the first quarter of 2018. Khalid Hamad Abdul-Rahman Hamad, director of banking supervision at CBB, said the bank was planning to issue a very detailed risk management toolkit to improve risk management practices taken by Islamic banks. Under the proposed new rules, banks are required to have proper reserves, be it profit equalisation reserves or investment risk reserves. Whenever banks are investing, they must have a pre-plan regarding how much of bank assets will be funded by unrestricted investment accounts and how much will be invested from funds.

The Sharia-compliant #gold standard - one year on

Interest in gold has soared since the Shariah standard for gold was introduced almost a year ago. The standard was approved as a collaboration between the Bahrain based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and The World Gold Council (WGC) in London. Natalie Dempster, managing director at the WGC, says a number of existing gold products have now been certified as Shariah compliant and are being marketed as such. Several new regionally issued products are also under development. Adopting a Shariah standard has implications not just for the Muslim world but the UAE itself. Dubai in particular is rising as a purchase and investment destination. This has led to the emergence of institutions such as Noor Bank, Regal Assets and others that will buy and store bullion on behalf of clients from around the world.

Exclusive: First Islamic #robo-adviser to launch in Mena

The first Sharia-compliant robo advisers plans to start operations in the UAE soon, as it looks to a US$2 million funding boost this week from the Dubai venture capital firm Beco Capital. The digitally automated investment adviser Wahed Invest launched in the USA five months ago. CEO Junaid Wahedna said the company was in the process of moving to a new office in Dubai which will become the company’s new global headquarters. Wahed Invest expects to start regional operations by mid-Nov­ember, focusing initially on the UAE. According to Wahedna, the target for ethical, Sharia robo-advisory is the younger demographic, 25-35 years old, digitally savvy and educated millennials. The minimum investment of $100 enables it to tap into a broader customer base.

Abu Dhabi Islamic Bank says its ramping up spending on digital technologies

Abu Dhabi Islamic Bank (ADIB) is planning to spend significant financial resources on digital technology this year. The lender is not rushing to downsize its branch network, as clients continue to value human interaction. According to Phil King, head of retail banking at ADIB, the bank is also planning to open three to five branches across the UAE next year. King noted that while mobile banking transactions at ADIB rose 49% in the first half of the year, there was a 10% drop in visits made by customers to the bank’s branches in the same period. He added that new branches would be smaller in size, ranging between 35 to 70 square meters versus the larger ones of the past. As a result of the bank’s increase in consumer lending, ADIB’s retail staff has grown 7% so far this year to 247 employees compared to a year-earlier period. ADIB's second-quarter net profit rose 8.7%, beating analyst forecast, thanks to a drop in provisions, gains in income from credit cards and other fee products.

Bondholders push back on Dana Gas #sukuk invalidation claims in London court

Dana Gas sought to have US$700 million worth of Islamic bonds declared unlawful so it could avoid repaying its investors. The bondholder group, led by Blackrock, demanded in court that Dana Gas repays millions of pounds, or hand over stock in a subsidiary that runs its operations in Egypt. It also wanted the court to ban Dana Gas from issuing any new sukuk. The courtroom battle is notable for the absence of Dana Gas, which has been prevented from taking part because of an injunction in the UAE. Any prospect of an early conclusion has been disputed by Dana Gas, which has claimed that litigation could continue in the UAE and could last up to ten years. The trial in London, which is expected to last up to two weeks, is due to hear evidence from the former general counsel of Dana Gas.

Applying VAT to Islamic finance products can get complicated

Some countries have introduced laws to level the playing field between Islamic and conventional finance when it comes to the relationship between VAT and financial products. Whereas countries like Malaysia and Singapore have legislated to level the playing field between conventional and Islamic finance by recognising its religious underpinning, the United Kingdom have dealt with the issue in a not dissimilar manner but with a secular approach. Customers have enough difficulty understanding conventional finance. Investment in training to ensure product sales persons can comfortably communicate their Islamic finance offerings will be essential.

#Abu #Dhabi #Islamic #Bank praises #UAE #Central #Bank clampdown on mis-selling #investments

Central Bank issued a notificaiton in May this year about mis-selling of investments. The UAE‘s largest Sharia-compliant lender, Abu Dhabi Islamic Bank, has welcomed efforts by the central bank to clamp down on unscrupulous sales of investment plans to UAE expats It said, the reputation of the industry as a whole had been damaged by dishonest brokers.
“More regulation is a good thing and we work very closely with the central bank” and other wealth management institutions who wish to improve their services, said Daffer Luqman of Abu Dhabi Islamic Bank. “At the end of the day the reputation of the business affects everybody. If an institution does a bad job of promoting or marketing a service it affects the whole industry so it’s very important that this business is regulated, that it’s regulated effectively and that everybody plays by the rules.”

Soaring #sukuk sales mean outlook is encouraging

According to a new report by the International Islamic Financial Market (IIFM), sukuk sales are set to continue to rise this year as issuers refinance debt and sovereigns continue to tap the Sharia-compliant fixed income markets. Maturing global sukuk, with a ticket size of US$100 million and with a tenor of more than a year, will stand at around $66bn during this year and 2018. About 86% of the $367bn outstanding sukuk are held by a small group of countries, including Malaysia, Saudi Arabia, the UAE and Indonesia.Other countries, like Turkey and Pakistan are forecast to boost their market share in the next few years. IIFM’s prediction of greater sukuk issuances is in line with forecasts from S&P Global Ratings. The rating agency expects sukuk sales this year to range between $75bn and $80bn, higher than its previous estimate of $60bn to $65bn. This year’s sales will be exceptional and are unlikely to be repeated next year, the agency said.

Goldilocks Investment builds Dana Gas stake

An Abu Dhabi Global Market fund, Goldilocks Investment, has acquired 5% of Dana Gas. Goldilocks has a reputation of buying companies going through financial difficulties. Goldilocks has recently acquired 350 million shares in Dana Gas, which has seen its share price rise by nearly 70% in the past month. Goldilocks is part of Jassim Alseddiqi's Abu Dhabi Financial Group, a diversified investment company with about US$5 billion under management. Dana Gas has assets in Egypt and the Kurdish region of Iraq that have had good operational results but have suffered from erratic payments. Dana Gas also has an ongoing dispute with holders of its $700 million in sukuk, for which it has taken preemptive legal action to avoid a declaration of default.

#GCC governments seek to diversify funding with Islamic #bonds

According to S&P Global Ratings, GCC sukuk issuances jumped 37.7% in the first half of 2017 as governments are seeking to plug deficits amid low oil prices. The rating agency added that issuances of sukuk will not grow at the same rate in the next couple of years, with hurdles such as a lack of standardisation of sukuk rules deterring sales. Mohamed Damak, primary credit analyst at S&P, said the volume of sukuk issuance is expected to remain strong in 2017, but this is likely to be the exception rather than a new norm. 2016 was a record year for regional bond issues in the GCC region, with over $60bn worth of fixed income sold. Last year Saudi Arabia sold $17.5bn worth of bonds in its first international sale and Qatar sold $9bn. Despite the record value of issuances, S&P said that a big funding gap remains. It is estimated at $275bn and about half of that gap is expected to be raised through bonds and sukuk.

Dana Gas’s #sukuk move is a surprising one

Dana Gas’s sukuk move is a surprising decision as it could have a detrimental effect on Dubai's goal of becoming the Global Centre for Islamic Finance. Financial analysts agree that Dana's manoeuvre to invalidate its own sukuk on Sharia non-compliance grounds harms the whole Islamic finance sector. Several questions arise and Dana Gas provides no answer. It is difficult to understand how Dana went from "discovering" the "unlawful" nature of the sukuk to getting injunctions in at least two jurisdictions without actually managing its communications. When DG acts in this way, it does not only potentially harm Dana's creditors but every investor in the UAE and the whole financial system.

#Dubai strategy centre for #Islamic #finance close to its #goals

A strategy centre that was tasked to implement a strategy for Dubai to become a global hub for the Islamic economy can report that progress was made on about 75 % of its initiatives to this date.
The Dubai Islamic Economy Development Centre, that was set up in 2013, stated yesterday it had held a board meeting on Tuesday which was attended by Sultan Al ¬Mansouri, the Minister of Economy as well as the chairman of the centre, to discuss these achievements.
The centre identified key sectors for developing three segments of Dubai‘s Islamic economy: Islamic finance, halal products and Islamic lifestyle including culture, art, fashion and family tourism.
The minister said: "Dubai and the UAE are instrumental in raising awareness about the culture of Islamic economy worldwide and boosting global interest in adopting its principles. The Islamic economy ¬strategy adopted by Dubai and the wider UAE is truly unique in its ability to foresee economic changes, offer secure investment options and utilise bonds to finance major projects across the globe."

#Fintech for Islamic finance faces standardisation challenges

Fintech has become a buzzword in the Islamic finance industry. Fintech has the potential to play a major role, primarily to improve processes and cost effectiveness while maintaining Sharia compliance. The need for more agile and simpler financial services, the growing usage of mobile devices and the shift towards technological and mobile financial services could underpin growth in the industry. However, there are also challenges. The principal challenge could be the regulatory environment. Regulatory limitations and concerns could hinder the ability of Islamic finance institutions to forge ahead. Fintech has its own cost and integration requirements to consider as well. This could push fintech to the backburner, which in time could turn into a significant hindrance to growth. Regulators and institutions have a significant challenge ahead in balancing the use of new technology to provide better services while controlling new operational risks.

Different approach pays off for Al Rayan Bank

Sultan Choudhury, CEO of Al Rayan Bank, talks about Islamic finance in Britain and its appeal to non-Muslims. He says, Islamic finance appeals to anyone who agrees with the underlying principles: equitable distribution for everyone, prudent spending and the well-being of the community as a whole. It also provides an ethical alternative to traditional banking. Al Rayan Bank is structured to ensure that it operates ethically on a day-to-day basis. The bank's home-purchase plans (HPP) are structured differently to conventional mortgages. HPPs are based on the Islamic finance principles of ijara and diminishing musharaka. Currently the bank estimates that more than a quarter of customers are non-Muslim and the customer base is expected to grow in the coming years.

Islamic lender shows #UK appeal of Sharia finance

In Great Britain there are currently six Islamic banks, while another 20 lenders offer Islamic financial products and services. Al Rayan is Britain’s largest Sharia-compliant bank with 70,000 customers and 13 offices and branches. The bank underwent a major overhaul in 2014 when it was acquired by its Qatari parent, Masraf Al Rayan. Since that point, the brand was made more accessible, the imagery is no longer just Arabic, the bank uses British imagery as it is targeting all Brits. CEO Sultan Choudhury says about 25% of the bank’s customers are non-Muslim. Mr Choudhury also has his eyes fixed on the potential of the wider international market. In particular, he highlights the GCC national and expat market and HPPs (mortgages with an interest-free and Sharia-compliant structure). He says, Al Rayan's ambition is to be the number one bank for HPPs for GCC nationals and expats.

#Sukuk ‘too complex’ as tool to raise funds

Sukuk issuance growth in the Arabian Gulf is likely to remain subdued this year even as ­countries in the region need to raise more debt to plug budget deficits. According to the latest research from S&P Global Ratings, the reason lies in the complexity of selling Sharia-compliant bonds. S&P's analyst Mohamed Damak said sales of Islamic bonds fell in 2015 and 2016 in the GCC as the issuance of conventional bonds soared. Globally, the market for sukuk is also expected to remain stable this year at between US$60 billion and $65bn. Despite the recent rebound in oil prices, the GCC will need about $275bn of financing between this year and 2019, of which half is expected to come from bonds and sukuk. Complexity of sukuk issuance is not the only headwind facing Islamic financing. According to S&P, rising interest rates in the US will also dampen appetite for sukuk this year.

Would-be #entrepreneurs #rise up #to the #challenge at #Abu #Dhabi #fintech #hackathon

The fintech event, held earlier this month, was organised by GlassQube and Startup Weekend, a global movement coordinated by TechStars and supported by Google for Entrepreneurs, with the support of Abu Dhabi Global Market, Abu Dhabi’s financial free zone and financial regulator, and Temenos, a global financial software vendor. It brought together more than 100 developers, designers and aspiring entrepreneurs – many of are at university and some still at school – and challenged them to build a functional minimum viable product.
"We took those products and judged them based on their technical aspects, their commercial viability, how thoughtful those teams were about what is the actual potential of these products and services to find a market," says Bernard Lee, GlassQube’s chief executive and a co-founder.
"What’s important here is that it’s not just an idea. It is how do we take this idea and how do we actually convert it into something that is real? Something that shows how a consumer base can potentially interact with this particular application."

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