The Express Tribune

SECP easing #Sukuk rules to facilitate Islamic finance

The Securities and Exchange Commission of #Pakistan (SECP) announced that it was relaxing regulations for Sukuk issuance in order to develop the Shariah-compliant market. The regulator said the SECP was amending the 2015 Issue of Sukuk Regulations to facilitate the issuers, reduce the cost of issue and ease the regulatory burden. The SECP has invited public opinion on the proposed amendments before their finalisation. The commission has also advised the PSX to come up with proposals for reducing the cost of market-maker for Sukuk issuance, rationalising the minimum size of public offer portion to reduce the cost of issue and organising a seminar with potential issuers to widen awareness. According to the SECP, the Sukuk market has been performing below potential in Pakistan. While the demand is substantial, supply remains short.

ECC waives 10 types of taxes on Islamic bonds

The #Pakistani government waived 10 taxes on the upcoming international Sukuk bond issue, which is expected to raise at least $750 million. The government is going to tap the international debt market next month to borrow $750 million to $1 billion by pledging the Islamabad-Lahore Motorway. Headed by Finance Minister Ishaq Dar, the Economic Coordination Committee (ECC) of the cabinet granted tax exemptions on the Islamic bonds. This decision violated the Supreme Court judgment that barred the ECC from taking decision on fiscal matters without prior approval of the federal cabinet. The ECC also approved to reduce prices of imported urea fertiliser from Rs1,310 per bag to Rs1,200 per bag, giving Rs30.4 million subsidy.

Dar suggests investment in research to Islamise economy

Speaking at the World Islamic Finance Forum, Pakistan's Finance Minister Ishaq Dar suggested investing in research in order to Islamise the whole economic system of the country. He said Islamic finance industry leaders should play an active role in promoting the industry. At the same time, the leaders should not remain complacent with the traditional model, but should help the finance industry evolve and innovate products based on Shariah compliance. Dar said economic growth in Pakistan had crossed 4% and had remained steady at 5% this year. This growth rate is expected to accelerate to 7% in fiscal year 2017-18. Later referring to a BBC report, he said Pakistan would become the 18th largest economy of the world by 2050 from the current 44th position.

#Merger with bank islami: Sale of KASB Bank challenged

The controversial sale of the Kasb Bank to Bank Islami has been challenged before the Islamabad High Court. The petition was filed by Mohammad Khalid Randhawa, a shareholder of the Kasb bank, who claims that Kasb Bank was sold to the Bank Islami for only Rs1,000. He was praying before the court to declare the sale illegal. Judge Aamer Farooq made documents related to the inquiry of the deal as part of judicial record and adjourned the case.

Shariah-compliant: Islamic financing increases for infrastructure deals

Shariah-compliant financing is emerging as a viable alternative to conventional banking in order to fund infrastructure deals, which could help promote use of longer-term transactions in Islamic finance. This month Pakistani banks arranged Rs100 billion ($955 million) worth of 10-year Islamic bonds (sukuk) for a hydropower plant, the largest infrastructure deal to use Islamic financing in the country. Finance Minister Ishaq Dar said Pakistan wanted to make Shariah-compliant financing its first choice for infrastructure and long-term financing needs.

The curious case of Islamic wealth

Islamic banking and finance (IBF) is swiftly growing in countries outside the Organisation of Islamic Cooperation (OIC) block, especially in the United Kingdom. The global Islamic financial services industry attained the size of $2 trillion by the end of 2015. Islamic banking segment, which accounts for 75%, dominates the industry. Sukuk, although much talked about, is only 15% of the total Islamic financial assets. Islamic fund management segment, albeit a small component, is slowly developing. Takaful and microfinance, on the other hand, have yet to attain any significant level of development.

Questioning the economic value of current Islamic banks

Many industry observers assert that all Islamic banking products in essence are replicas of conventional banking products, be they Islamic deposits or financing products based on leasing or trade-based contracts. A replica, however, by its very nature and definition is inferior to the original, and should sell for a significantly lower price. Islamic banking products are certainly not replicas in this sense, as in most cases they happen to be more expensive than their conventional counterparts. It is therefore not a co-incidence that it is more popular in the countries where Muslims have higher per-capita income and wealth. Within other countries, Islamic banking and finance is serving the relatively affluent segments of the society.

Interest-based lending: Drive needed to create awareness of Islamic alternatives

Even some prominent scholars are of the view that while charging interest is not permitted in Islam, paying interest on loans is not impermissible. This is a view that demands an analysis from both an intellectual and economic perspective. A scholar argues that those who pay interest do not fall under the category of those who “eat others’ property unjustly” and that they must not also be deemed as “cooperating” in dealing in interest. The Prophetic tradition also prohibits cooperation in matters related to interest-based business. According to the scholar, the payer of interest does not “eat others’ property unjustly.” Hence, he does not commit any sin when he pays interest. This is a flawed argument, as interest-based transactions are by their very nature cooperative in nature.

Investment scandal: Two more accused in Modaraba scam held

The country’s top anti-graft body arrested two more accused of cheating public and depriving them of their hard-earned money in the multi-billion rupee Modaraba scam. The National Accountability Bureau (NAB) Rawalpindi circle on Saturday arrested Mufti Muhammad Idrees and Abdul Malik Bajouri, directors of Fayazi Gujranwala Industries. The accused deprived various gullible individuals of Rs8.2 billion by wooing them into investing in the scheme for attractive profits. The NAB has so far arrested 34 accused, including Mufti Muhammad Ehsanul Haq, CEO of the Fayazi Gujranwala Industries and recovered Rs1.73 billion from them.

IMF praises SBP for financial sector’s stability

The International Monetary Fund (IMF) has welcomed the progress made by the State Bank of Pakistan (SBP) with respect to the capitalisation of the banking sector. In the eighth review of Pakistan’s economic performance under a 36-month loan programme of about $6.6 billion, the IMF said the SBP should continue its efforts to bring a number of small banks into compliance with statutory requirements. After the recapitalisation through a rights issue in the only capital adequacy ratio (CAR)-non-compliant bank in July, it noted with satisfaction that all Pakistani banks have now become CAR-compliant. However, five small banks are still operating below the Rs10 billion minimum paid-up capital requirement (MCR).

Pakistan’s Islamic insurance industry landscape set for makeover

Thanks to a regulatory action last year, the landscape of the country’s Islamic insurance industry is set to change forever with the entry of conventional insurance giants in the Takaful market. Jubilee Life Insurance and EFU Life Assurance, which control over Rs115 billion in total assets between them, have just launched Takaful products. The first set of rules governing the Islamic insurance industry did not allow conventional insurance companies to enter the Takaful market unless they set up stand-alone subsidiaries with separate paid-up share capital. However, the Securities and Exchange Commission of Pakistan (SECP) replaced Takaful Rules 2005 with Takaful Rules 2012 three years ago, which allowed conventional insurance companies to set up Islamic ‘windows’.

Primary education: IDB to construct 300 schools in AJK

The Islamic Development Bank (IDB) will construct 300 schools across Azad Jammu and Kashmir (AJK) to promote primary education in far-flung areas. IDB Programmed Head Shafat Hussain told a meeting of the AJK Planning and Development Department here on Sunday that besides constructing schools in remote areas, teachers of these institutes will also be provided special training. Hussain told the meeting that the project aimed to provide better education facilities to deserving children in far-flung and distant areas. AJK Director Education Syeda Geelani, Director Research Najeebur Rehman and other officials attended the meeting.

JSCL to increase its stake in BankIslami

Jahangir Siddiqui and Company is going to increase its stake in BankIslami Pakistan by at least 7.4% in coming weeks. According to a note sent out to members of the Karachi Stock Exchange (KSE) on Tuesday, the board of Jahangir Siddiqui and Company has decided to make a long-term equity investment of Rs749.3 million in BankIslami by purchasing 74.9 million shares from Dubai Bank PJSC at Rs10 per share. The shareholding of Jahangir Siddiqui and Company in BankIslami was 21.2% as on June 30. The total stake of the financial conglomerate in the Islamic lender will stand at 28.7% in case the company’s shareholders approve the equity investment decision taken by the board.

Dubai Bank to divest holding in BankIslami

Dubai Bank PJSC wants to sell its shareholding in BankIslami Pakistan, a stock filing said on Wednesday. Another shareholder, Jahangir Siddiqui and Company, reported that it has received a letter from the UAE-based bank, saying it wants to sell 144.2 million shares in BankIslami Pakistan. The stake that Dubai Bank PJSC wants to sell constitutes 14.3% of the total issued shares of BankIslami Pakistan. Dubai Bank is offering its stake to Jahangir Siddiqui and Company and another (unnamed) shareholder of BankIslami Pakistan under its shareholders’ agreement that mandates a right of first refusal on a proportionate basis.

Bankislami: Funds given to meet depositors’ demand, says SBP

The State Bank of Pakistan (SBP) and BankIslami have clarified a news story titled “SBP grants Rs20b to BankIslami”. The SBP said it is a normal practice for central banks to provide funds to banks whenever they are under liquidity stress or to meet unexpected deposit withdrawal requests. Liquidity support up to Rs15 billion was offered to BankIslami in anticipation of heavy withdrawal by the depositors of defunct KASB Bank after its amalgamation with the former. This facility, valid for 180 days, is fully secured by the sukuk held by BankIslami. BankIslami said the support it received from the SBP had been used to pay off the depositors of KASB Bank, which to date amounted to more than Rs22 billion.

Concessionary loan: SBP grants Rs20 billion to BankIslami

The State Bank of Pakistan has given a Rs20-billion concessionary loan, including Rs5 billion at an incredibly low rate of 0.01%, to BankIslami to meet capital requirements following the amalgamation of KASB Bank into it. It has highlighted transparency issues pertaining to the BankIslami and KASB Bank amalgamation, as the central bank did not extend the facility through competitive bidding.In protest against the move, a minority shareholder of KASB Bank has lodged a complaint with the National Accountability Bureau (NAB). The complainant, Shaheena Wajid Mirza, requested the anti-corruption watchdog to investigate the SBP governor and other officials of the central bank and Ministry of Finance for alleged corrupt practices and misuse of authority.

Pre-tax: Islamic banking industry’s profit surges to Rs4.8b

The combined pre-tax profit of the Islamic banking industry surged to Rs4.8 billion in the first quarter of 2015, which depicts 48% growth on a year-on-year basis. The rise in the profitability of the Islamic banking industry in January-March was mainly on the back of earnings growth of 95% recorded by Islamic banking divisions (IBDs) of conventional banks. In contrast, the combined profitability of Islamic banks increased 17.6% in January-March on an annual basis. Assets of the Islamic banking industry grew by 28.2% in January-March on an annual basis to Rs1.3 trillion. Similarly, its deposits stood at Rs1.1 trillion at the end of March after recording a growth of 28.7% over the preceding 12 months.

Muslim demography: Promoting high-net-worth individuals in Pakistan

Every fourth person on the planet is Muslim. However, the vast majority of them happen to be among the poorest in the world. However, there is a growing middle class in the Muslim world, including Pakistan, of which the upper sub-segment called the ‘mass affluent’ may potentially be relevant to wealth creation and subsequently to the business of wealth management. Muslim high-net-worth individuals (HNWI) hold an estimated $3.35 trillion, which is less than 30% of the total Islamic wealth. The remaining 70% is held by Muslim businesses, Islamic financial institutions, the mass affluent, and by the governments in the OIC block.

Restructuring: SECP chief backs Islamic financing

Securities and Exchange Commission of Pakistan (SECP) Chairman Zafar Hijazi said on Wednesday the regulator is looking to enhance Shariah compliance in the capital markets by restructuring and reorganising the Islamic capital market. Speaking at the fourth Islamic Finance Expo and Conference as chief guest, Hijazi discussed in detail the roadmap for the promotion of Islamic finance in Pakistan. He added that the SECP is centralising the Shariah-related capital market activities besides improving the regulatory framework for Takaful, Modarabas, Islamic mutual funds, Islamic pension funds and Islamic real estate investment trusts (REITs).

Creating awareness: The ownership and control of Islamic banks in Pakistan

There are five Islamic banks operating in Pakistan. The significant shares of paid-up capital actually comes from the high net worth families and institutions in the Middle East, especially the six countries comprising the Gulf Cooperation Council (GCC). There are six countries - Kuwait, Saudi Arabia, UAE, Bahrain, UK and Singapore - from where individuals and institutions have invested in the five fully-fledged Islamic banks in Pakistan. Almost all of these banks are advised by the graduates of Darul Uloom Karachi, Jamiatul Uloom Islamia Binnori Town Karachi and Jamiatul Rasheed Karachi – well-known religious seminaries of Deobandi school of thought.

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