Gulf Times

#Qatar has ninth-strongest Islamic finance industry

The state of Qatar lists rank nine this year on the annually published Islamic Finance Country Index. The index is part of the Global Islamic Finance Report 2017 and was compiled by London-based Islamic finance consultant firm Edbiz Consulting. Qatar’s ranking is testament to its solid Islamic finance industry which is built upon solely fully-fledged Islamic banks. The country with the world’s strongest Islamic finance industry remains Malaysia, followed by Iran, Saudi Arabia, UAE and Kuwait. This is the second year in a row that Malaysia has been in the top position, taking over from Iran in 2016. According to Edbiz CEO Sofiza Azmi, in the list of 48 countries, there are 14 that saw a decrease in their scores. Among the 13 countries that improved their ranking, Tunisia took the biggest leap. Other big gainers are Pakistan and Kazakhstan. The report concludes that the ranking suggests that countries with large Muslim populations are the future frontiers for growth in Islamic banking and finance.

Islamic finance is making a case for ‘impact investment’

Islamic finance is increasingly being discovered as a vehicle to support sustainable development goals by a method called "impact investing". For this the Islamic Development Bank (IDB) and the Istanbul International Center for Private Sector in Development launched the "Global Islamic Finance and Impact Investing Platform". A report was also launched which sheds light on the potentials of Islamic finance in impact investment. The basic idea is that ethical values within finance are deeply rooted in Islamic theology and jurisprudence. Ethical and sustainable investment products can tap a wider range of demand if they are made Shariah-compliant to appeal to Muslims. At the same time, non-Muslims may embrace them if they are designed for an ethical purpose. Malaysia was the first to announce guidelines for the issuance of socially responsible sukuk as early as 2014. Meanwhile, Islamic finance companies from the UK, Canada, Hong Kong and GCC countries joined impact investing through Islamic finance.

#Algeria edges towards Islamic finance as energy income dives

Algeria is edging slowly towards offering banking services to suit more religiously conservative investors. The country is now looking for more ways to offset the sharp fall in oil prices and its energy revenues. Six state-run banks plan to start Islamic financial services by the end of the year or in early 2018, and a national Shariah board that would oversee Islamic banking is also planned by the end of 2017. However, Algeria’s Islamic finance plan still faces huge barriers. It lacks a legal framework and technical expertise. Algeria is far behind North African neighbours Morocco and Tunisia, which have started to develop legislation for Islamic finance and sukuk bonds, overseen by a central religious board. Algeria is targeting domestic savers rather than foreign investors. Many local people distrust the state-owned banks and keep large sums at home, untaxed, in Algerian and foreign currency.

#Japan keeps making inroads into global Islamic finance

Japan continues foraying into the global Islamic finance sector in order to benefit from previously untapped opportunities. The Japanese Mizuho Bank through its Malaysian subsidiary became the next bank to enter an Islamic finance deal by signing a murabaha credit facility agreement. The deal is valued at $300mn and was signed by Mizuho Bank and the Islamic Corporation for the Development of the Private Sector (ICD). The two-year financing term will be used to fund projects undertaken by ICD in its member countries and is the first cross-border bilateral Islamic facility for Mizuho Bank. The agreement follows a similar deal between the ICD and Bank of Tokyo-Mitsubishi UFJ on a $100mn murabaha facility back in 2014. Japan’s capital market regulator Financial Services Agency supports Japanese banks to conduct Islamic finance business by allowing their foreign subsidiaries to take Islamic deposits. Currently, the sector is waiting for amended banking regulations to enable banks to provide Islamic banking products on the domestic market for the first time.

London keen to maintain role as Islamic finance hub

Amid Brexit-fuelled uncertainty, London is trying to do its best to stay afloat as one of the most important hubs for Islamic finance in the Western world. There are now five fully-fledged Islamic banks, one Shariah-compliant hedge fund manager and one dedicated takaful provider in the UK. Also, there are over 20 banks providing Islamic financial services in “banking windows,” more than in any other European country. They benefit from the depth and liquidity of London’s capital markets, the large pool of expertise offered by specialists. Furthermore, the London Stock Exchange is a key global venue for the issuance of sukuk.
Experts say that one of the biggest drawbacks of Brexit for the entire UK banking industry will be the loss of “passporting” privileges that allow UK banks to access the single EU market without restrictions. Another issue is legal uncertainty for existing Islamic banks over to what extent current banking and financial regulations – which have largely been influenced by EU law – will change.

Shariah-compliant #pension schemes gaining popularity

Shariah-compliant pension funds are entering the wealth and asset management segment worldwide. One example for a state-backed Shariah-compliant pension fund is the Islamic savings scheme option introduced in Malaysia. Here $25bn of the fund’s entire assets of $160bn have been dedicated to the new Shariah-compliant investment line. According to Moody’s global head of Islamic finance, Khalid Howladar, Shariah-compliant investments now represent 15% of the fund’s entire investment, which makes it the largest standalone Islamic pension fund globally. Another country where Islamic pension funds are in growing demand is Pakistan. A number of banks, financial service providers and fund managers offer private or voluntary state-supported retirement savings schemes whose investments are made strictly in Shariah-compliant instruments. In the Western World, the UK and Australia were the first to offer Islamic pension schemes. In the Gulf Cooperation Council (GCC) countries, Islamic pension funds are yet comparably small, particularly state-backed ones.

#China-#Pakistan corridor set to unleash potential of Islamic finance schemes

The planned China-Pakistan Economic Corridor, or CPEC, is expected to bring the full potential of Islamic finance in infrastructure funding into action. The CPEC will see €54bn in investments up to 2030 to create or expand highways, railways, ports, airports, power plants, solar parks and wind farms, pipelines and optical fibre lines. Pakistan’s Finance Minister Ishaq Dar has repeatedly emphasised that Pakistan wanted to make Shariah-compliant financing its first choice for infrastructure and long-term financing needs. In fact, the government plans to shift between 20% and 40% of its debt financing to Islamic sources from conventional ones, which is also the case for CPEC projects. Co-financing for the corridor comes from Chinese state loans, as well as from the Asian Development Bank and the new, China-backed Asian Infrastructure Investment Bank. The CPEC is predicted to create more than 700,000 direct jobs up to 2030 and add two to 2.5 percentage points to Pakistan’s annual economic growth.

#Debate #continues in #India about #Islamic #finance

It seemed as if the path had been cleared for the introduction of Islamic finance in India after the country’s central bank made a proposal to launch Islamic banking windows at conventional banks. With two crucial effects awaiting: Firstly, greater financial inclusion of unbanked Indians, not necessarily only around 170mn Muslims, but also those interested in ethical banking, and, secondly, an increased influx of investments from Muslim regions, namely the Gulf, into India.
However, the proposal got rebuffed in December by the Indian finance ministry which, in a surprising declaration, argued that Islamic banking was “not relevant” any more in achieving the objectives of financial inclusion as the government had already introduced other programmes for all citizens towards that end.

India’ Minister of State for Finance Santosh Kumar Gangwar also said that a number of legal changes would become necessary even if limited Islamic finance products were to be introduced, which would result in “numerous legal hurdles.”

Silatech signs new accords to support Arab youth

Silatech founder and chairperson HH Sheikha Moza bint Nasser witnessed the signing of a number of Memorandums of Understanding (MoU) with its partners to support the Arab youth. HH Sheikha Moza also chaired the first meeting of the new Board of Trustees of Silatech at which Silatech’s annual performance 2016 and strategy and achievements report 2016 were presented. Silatech signed an agreement with QNB Africa to empower Youth in Sudan with Sama Al Shabab Portfolio. This way QNB Sudan will direct 12% of its portfolio towards financing youth enterprises. Another MoU to employ Tunisian youth was signed in order to create 50,000 jobs by 2020 and reduce migration of Tunisian competencies abroad. In another agreement, Silatech partnered with the World Congress for Muslim Philanthropists to develop the first innovative Micro-waqf platform to connect youth entrepreneurs with donors and investors.

QIIB expects to receive licence for Moroccan JV before year-end: CEO

#Qatar International Islamic Bank (QIIB) expects to secure the licence from the Moroccan authorities for its joint-venture bank in the kingdom before the year-end. CEO Abdulbasit A. al-Shaibei said QIIB firmly believed that Morocco presented a 'good opportunity' for the bank, being a gateway to North Africa, which is in need of Shariah-based, value-driven banking. He said QIIB and its partners in Morocco have identified the branches and installed the IT systems. While there are opportunities, al-Shaibei said any new market would pose some challenges. In terms of overseas ventures, QIIB will now be focused only on Morocco. Al-Shaibei said 2016 was a challenging year not just in the Middle East, but everywhere. However, he said he remained very optimistic about the Qatari economy and the future opportunities of the country.

#Kazakhstan envisions emergence as finance hub for Central Asia

Kazakhstan is currently working on the launch of its new Astana International Financial Center (AIFC) in order to become a financial hub for the Commonwealth of Independent States (CIS), West and Central Asia. It is part of Kazakhstan President Nursultan Nazarbayev's vision entitled 100 Steps to lift Kazakhstan into the world’s 30 most developed nations by 2050. The creation of the AIFC is step 70 in the programme. Its regulatory framework is modelled after the Dubai International Financial Center and will open avenues for investors within the Eurasian Economic Union between Kazakhstan, Russia, Belarus, Kyrgyzstan and Armenia. Plans are to attract more than $350bn in foreign investment and to issue a total value of $91bn in sovereign bonds, mostly sukuk. The launch of the AIFC is anticipated for 2018 after the country will have had hosted the Astana Expo 2017 in the capital from June 10 to September 10 next year.

QIB introduces new 'automated complaint management system'

Qatar Islamic Bank (QIB) has launched a new automated complaint management system, a system that helps customers to track the status of an issue and to understand what is happening at every step in the process. The complaint management system is accessible by all employees, ensuring that every person working for the bank is able to contribute to improving customer service. The moment a request/complaint is logged into the system, a text message (SMS) is sent to the customer providing a unique reference number related to the inquiry. This allows QIB customers to get easy updates on the status of their complaint any time. Upon a suitable resolution of each case, QIB customers receive a closing/confirmation SMS. Constantinos Constantinides, the bank's chief strategy officer said the new system would increase customers’ satisfaction and maintain their loyalty to QIB.

#GCC sovereigns raise $87bn in bonds, #sukuk since Jan 2015: Samba

According to Samba Financial Group, GCC sovereigns have raised $87bn in both domestic and international bonds and sukuks since January 2015. The largest international issuance so far is the $9bn offering from Qatar in late May. Abu Dhabi also issued eurobonds worth $5bn in May in both five and 10 year tenors, while Oman issued $2.5bn of bonds in May. The markets are waiting on a Saudi issuance, which Samba thinks will be around $15bn later this year, though the government has already secured a syndicated loan worth $10bn. Corporate international debt issuance is also on the rise, with the majority of offerings coming from financial institutions. Since January 2015, UAE banks have issued $10.9bn in bonds. According to Samba, GCC stock markets suffered large losses at the beginning of the year, owing to the general risk-off sentiment and a further decline in oil prices.

Islamic finance enters the digital service era

The recent announcement of Abu Dhabi Islamic Bank (ADIB) to enter the #fintech era through a partnership with a digital-only bank is a good example how the times in the banking industry are changing. ADIB partnered with Fidor Bank to launch what it calls the GCC’s first 'community based digital bank', targeting the region’s 'millennials', or 'Generation Y', who are looking for digital banking offerings matching their life- and working style needs. Tirad al-Mahmoud, CEO of ADIB, said the bank's proposition would allow users to completely change the way they bank and manage their finances using digital technology to serve all their banking needs. For every financial transaction there are new digital services in development and the Islamic finance industry will have to follow suit. According to EY consultancy, it is not enough for Islamic banks to introduce new digital channels, they must completely reinvent their customer processes to offer technology-enabled, simple end-to-end experiences.

Islamic finance set to unleash the power of social investment

The third Global Islamic Economy Summit (GIES) to be held in Dubai on October 11 and 12 will set a special focus on the utilisation of Islamic funds for social and entrepreneurial development. One plenary session will deal with the issue of Islamic charity funds or trusts (waqf) created by philanthropic giving in Muslim communities which remain an underused social development instrument. These funds contain significant assets, estimated by some to exceed a value of $500bn annually. Waqf can not only be used in its traditional, real estate-related form, but also in movable form of cash, potentially creating wide-reaching opportunities for social investment. Abdul Aziz al-Ghurair, chairman of Dubai-based Al Ghurair Foundation for Education, said the concept was about harnessing the abundance of underutilised capital for social development.

#Saudi asks banks to reschedule consumer loans

Saudi Arabia’s central bank has asked local banks to reschedule consumer loans after the government cut bonuses and other financial perks for public sector workers. The cabinet announced this week that it would slash ministers’ salaries by 20% and reduce a range of allowances for public employees. In addition, the government said it would base salary payments on the Western calendar rather than the Islamic calendar; since the latter is about 11 days shorter. This is expected to reduce income further. Banks are currently negotiating with the central bank to be allowed to deduct up to 40% of customers’ salary payments to service their consumer loans, instead of the 33% currently permitted. If the central bank declines, banks will discuss raising interest rates on the loans.

#Qatar-backed fund seeks to improve lives in Muslim countries

The Lives and Livelihoods Fund (LLF) was officially launched on Thursday. It was first announced two years ago by Microsoft founder Bill Gates and is now supported by the Islamic Development Bank (IsDB), the Islamic Solidarity Fund for Development (ISFD), Qatar, Saudi Arabia, and the United Arab Emirates. The decision-making body approved projects worth $363mn for the first of the five years that the fund will be operational. These projects will be primarily in the Middle East and several Islamic and African countries. The funds will be used to protect communities from the risk of malaria and HIV/Aids, increase access to water and primary healthcare, and empower poor farmers to grow more food. Administered by the IsDB, the fund combines $2bn of IsDB financing with $500mn in grants from donors.

LCRs of Islamic lenders in Qatar comparable to conventional peers

Qatari Islamic banks’ short-term high quality liquidity assets to cover monthly net cash outflow is comparable to those of their conventional peers and their funding pressures are to some extent mitigated by frequent bonds and sukuks issuance by the government, according to Moody’s, a global credit rating agency.

“In Qatar, the LCRs (liquidity coverage ratios) of Islamic banks are comparable to those of their conventional peers. This situation reflects the absence of sizable retail deposit franchises among the Qatari banks, coupled with heightened systemic liquidity pressures that had led to banks relying more heavily on market funding,” Moody’s said in a report. The funding pressures are mitigated somewhat by the frequent issuance of bonds and sukuk by the Qatari sovereign, a situation, which provides local Islamic banks with the same good access to HQLAs (high quality liquid assets) as their conventional peers, it said.
The rating agency found that five of the six GCC countries are Basel III compliant and have introduced LCRs, namely Saudi Arabia, Qatar, Kuwait, Bahrain and Oman; only the UAE has yet to adopt a LCR framework for its banks.

Islamic finance gets strong growth momentum in #Russia

Russia continues to open new avenues and to provide new instruments for international investors through Islamic finance. Representatives of major banks and a high official of the Russian central bank will partake in the 23rd World Islamic Banking Conference in Bahrain’s capital Manama. The reason why Moscow is increasingly opening up to Islamic finance lies mainly within its quest to make up for a shortfall caused by Western sanctions. Three state-linked Russian banks, Vnesheconombank, Sberbank and Tatfondbank have all signed agreements with the Islamic Development Bank (IDB) in order to launch Islamic finance products. Maxim Osintsev, executive director at Sberbank, said there was now political will for Islamic finance to be developed in Russia. The ice has broken and people now understand that Islamic banking products can be in demand.

#Iraq Islamic banks see opportunity for expansion

Despite all the instability and continued sectarian violence in parts of Iraq, the country’s few Shariah-compliant lenders see chances to expand their business. As a result of the ongoing internal conflicts since the toppling of the regime in 2003 by the US, Iraq has been widely reduced back to a cash economy. Cash payments keep dominating the economic system because the majority of the population does not have a bank account. According to World Bank data, just about 11% of Iraqis use the services of formal banking institutions. However, Islamic banks reckon that the majority of the Iraqi population does not use banking services because most of them fail to comply with the provisions of Islamic law. Islamic banks currently account for 1.5% of total assets of Iraqi banks, amounting to nearly 3tn dinars ($2.55bn), this could grow to nearly 6% in the coming years if the political and economic environment improves and the necessary legislation gets introduced.

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