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Michael Saleh Gassner
IslamicFinance.de is still edited by myself, Michael Saleh Gassner. In the same time the website became part of the family's publishing house, Al Kitab.
Myself I moved to Geneva for professional reasons, working as Islamic private banker. IslamicFinance.de remains to be a private passion.
Venture Capital has often been regarded as the ideal tool for Islamic finance, particpating in profits and losses of innnovative companies.
Now a major assessment has been done by Cambridge Associates in terms of performance, comparing it to the wider stock market. Result: No outperformance. Considering the lack of liqudity it seems to be much less attractive to professional investors than thought.
The lack of success also is induced by lack of transparency and fee models taking away the eventual outperformance. This is for the US market of course. Experiences in less advanced markets could be better or even much worse.
It still has other benefits, as diversifying risk, promoting overall growth and eventuall fostering social benefits.
In order to protect the investor, proper disclosures must be integrated to grow this industry in a healty manner. Further the focus on impact investing will ensure that value is created and risk better managed. What impact investing means could be read here:
The No Interest Loan Scheme (NILS) New South Wales (NSW) Conference 2013 will take place in Sydney, Australia on October 22-23, 2013. The event will highlight NILS and microfinance topics including energy efficiency programs, impact investing and social innovation, strategies to facilitate best practices in microfinance, and integration, collaboration and consolidation of NILS in microfinance institutions and community organizations in eight territories of Australia. NILS is a community-based program that provides interest-free loans for individuals or families living on low incomes to purchase essential goods and services in Australia.The cost to attend the two-day event is AUS 360 (USD 335), additional discounts are available. For more information visit the event website http://www.nilsnsw.org.au/latest-news/events.
The shift in global banking is not a trend, and the challenge for all of us is to bridge the gap in financial practice and seize the opportunities that lie ahead, bringing ethics back into finance.
Thomson Reuters and Abu Dhabi Islamic Bank (ADIB) are partnering to launch the world’s first Ethical Finance Innovation Challenge and Awards (EFICA). In the dawn of a new economic world, these awards are designed to inspire and recognise a fresh way of thinking by promoting some of the most dynamic, innovative ideas and solutions around integrity and growth.
Over the past three years, the Hult Prize has taken on some of the planet's toughest challenges. These have included Education, Energy, Housing, and Water. For the 2013 Prize, President Clinton has personally selected the challenge: the Global Food Crisis.
A detailed case study, narrated by President Bill Clinton, will be released to all selected participants in early January to set the framework for this year's challenge. Competitors will then be asked to develop social enterprises that answer the President's Challenge.
The global food crisis can be approached through multiple lenses, such as: distribution, manufacturing, production, technology and many others. Each, represents an opportunity for innovation. Nearly 1 Billion people in the World are Hungry, that is over 1 out of every 4 children. Ironically, our global economy produces enough food each year to feed everyone, however more than one-third of the food generated for human consumption continues to be lost or wasted.
Amanie Advisors Australia Pte Ltd, which is part of the Malaysian Amanie Advisors Group, has proposed to raise multiple short-term sukuk to cover Australia’s manufacturing ecosystem as part of the strategy to win funds from the Gulf area. Amanie founder and group chairman Dr Mohd Daud Bakar said the structures used in Islamic finance transactions mirror very closely the types of funding that are currently in demand in Australia, particular with respect to real economic activity which include leasing, financing of mining activities and farming. Amanie's idea involves funding from the whole value chain of any business, for examples electricity production. This is a totally new way of approach in the Islamic finance industry, which seems to have been well accepted in Australia. The short-term sukuk will involve the banks in the value chain, reduce the dependency of farmers and producers from conventional or private funds though the risk is quite high but the third party acts as the underwriter.
The Young Professionals Program (YPP) is the strategic talent pipeline for the professional career in the Islamic Development Bank (IDB) Group. The Program is designed for outstanding young graduates who can significantly help the IDB Group to carry out its mission and attain its objectives.
This Program enables each Young Professional (YP) to receive extensive exposure and experience of the IDB Group’s various activities through job rotations in different departments. Participants will initially spend two weeks Orientation stage in HRMD. Then, 27 months in Foundation stage which will be split into three rotations of 9 months each in IDB Group departments.
Participants will also benefit from a coaching/mentoring arrangement and a wide range of relevant training and developmental opportunities.
Upon successful program completion, the participant will gradually climb up the professional grades in the IDB Group
Crescent Wealth has developed its own platform for its four investment options and has appointed Corporate Combined Superannuation (CCSL) as trustee. The Shariah-compliant funds - Australian equities, international equities, income fund and Australian infrastructure and property - were previously only available on the Association of Independently Owned Financial Planners Personal Choice Private e-wrap platform, after they were launched late last year. The company is also in talks with industry super funds to white-label the product as an ultra-ethical investment option. Although the product follows Islamic finance principles, the company expects the majority of its clients to be attracted to its ultra-ethical investing philosophy
Less than one per cent of investment products in Australia are Shariah compliant, suggesting huge opportunities for fund managers in this segment. The Muslim Community Co-operative Australia (MCCA) manages a Shariah compliant property income fund which has just surpassed $30 million in assets under management. MCCA chairman Dr. Akhtar Kalam said this growth shows strong support for IBF products within Australia. MCCA is also reported to be in advanced discussions with an unnamed Middle Eastern company with a view to setting up a $180 million mortgage fund, a $150 million property fund, a $180 million Sukuk fund and a $5 million asset-leasing fund. Kalam said that this deal could signal the start of an exciting growth story driven by overseas interest in investment in Australia.
Insurance Australia Group (IAG) is growing in Asia, but also interested in Australia. Its chief executive Mike Wilkins recommended Australia pull down tax barriers in order to encourage Islamic finance. The federal government is yet to respond to a subsequent Board of Taxation review. Indonesia is also a target market for IAG. In order to fund its takaful liabilities, IAG would need to invest the cash flows received from policyholders into sharia-compliant products such as sukuk. At present however, because sukuk is based on several transfers of assets into and out of an SPV, the cost of issuance os well above a conventional bond.
Melbourne has been named as the host of the 2014 ethical bank conference, organised by the Global Alliance of Banking on Values (GABV). The conference will be hosted by Australian owned bankmecu and will be attended by 22 of the world’s leading sustainable banks. bankmecu Managing Director Damien Walsh said that these annual meetings provide an opportunity to discuss the role and responsibilities of banks and how they can contribute to a more sustainable world and a social economy. The carbon neutral event will have the theme of leadership in banking and will be held in March 2014.
Talal Yassine, founder of Islamic investment fund Crescent Wealth, believes Australia's Muslim population offers growth potential for sharia-compliant financial products. Crescent Wealth's criteria exclude investing in banks or other financial stocks as well as companies that have investments in alcohol, gambling, pornography, arms or the production of pork. They also consider the companies' debt-to-asset ratio, receivables outstanding and levels of cash or liquid assets. Yassine believes Crescent Wealth will attract funds from the vast Muslim community in Malaysia, Indonesia and, potentially, China.
Trevor Rowe has been appointed to the advisory board of Islamic funds manager Crescent Wealth. Rowe is chairman of BrisConnections, executive chairman of Rothschild Australia and chairman of UGL, among other things. Crescent Wealth managing director Talal Yassine said Rowe had been ''appointed for his experience and ability to offer high-level insight and counsel on strategic opportunities''.
SGI-Mitabu, a venture between The Solar Guys International and Mitabu Australia will finance its entire Indonesian solar power project using sharia-compliant financing. The first 50 megawatt (MW) of the 250 MW solar power project will be financed through the issuance of a seven-year A$100 million ($104 million) sukuk in Labuan, Malaysia's offshore financial centre. This will be followed by two more tranches which will be structured as either sukuk or Islamic syndicated loans.
Islamic finance had another great year. Many of its market segments progressed, like for example the Sukuk market gaining more maturity. Despite the ongoing debt crisis a good sign of hope and happiness.
Nevertheless we are - as an industry - still not satisfied with the achievements. Islamic finance shall grow stronger in terms of social impact and in terms of substance:
Hence, please allow me to re-iterate my call for participating in international initiatives beyond just our own industry to learn and spread knowledge and experience:
Calling Islamic financial institutions to become member of the United Nations Finance Initiative
Inshallah we see more Islamic financial institutions taking a lead in SRI, Social Impact Investing and other approaches while contributing with Islamic finance knowdledge to the conventional industry. The time is now; and there are signs that Malaysia aims for a lead:
The first superannuation fund that follows Islamic principles has been recently launched in Australia. The issuer of the fund (called "Personal Choice") is the wealth management company Crescent Wealth in cooperation with the Association of Independently Owned Financial Professional's.
The practitioners report “Believers in the Boardroom. Religious Organisations and their Shareholder Engagement Practices” by 3IG is online. Please access the practitioners report by clicking on the following link :
The report also remains available as hard copy: http://www.3ignet.org/documents/OrderRSEresearchnow.pdf
The issue of debt vs. equity is now going to be increasingly recognised - in microfinance - as I found out today on the cfi blog:
"Debt to Equity. The demand for equity and subordinated debt is huge and continuing to grow, mainly coming from mature MFIs. More MIVs are moving away from debt toward equity, being driven in part by a desire to be more involved in governance, to play a larger role in risk management, and because the regulators are requiring more capital. Also, fund investors increasingly want to know how much of a fund’s return is coming from debt versus equity. Some of the larger DFIs need to disburse large amount of funds, so they have to make debt investments, leaving an unmet demand for equity."
An important food for thought beyond microfinance itself in my opinion.
Michael Saleh Gassner
Well, repeatedly we read and hear about the lack of profit/loss sharing (equity finance) in Islamic finance. Here my five cents about it:
1) Islamic commercial law, Fiqh Muamalat, per se has no preference of either permissible mode of finance, be it musharaka, ijara or murabaha whatsoever. All is halal. However, the call for modesty of debt in many hadith and the seriousness of being indebted upon death (withholding of death prayer) shows a call for a solid equity portion in business; let's call it a technical preference.
2) If we look up all debt financing modes (e.g.Murabaha, Ijara) there are remaining difficulties to finance wages, rents and installments on fresh debt. This is a true indicator for a required minimum amount of equity in a company.
3) Point 1) and 2) leads us to demand a sound debt/equity ratio.