Business Recorder

#FBR #suggests #Shariah-compliant #criteria for companies

The Federal Board of Revenue has proposed Shariah-compliant criteria for companies whose shares are traded on a stock exchange to avail the reduced rate of tax under Income Tax Ordinance 2001. According to the SRO.1173(I)/2016 issued by the FBR, the Board has proposed amendments to the Income Tax Rules, 2002. To avail reduced rate of tax, the FBR has proposed Shariah-compliant criteria for a company whose shares are traded on a stock exchange.

Firstly, the business of the company should be Halal i.e. it shall not include processing or manufacturing of pork, liquor, non-Halal products, pornographic material or any other activity not permitted by Shariah. Secondly, there should be Riba-free (interest-free) financing on the balance sheet of the company; however, the company may be leveraged through Islamic modes of financing obtained from licensed Islamic financial institutions.

Thirdly, all the investments made by the company should be one hundred per cent Shariah compliant; therefore, it would not be permissible for the company to acquire non-Shariah compliant instruments/securities which yield interest or income that is not Halal.

Government incentives boost Islamic banks

#Pakistan's Islamic banks are introducing new products and adjusting policies to take advantage of government incentives designed to boost growth in the industry. Shariah-compliant banks in the country held 11.4% of total banking assets in June, which is well below levels of around 25% seen in Gulf Arab states. To change this, the government introduced a 2% tax rebate for shariah-compliant manufacturing firms in July to encourage them to eliminate interest-bearing debt from their balance sheets. Abdullah Ghaffar, head of investment banking at Al Baraka Bank Pakistan, said he detected signs of an increase in demand for Islamic financing. According to Syed Abubakr, sharia board member of Emaan Islamic Banking, there is some demand for new products from conventional banks planning to convert their operations into fully-fledged Islamic banks.

SBP cuts SLR by five percent for Islamic banks

The State Bank of #Pakistan (SBP) has announced a reduction in Statutory Liquidity Requirement (SLR) for Islamic banks and Islamic banking branches by 5% to fix at 14%. Presently, some Rs 570 billion of Islamic banking industry has been placed under the SLR with SBP. This amount includes some Rs 308 billion of Sukuk and Rs 225 billion of Bai-Muajjal. With the maturity of Rs 255 billion Bai-Muajjal, the amount will reach Rs 345 billion, therefore SBP has decided to cut the SLR and fix it at 14%. Time Liabilities, including Time Deposits with a tenor of 1 year and above, will not require any SLR. According to Islamic banking representatives, with the maturity of Rs 225 billion Bai-Muajjal, surplus liquidity of Islamic banking industry will surge to some Rs 400 billion, while there are no more investment opportunities for the Islamic banks in Pakistan.

ADIB latest #UAE bank to see profit hit by bad loan rise

Abu Dhabi Islamic Bank (ADIB) reported nearly flat third quarter net profit, thus being the latest bank in the United Arab Emirates to suffer from a rise in bad loans as a result of the economic impact of lower oil prices. ADIB made a net profit of 508.9 million dirhams ($139 million) in the three months ending Sept. 30, compared to 503.2 million dirhams in the same period a year ago, up 1.1%. Earlier this month, ADIB chief executive Tirad al-Mahmoud said the bank's earnings in the second half would be similar to the opening six months of 2016. ADIB booked credit provisions and impairment charges totalling 267.7 million dirhams in the third quarter, compared to 193.0 million dirhams in the year-ago period. Net revenues in the third quarter were up 7%, reaching 1.37 billion dirhams compared to 1.28 billion dirhams in the prior-year quarter.

Musharika, Modaraba and Wakalah: three modes of Islamic financing given exemption from Kibor

The State Bank of Pakistan (SBP) announced exemption from KIBOR as benchmark rate for Participatory (Musharika & Modaraba) and Wakalah-based products. For this exemption Islamic Banking Institutions (IBIs) will be required to ensure some conditions. IBIs will take adequate measures to mitigate equity investment risk in participatory mode based products. In addition, for Modaraba and Musharika based products, IBIs will ensure compliance with minimum Shariah requirements and AAOIFI Shariah Standard No 12 and No 13 as adopted by the SBP. For Wakalah-based products, IBIs will be required to use Arabic version of AAOIFI Shariah Standard No 23 on Agency as guideline in consultation with their Shariah Board.

SECP drafting Shariah regulatory framework: Hijazi

The Securities Exchange Commission of Pakistan (SECP) is in the process of drafting a Shariah regulatory framework. Addressing at the second day of "World Islamic Finance Forum" (WIFF), SECP Chairman Zafar Hijazi said SECP has established a full-fledged Islamic finance department to co-ordinate the Islamic finance initiative. He said SECP is fully supporting Shariah compliant business and the government has implemented the SECP's tax proposal for offering Sukuk. SECP is currently working on harmonisation and standardisation of regulations for a uniform regulatory environment. The commission has an independent Shariah Advisory Board to review product development and adjudicate on Shariah matters.

Taxation for Islamic banking: amendments in legal framework under review: MoF

In #Pakistan the Ministry of Finance stated that amendments in legal framework are under review to strengthen the framework of taxation proposals for Islamic Banking. The initiatives mainly include review of Mudaraba guidelines to align those with overall regulatory framework of Islamic Finance, issuance of Sukuk guidelines, issuance of Takaful rules and government Ijara Sukuk. A multi-tiered Shariah supervisory and compliance framework has been put in place. Also, a Shariah governance framework for Islamic Banking Institutions (IBIs) was formulated, which explicitly defines Shariah related rules and responsibilities of all key organs of IBIs. The initial Minimum Capital Requirement (MCR) for an Islamic Banking subsidiary was revised from Rs 10 billion to Rs 6 billion.

Appreciation for steering committee on promotion of #IslamicBanking

The Steering Committee of Sitara Chemicals received laudation for the promotion of Islamic Banking in #Pakistan. The Committee was headed by Mr Saeed Ahmed, Deputy Governor State Bank of Pakistan. Sitara Chemicals has shared with Islamic debt investors its profits without comprising on true Musharakah principles. This fact is evident from the level of rate of return offered by the Company on its earlier Islamic debt issues. In 2012 Sitara Chemicals signed an agreement for design and procurement of Coal Based Power Plant having Capacity of 38.5 MW. Total Project cost was estimated at Rs 3.1 billion and Diminishing Musharika Facility Rs 2 billion from syndication of renowned Islamic Banks of Pakistan. In July 2016, this project has been commissioned and trial production has started. First instalment of this facility has been repaid as per its planned schedule.

Ithmaar gets FPB's entire #shareholding in Faysal Bank

In #Pakistan Faisal Private Bureau (FPB) has transferred its entire shareholding in Faysal Bank Limited (FYBL) to Ithmaar Bank. On June 30 FPB has transferred over 38.686 million of its stakes in Faisal Bank into Ithmaar's CDC account. However, FYBL secretary Aurangzeb Amin said the transaction had no affect in terms of change of ownership. He also added that the State Bank of Pakistan had already granted its approval for transfer of shares to Ithmaar Bank on April 29, 2016.

Issuance of #Sukuk for NJHP project: PIAF felicitates Wapda-NBP agreement

Pakistan Industrial and Traders Associations Front (PIAF) has felicitated Wapda and National Bank of Pakistan (NBP) for the Rs 100 billion agreement of 16 banks under Shariah compliant facility for Neelum Jehlum Hydro Power (NJHP) project. There was a long delay and the cost of project escalated up to Rs 414 billion from initial estimates Rs 84 billion. PIAF chairman Irfan Iqbal Sheikh said that now a ray of hope appeared for the completion of the project. He said this is the biggest ever funds mobilisation for a public sector entity in which 16 local banks participated. The issuance of Sukuk worth Rs 100 billion for NJHP would go a long way in arranging funds for other hydropower projects.

Neelum Jhelum project: banks provide Rs 100 billion #Shariah-compliant #financing

Neelum Jhelum Hydropower Company (Pvt) Limited has entered into a financing agreement amounting to Rs 100 bn with a consortium of 16 banks led by National Bank of Pakistan for raising funds through one of the largest Shariah-compliant facility. The financing is based on Diminishing Musharika structured by NBP Aitemaad. The Sukuk is structured with a tenor of 10 years and is backed by the sovereign guarantee from Government of Pakistan.

NJHPC mandated National Bank of Pakistan to act as Mandated Lead Arranger for arrangement of up to Rs 100 billion through issuance of rated, secured and privately placed Sukuks to partially finance the construction of strategically important 969 MW hydel power project located in District Muzaffarabad, Azad Jammu & Kashmir. For this financing, a signing ceremony was held on Wednesday here and attended by President & CEO NBP Syed Iqbal Ashraf, Chairman Wapda Zafar Mahmood, member finance Wapda Anwaar ul Haq, CEO NJHPCL Lieutenant General Muhammad Zubair and other presidents and senior officials of all the 16 participating financial institutions.

#Bahrain privately places $435 million #sukuk

The government of Bahrain has privately placed a $435 mn, three-year sukuk issue in a deal arranged by Noor Bank, Bank ABC and Kuwait Finance House. The deal was priced in the area of 325 basis points over midswaps. Strained by low oil prices, Bahrain borrowed in February $600 mn in a two-tranche reopening of a previous US dollar bond issue. On Saturday Moody's Investors Service cut its rating of Bahrain's sovereign debt by one notch to Ba2, taking the rating deeper into junk territory, with a negative outlook.

Islamic banking unclear on conventional arbitration: scholars

The Islamic finance industry is still searching for a stance on to what extent conventional international law should be accepted in arbitration cases. Conservative scholars argue that non-Muslim courts should not be written into contracts as a reference for arbitrations. Islamic scholar Sheikh Saleh Abdulla al-Haidan said contracts, in which both parties agree that British law should be reference for the contract and therefore any arbitrations, violates Islamic law. According to the scholars contract parties should include arbitration centres compliant with sharia law as reference in contracts.

Maybank Islamic says not eyeing strategic partner

Maybank Islamic, Asia Pacific's largest sharia bank, is not currently seeking a strategic partner, its acting chief said after earlier talk that it would merge with the country's second Islamic bank. Acting CEO Ibrahim Hassan said Maybank Islamic is only interested in partnerships for specific business products such as the joint issue of credit cards. Malaysian financial group BIMB Holdings also denied that it was in talks to merge its sharia banking subsidiary Bank Islam with Maybank Islamic.

MLCFL repays Rs 8 billion Sukuk loan ahead of time

Maple Leaf Cement Factory Limited (MLCFL) Monday paid Rs 8 billion Sukuk loan much earlier than scheduled. The company has been able to pay off much earlier than scheduled, its entire Sukuk loan of Rs 8 billion in the third quarter of the current financial year, said Muhammad Ashraf, MLCFL's company secretary, in a stock filing Monday. The payment, he said, was made against the agreed repayment schedule till December 2018. Improved profitability, better cash flow, cost curtailment initiatives and efficient financial discipline made it possible to repay the debt in advance.

Standard Chartered Saadiq enhances offering

Standard Chartered Saadiq has announced to enhance its offering for clients looking for Shariah-compliant banking products and services. The enhanced Saadiq product suite includes Home Finance with fixed pricing for up to three years so the clients can benefit from prevailing low market rates and the Saadiq World Miles Credit Card. In order to address the needs of its business banking clients, Saadiq has also launched a new product: Saadiq Business Term Finance, a Shariah compliant solution for clients to manage their business expenditures by availing financing against their existing property.

SBP introducing fixed rental rate Ijara Sukuk

The State Bank of Pakistan (SBP) has introduced three-year Fixed Rental Rate Government of Pakistan (GOP) Ijara Sukuk (FRR-GIS). Presently, Variable Rental Rate GOP Ijara Sukuk (VRR-GIS) is being auctioned and its rental rate is being fixed every three months on the basis of Market Treasury Bills' cut-off yield. However, on the request of Islamic Banking Industry, SBP has decided to launch Fixed Rental Rate GOP Ijara Sukuk for market development. The rental rate decided in the auction will be applicable to the entire tenor of FRR-GIS and will be paid to FRR-GIS holders on semi-annual basis. Minimum bid size will be Rs 100,000 and in multiples thereof. Rental rate (% p.a.) has to be specified up to a maximum of two decimals points.

SBP to set up Shariah-compliant open market

The deputy governor of the State Bank of Pakistan has announced that the bank is setting up a Shariah-compliant open market to manage liquidity of the Islamic banking sector. Deputy Governor, Saeed Ahmed's announcement came on Wednesday as he addressed the global forum on Islamic economics, banking and finance arranged by the University of Management and Technology's Institute of Islamic Banking and Finance. In his speech, he reiterated his bank's commitment to promoting and developing the Islamic banking in Pakistan. The existing banking laws are being amended and soon this process will be finalised, he said. Those who too addressed the forum were Islamic finance scholars Mufti Muhammad Taqi Usmani, Justice Khalil-ur-Rehma, among others.

IBA establishes Centre for Excellence in Islamic Finance

Institute of Business Administration (IBA) announced the establishment of the Centre for Excellence in Islamic Finance at IBA. IBA has launched IBA-CEIF in collaboration with Meezan Bank and Dr Ishrat Hussain will be Chairman CEIF, while Irfan Siddiqui, CEO Meezan Bank Ltd, Hassan Bilgrami CEO BankIslami Ltd, Shafqaat Ahmed CEO Al Barkah Bank Ltd, Junaid Ahmed CEO Dubai Islamic Bank, Dr Imran Usmani, Shari'ah Advsior Meezan Bank Ltd, Samar Hasnain Executive Director, Development Finance Group State Bank of Pakistan (SBP) and Ahmed Ali Siddiqui, Founding Director of CEIF, are founding members of Board of Management (BoM).

Talking to newsmen here on Friday at IBA city campus, Dr Ishrat Hussain, Chairman CEIF, said that the Center had been set-up with the objective to bridge the gap between trained human resource and industry's growing requirement. He hoped that IBA-CEIF will play a vital role for providing skilled and qualified workforce to the Islamic Banking Industry of Pakistan. On the occasion Ahmed Ali Siddiqui, Founding Director of CEIF and Dr Zeeshan was also present.

BMA Funds signs trust deed for Islamic income scheme

BMA Asset Management Company Limited (BMA Funds), a non banking finance company, formally signed the trust deed for its forthcoming Islamic income scheme, BMA Minhaj Islamic Income Fund at CDC Pakistan. The event brought together the representatives from CDC, trustee of the BMA Minhaj Islamic Income fund, and the senior management of BMA Asset Management Company Limited.

Following the same trend of leadership, BMA Minhaj Islamic Income Fund will offer a unique one of its kind scheme for investors who wish to benefit from the equity market and at the same time seek capital appreciation that adheres to shariah principles. It primarily aims to generate superior risk adjusted returns to earn a stable halal income over medium to long term by investing in fixed income instruments present in Pakistan debt market.

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