The Malaysian Reserve

Time for Islamic finance to move away from replicating debt contracts

2017 was in many ways a dichotomous year for the global economy. The US, Western Europe and industrial Asia had all seen strong growth. While developed countries have had a good year, the Muslim world, by both economic and political measures, appeared to have had a fairly miserable 2017. With a few exceptions like, Malaysia, Indonesia, and Turkey, the traditional powerhouses, Saudi Arabia and the Gulf Cooperation Council (GCC) countries have had quite a dismal year. Looking ahead to 2018, the geopolitical problems of 2017 will not simply disappear this year, the many underlying causes of the last global recession remain unresolved. The hope for the restructuring of the financial sector never really happened. The tough regulatory initiatives then proposed, have also been pushed back. For its own rejuvenation and to truly contribute to the Muslim world, Islamic finance needs to move away from merely replicating debt contracts to risk-sharing contracts.

#Green #sukuk set for exciting time

The green bond industry has achieved phenomenal growth since its beginning in 2007. Today, leading corporations in various sectors tap into green bonds to raise funding. Toyota revolutionised the green bond market by introducing the auto industry’s first-ever AssetBacked Green Bond in 2014. In May 2016, the London Taxi Co issued a US$400 million (RM1.56 billion) green bond to finance projects, enabling the production of zero-emission-capable vehicles. The first green sukuk was issued in July 2017 by Tadau Energy, with an issuance of RM250 million Green SRI Sukuk to finance a large-scale solar project. Subsequently in October 2017, Quantum Solar Park Malaysia issued its green SRI sukuk worth RM1 billion to finance the construction of three large-scale solar photovoltaic plants. The green sukuk market is expected to grow further in 2018 and beyond. However, the sukuk industry will have to face a twofold challenge. Firstly to convince the issuers to adopt the Shariah-compliant route, secondly to achieve critical mass for the green sukuk market in order to achieve optimal costs of issuance and enable a liquid secondary market trading.

#Takaful #Malaysia to leverage on #digitalisation after high returns

Takaful Malaysia aims to expand its market share in the general takaful business after recording higher turnover and earnings for its 2017 fiscal year. The company increased its revenue by 6.5% to RM2.14 billion year-on-year due to the higher sales in the family and general takaful businesses. Group CEO Datuk Seri Mohamed Hassan Md Kamil said the company maintained its lead position in the family takaful segment and the fire and motor classes’ gross contribution shot 20% up from FY16 to close at RM591 million. He added that Takaful Malaysia is also in the middle of enhancing its digital capabilities. Significant investment has been made in tools, applications and new technologies to improve operational efficiencies and enhance the customer experience. The takaful operator surpassed the RM200 million mark for the first time since its inception in 1984, growing at a compounded annual growth rate of 27%.

Bank Islam launches social finance platform, Sadaqa House

Bank Islam Malaysia has recently launched its social finance initiative, Sadaqa House. It aims to provide products and services to collect sadaqah, waqf and hibah. The public can contribute to realising social finance projects for sectors such as healthcare, education and entrepreneurship through the bank’s digital crowdfunding partnership with Ethis Ventures and Bank Islam CEO Khairul Kamarudin said the bank was utilising technology in its Shariah solutions to deliver a service that is aligned with the current digital trend. Also, contributors can ensure the funds contributed are being channelled accordingly and track the progress of the chosen project. Ethis Ventures founder Umar Munshi said the platform was not limited to Muslims and Malaysians. Any amount of money can be donated by the public into the Sadaqa House fund account, while Bank Islam will match the raised fund at the rate of 1:1 to a maximum of RM500,000.

Diyanet against Bitcoin

Diyanet, the Turkish religious authority has ruled that bitcoin is not in accordance with Islam at this point of time.

“Buying and selling virtual currencies is not compatible with religion at this time. Because of the fact that their valuation is open to speculation, they can be easily used in illegal activities like money laundering and they are not under the state’s audit and surveillance,” according to Diyanet, as quoted by local newspapers. Noteworthy it said is also that the digital currencies are not under a central authority or under guarantee of a state or financial institution.

A recently released 55-page research paper by Faraz Adam of Amanah Finance Consultancy on the topic, it was concluded that bitcoin is “not ideal as a long-term investment, and neither should the Islamic finance industry consider its use in exchange, unless there is a specific need, until a regulated and transparent framework is established”.

Maybank Islamic’s AUC grown to RM9b

Maybank Islamic Bhd has clinched major mandates valued at RM9 billion under its Islamic custody services in less than a year since its launch, with more new clients expected to be on board by end-2015, the bank said. Maybank Group’s Islamic banking arm stated by year-end, the financial offering will have assets under custody (AUC) amounting to RM13 billion on the back of these new clients. The clients comprise mainly from financial institutions, inclusive of non-bank entities, the bank said. Maybank Islamic’s custody services offering also provides value-added services such as Islamic performance measurement and attributes, and compliance monitoring.

Najib: Global Islamic Mega Bank Has Yet To Materialise

The idea of having a common currency and a global Islamic mega bank among the Muslim countries is quite remote at the moment and the focus should be on increasing intra-trade, said Prime Minister Datuk Seri Mohd Najib Razak.
Najib said while talks of having a mega global Islamic bank have been on the table for some time, the idea has not materialised.
“There have been some attempts to establish a global Islamic mega bank, but it has not materialised yet. I think there are some challenges to be put together, in a serious fashion, for a mega Islamic bank. Effort should continue,” he said at a press conference at the World Islamic Economic Forum (WIEF) in Kuala Lumpur yesterday.
Najib cited the example of the European Union’s (EU) challenges in adopting a common currency as a reason why the idea of a common currency among Muslim countries is remote.
“I think it is quite remote to have a common currency among the Muslim world. I don’t think we should imply to go down the path as EU was also at the point of breaking up at one time. It is not a feasible option but what we can do is increase the intra-trade among Muslim countries.

Country Garden open to funding proposals, sukuk

China’s Country Garden Holdings Co Ltd said it’s open to funding proposals from various domestic and international financial institutions, which include the possibility of setting up a sukuk programme and issuances to partly fund its proposed projects including the Forest City project in Johor. The company is reported to be interested in raising as much as RM800 million from a sukuk issuance. Forest City will be a mixed development project consists of commercial, residential, educational, healthcare centres and recreational facilities including man-made sandy beaches. The construction work on the project started in midMarch 2015.

Raising sukuk to cost more for firms

Companies will need to pay more to borrow money through sukuk even as Malaysia, the global driver of Islamic finance, faces jitters amid a harsher economic environment and heightened political risk. Higher premiums would be necessary to attract investors and to provide investors with reasonable buffers against higher interest rates in the event US hikes its interest rates by year-end, said Meor Amri Meor Ayob, CEO of Bond Pricing Agency Malaysia. Aside from some domestic-specific uncertainties, the factors that are said to be affecting the Malaysian sukuk market — low oil prices, slower exports growth — are also similarly affecting other emerging markets and oil exporting countries.

Maybank Islamic's RM20m to Waqf fund

Maybank Islamic Bhd will provide RM20 million of seed capital to a Waqf Fund which will be invested into investment portfolios, to include fixed income, equities, balanced fund and real estate. The local financial institution said that majlis Agama Islam Wilayah Persekutuan (MAIWP) will be the trustee of the Waqf fund while the bank will be the project manager. Profits or capital yield from the investment portfolio will be used to fund programmes related to development of educational and health care infrastructures, as well as to develop young entrepreneurs. Maybank Islamic Chief Executive Officer, Muzaffar Hisham said Waqf was one of the potential investments which can be developed to fund various economic activities for the benefit of the community.

AIG Re-Takaful to spur industry growth

AIG Re-Takaful (L) has brought in additional capacity to spur growth of the Malaysia general takaful industry which is currently constricted by limited capacity. In addition, the fully Shariah-compliant unit of insurance giant American International Group Inc (AIG) is differentiating itself from competitors consisting of retakaful operators backed by global reinsurance companies. AIG Re- Takaful CEO Idzuddin Zakaria said the company has treaty and facultative capacity to take on larger risks and offer more sophisticated products and services. AIG Re-Takaful, in operation since April 2014, has undertaken a few facultative risks which frees takaful companies to undertake more risks and thus growing the general takaful sindustry. AIG Re-Takaful will also explore and expand on opportunities to grow in the Malaysian market.

AIA Public Takaful declares RM8.5m surplus

AIA Public Takaful Bhd has declared a total surplus of RM8.5 million for the financial year ended Nov 30, 2013. In a statement, the insurance company said the surplus distribution will involve more than 36,000 certificates under AIA Public, marking the first surplus distribution since the company’s inception three years ago. The distribution will benefit eligible customers who had participated in Takaful products offered by AIA AFG Takaful Bhd and ING Public Takaful Ehsan Bhd, the two companies which had integrated their businesses in March 2014 to form AIA Public. AIA Public said the surplus will be distributed to those who are registered as a customer of AIA Public as at Nov 30, 2013, do not have any outstanding contribution payments and have not made any claims.

Takaful players told to merge in order to survive

Malaysia’s 11 takaful companies should consider merging soon, especially in the general takaful business due to potential limited growth prospects in addition to insurmountable competition especially with the upcoming detariffication of motor and fire insurance in 2016. Apart from new regulatory requirements like the Islamic Financial Services Act 2013 which many companies have difficulties to comply with, takaful products have failed to differentiate itself from conventional insurance products. In addition, limited product offerings by takaful makes conventional insurance more attractive. Nonetheless, other than the regulatory aspects, the synergy offered by a merger would make the company more competitive in addition to having more products to offer.

Maybank Islamic optimistic with 12% growth for 2014

Maybank Islamic Bhd is optimistic of up to 12% growth this year, news that bode well for its parent Malayan Banking Bhd’s (Maybank) aspiration of 15% return on equity (ROE) for 2014. Maybank Islamic accounts for 40% of the group’s revenue and profit for the first-quarter ended March 31, 2014 (1Q14). In 1Q14, total income grew 26% to RM1.319 billion. Nevertheless, pretax profit and zakat for the same period dropped 7% to RM315.1 million, mainly due to the increase in the overhead expenses. This was disclosed at Maybank Islamic launch of its MasterCard Ikhwan Card-i, the bank’s first Mastercard offering.

Standalone Islamic bank versus Islamic window

Standalone Islamic bank versus Islamic window operations is the most prolific debates found in the Islamic finance industry today. The debate is healthy and worthwhile having, if it is done merely to determine how to best meet the various stakeholders’ expectations in a particular jurisdiction. However, it becomes totally time wasting if it is done on the basis of determining which one is more credible or “more Shariah-compliant”. Malaysia is pretty much the only country in the world that has comprehensively legislated and regulated how financial institution may provide Islamic banking products and services. In a jurisdiction, however, that does not have such a structured and established framework, banks must operate within the existing banking framework. Standalone Islamic bank or Islamic window, both are equally good and credible.

Islamic finance education: What does it entail?

Since Shariah itself is very wide, selectiveness is needed so the most relevant aspect of Shariah is being exposed to the students of Islamic finance. The starting point has to be “Usul Al- Fiqh” which embodies the study of the sources of Islamic law and the methodology for its development. The second most important aspect of Shariah that is relevant to Islamic finance has to be laws of contracts. While these two aspects of Shariah form the main body of Shariah knowledge in Islamic finance, it is imperative for the students to appreciate the various Shariah issues that are begining to emerge in the market. Then there is the technical knowledge, which covers the basic theories of finance itself as well as banking, insurance, capital market and wealth management.

Maybank sets up Islamic asset management company in London

Malayan Banking (Maybank) has set up Maybank Islamic Asset Management (Maybank IAM) company in London. Maybank IAM's CEO Azmeen Adnan said the company aims to become a key player and catalyst in the development of the global Islamic asset management landscape. The company now offers a fixed priced Shariah real estate backed fund, the Amanah Hartanah Bumiputra, which has gained popularity among investors. In addition, it is managing direct equity portfolio mandates for haj funds and direct mandates investing in Asean countries. Collectively, a total of US$8 billion (RM25.17 billion) worth of Islamic assets under management resides within Maybank. Maybank IAM is owned by Maybank through Maybank Asset Management Group.

‘Dearth of talent’ in takaful industry

Malaysian takaful players are poised for a dearth in talent and must prepare their human resource (HR) requirements to avert the inevitable situation within the next five years. This is due to the fact that takaful players will have to hire more people following the introduction of the Islamic Financial Act (IFSA) 2013 which requires them to separate their family and general takaful businesses into separate entities. There is already a shortage of valuable industry personnels not just in the takaful industry but also in the conventional insurance industry now and this will be exacerbated when the IFSA comes into force.

Malaysia to lead Asean takaful industry, says E&Y report

Malaysia continues to take the lead in the Asean takaful industry with 71% share of gross takaful contributions, according to a report by Ernst & Young. Malaysia has a largely underinsured population with a low insurance penetration rate and strong government support for the Islamic finance sector. With a proven model and regulatory clarity, the country is set to further build on this leadership position. At present, Malaysia’s takaful sector derives nearly 78% of its net contributions from the family takaful business. However, globally the recent trends suggest an deceleration of the industry. Hence, expansion of the takaful industry is relatively slowing as firms struggle for scale and face growing competition, but the sector is still poised to sustain double-digit growth, said the report in its overall findings.

Islamic portfolios attract ethical investors in US

Ethical investment which has similarities with Islamic based investments has reached US$32 trillion (RM105.6 trillion) in size in the US and the European Unión, according to Nicholas Kaiser, a global investment manager specialising in the issues of ethical and Islamic investment. Though the number of very wealthy Islamic investors in the US were scarce compared to investors in conventional funds, he said his Amana funds are doing very well in the US. The funds attracted American citizens from all backgrounds and Muslim investors are only a small number of the investors in the Amana fund, he added. Nevertheless, it appears that while Amana’s success is the result of the discipline of its Islamic investment nature, investing in Islamic stocks does not necessarily bring profit to the investors.

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