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Casablanca Finance City welcomes international businesses that have been flocking to Morocco to take advantage of its cheap labour, skilled work force and proximity to sub-Saharan Africa. Amid the uprisings that characterised the Arab Spring, Morocco remained relatively stable. Political and social stability continued after 2010, while the neighbour countries struggled. Adding to Morocco’s allure is the introduction of formal Islamic financial products, officially labelled participatory finance in the country. In 2017 authorities issued five participatory banking licences to Moroccan banks and three to international banks. As Morocco continues to roll out participatory financial products and services slowly and cautiously, the sector will remain a niche.
The recently established International Islamic Business Association (IAIB) has announced plans to develop halal businesses and open offices throughout the region. However, changes in Russian legislation are needed to attract investment from Muslim countries. The IAIB was launched in the assembly hall of the Golden Ring hotel in Moscow on 16 February. One of the founders of IAIB, Samir Huseynov, said that lobbying to change Russian legislation and to create favorable conditions for Islamic banks is one of the main goals of IAIB. In contrast, former Russian Vice President Alexander Rutskoy, who took part in the launch event, said that he does not believe laws need to be changed to enable the operation of Islamic banks in Russia.
The International Monetary Fund (IMF) has been a proactive supporter of Islamic banking and has declared it a priority for its operations in countries with Islamic banking. In a recent report titled "Ensuring Financial Stability in Countries with Islamic Banking", IMF economists have created a plan of action that would have game-changing implications for the industry. The report acknowledges the progress achieved in developing prudential standards, but concludes that the current framework governing the global industry contains many gaps. Particular attention needs to be paid to developing resolution, financial safety nets, such as deposit protection insurance and a lender of last resort, and liquidity management frameworks. According to IMF, the emergence of complex hybrid Islamic financial institutions and products is a regulatory challenge.
Dubai Financial Market (DFM) said it has officially published the final version of its Standard on Hedging against Investment and Finance Risks. This standard is the newest addition to DFM’s Sharia-compliant standards, which include Standard on Stocks and Standard on Sukuk issued in 2007 and 2014. The key amendments and add-ons to the draft of the standard are adding two types of risks, property risk and reputational risk. The amendment also emphasises the admissibility of the penalty clause only in Istisna, supply contracts and labour-lease contracts, excluding the contracts that result in a monetary debt owed by the debtor. It also emphasises the admissibility of the third-party guarantee in contracts of partnerships, Mudaraba and agency in investment, provided no link is made between this guarantee and the contract of partnership or Mudaraba.
Islamic finance is increasingly making inroads into the US in a variety of forms, but widely out of the radar of the broader public. In the recent past, there has been a rise in the number of Islamic financial service providers. There are now about three dozen official Islamic finance providers in the US. Among the top institutions offering Islamic financial services in the country in terms of asset size are Lariba American Finance House and the associated Bank of Whittier in Los Angeles, as well as University Islamic Financial in Michigan. In terms of skills training, Harvard University has an Harvard Islamic Finance Program and the Franco-American Alliance for Islamic Finance is organising Islamic finance seminars this summer. On the consumer side, Islamic finance in the US is mostly prevalent in the real estate market.
According to Moody's Investors Service, the profitability of Islamic banks' in the Gulf cooperation Council (GCC) region will outpace that of their conventional peers for the second consecutive year in 2017. Islamic banks will maintain stronger margins in 2017, primarily as a result of their low funding costs, which reflect their reliance on stable current and savings account balances. Islamic banks also tend to have higher asset yields, given their focus on retail and the real estate related lending. Moody's expects that Islamic banks will retain a margin advantage of about 40 basis points over conventional banks in 2017. Moody's analyst Nitish Bhojnagarwala says conventional banks will continue to beat Islamic peers in terms of cost efficiency. Islamic banks are investing in branch network expansion, while conventional banks have already established their branch networks.
The #Malaysian Securities Commission (SC) released its SC 2016 Annual Report. The report states that the Malaysian capital market remains resilient and sustainable, growing in an orderly trajectory, attracting sound investor interest. According to SC chairman Tan Sri Ranjit Ajit Singh, the outlook for the Malaysian capital market in 2017 is positive. The SC is in capacity-boosting mode armed with several initiatives. These include launching the new Malaysian Code of Corporate Governance, the approval of RM5.95 million by the nascent Capital Market Development Fund aimed at encouraging new entrants into the industry, and the establishment of an Institute for Capital Market Research in 2017. This complements the initiatives by the SC in 2015 and last year, including the introduction of the first Equity Crowdfunding Framework in the region and a peer-to-peer financing framework.
The Kenyan capital markets regulatory authority and the Nairobi Securities Exchange today visited the Qatar Stock Exchange (QSE) and signed a memorandum of understanding (MOU) for cooperation between the two exchanges. The two sides will share information and technical assistance in respect of processes and procedures relating to listing, trading, depository operations, clearing and settlement. Mr. Samuel Kimani, Chairman of the Nairobi Stock Exchange, said that his is a young exchange looking for further development and cooperation opportunities. Rashid bin Ali Al-Mansoori, CEO of Qatar Stock Exchange, expressed his happiness and hope that the MOU will help enhance the economic cooperation between the two countries.
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.
Bank Al-Maghrib and the Islamic Financial Services Board (IFSB) co-organized a regional workshop entitled "Facilitating Implementation of IFSB Standards" in Rabat. The workshop focused on 3 standards for participatory banking: IFSB-15 "Revised Capital Adequacy Standard" on Prudential Capital and Solvency Standards, IFSB-16 "Revised Guidance on Key Elements in the Supervisory Process" on Supervision Standards, and GN-6 "Quantitative Measures for Liquidity Risk Management" on prudential liquidity standards. This event is part of the measures taken by Bank Al-Maghrib to finalize the regulatory framework governing participatory banking activities in Morocco.
Saif Hadef Al Shamsi, Assistant Governor at the UAE Central Bank, has said that total Islamic banking assets in the UAE have increased to approximately Dh520 billion in the past few years. Al Shamsi added that Islamic banking’ assets account for around 20% of Dh2.6 trillion of the total assets of the state’s banks. The assistant governor pointed out that UAE Islamic banking institutions account for about 7% of the total assets of Islamic banking around the world. This approximately amounts to a total of $1.5 trillion (Dh5.5 trillion). He further explained that Islamic banking deposits increased by 42% over the past three years and that lending by Islamic banks increased by 54%.
Bank Indonesia (BI) announced recently its plan to issue waqf based bonds as a social welfare mechanism. The Indonesian Muslim Intellectual Association (ICMI) will also launch the very first waqf venture bank this June. Waqf may become the new trend in Islamic banking for several reasons. Waqf funds can be utilized for equity-based financing, a financial structure considered ideal for Islamic values, but undervalued in the current Islamic banking and finance architecture. The nature of longterm waqf funds for investment will make a good source of funding for venture capital and private equity. The amount of money potentially generated under a waqf system is indeed huge. The value of waqf land is estimated to reach Rp 300 trillion. This highlights the need for a professional and well-governed management to create a waqf bank that functions well and is successfully implemented.
Algeria plans to raise money from an interest-free local bond in order to offset the huge fall in its energy earnings. The North African OPEC member has already cut public spending, introduced new taxes and reduced government subsidies on fuel. Finance Minister Hadji Baba Ammi said the new bond would not bear interest, which may help attract a greater number of Algerian buyers. The minister said bondholders would receive a share in projects that the issue would finance as an incentive. The government launched its first local bond last April, but it was harshly criticised by the religious community. While neighbours Morocco and Tunisia are developing laws for Islamic finance, Islamic banks and sukuk bonds, Algeria still has no legal framework for such operations.
Yielders has claimed to be the first UK Fintech company gaining a Sharia Compliance Certification. The equity-based property crowdfunding platform, founded by Irfan Khan, successfully completed the independent sharia certification conducted by IFC. Achieving the certification means that Yielders may significantly expand its market presence by operating across Asia, Europe, and the Middle East. Being compliant with FCA regulation, Yielders offers the opportunity for the public to invest as little as £100 towards buying a share of a crowdfunded property. Yielders explains that the UK Islamic market is one of the largest, most vibrant and dynamic outside the Middle East. Ethical Islamic investment is described as being crucial to the Yielders’ philosophy. Yielders only offer pre-funded investments to the retail crowd, meaning the assets are already generating an income.
The University of East London Centre for Islamic Finance, Law and Communities held a public lecture on 22 February 2017 focused on FinTech in Islamic Finance. The keynote speaker was Professor Volker Nienhaus. Professor Nienhaus dealt with four topics: Islamic FinTech and crowdfunding regulations, Shari’ah limits to innovation in FinTech, Shari’ah encouragement for FinTech solutions and the potential disruption of Islamic consumer banking by genuine trade credit. Nienhaus predicted that Islamic consumer banking could be disrupted in the future by genuine trade credit. Islamic-compliant cash rich e-commerce platforms could provide financial services equivalent to Amazon or Alibaba on a Shari’ah-compliant basis. These platforms could sell halal goods and approve Shari’ah compliance. These platforms could instantly check the credit worthiness of buyers and would have a higher credit risk tolerance than traditional banks.
Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has launched a comprehensive report on "AAOIFI in 850 Days". The report provides concise details, including infographs, illustrations, and statistical figures, covering AAOIFI's developments in activities over the period from September 2014 to end of December 2016. Dr. Hamed Merah, AAOIFI's Secretary General, said that AAOIFI embarks on efforts to enhance transparency as key to effective communication. Meanwhile, AAOIFI's statute was amended, and a set of 7 by-laws, policies and procedures, charters were developed. These include launching of AAOFI's Shari'ah standards translation projects (for Russian, French, and Urdu languages), and publication of AAOIFI's standards in paper and digital formats including a mobile app for smart phones. The section on strategic relationships cover AAOIFI's ties with stakeholders, specifically development of ties with institutional members. The report highlighted AAOIFI's keenness to further solidify its relationship with central banks and regulatory and supervisory authorities.
According to the International Monetary Fund (IMF), the current framework governing Islamic Banking contains many gaps that need to be closed through the development of a more comprehensive enabling environment. In a recently adopted staff paper “Ensuring Financial Stability in Countries with Islamic Banking”, the IMF calls for further strengthening of the legal and regulatory environment and institutional framework in countries that have Islamic banking. The study notes that Islamic banking has established a presence in more than 60 countries and has become systemically important in 14 jurisdictions. International guidance is needed to address the limited progress that has been achieved in developing financial safety net frameworks. Country practices have diverged on several important fronts. The emergence of hybrid financial products in Islamic Banking that replicate aspects of conventional finance in an Islamic Banking context has raised financial stability concerns. The IMF has been providing technical advice to member countries for the past 20 years and plans even more involvement in policy advice and capacity development.
The Reserve Bank of India (RBI) has said it cannot disclose the Finance Ministry's response about the introduction of Sharia banking in India. The RBI had earlier proposed opening of Islamic window in conventional banks for gradual introduction of Sharia- compliant or interest-free banking in the country. RBI was asked to give the copy of the letter sent to it by the ministry on the recommendation of its Inter Departmental Group (IDG) regarding Islamic banking.
The central bank had sought response from the Department of Financial Services (DFS) under the finance minister whether their letter can be disclosed under the Right to Information (RTI) Act. As advised by the DFS, the disclosure of information would cause a breach of privilege of Parliament or the state legislature.
The International Monetary Fund (IMF) has released its guidelines for the Islamic finance sector. The guidelines noted the need to develop a policy framework in the countries where Islamic banking has become systemically important. While accounting for a small share of global financial assets, Islamic banking has established a presence in more than 60 countries and has become systemically important in 14 jurisdictions.
Although Pakistan finished the IMF loan programme last year, there are still numerous reforms that need to be undertaken. In recent years, the State Bank of Pakistan (SBP) has made efforts for the promotion of Islamic banking, but no real effort has been made by the private sector and the government. The growth of Islamic banking poses new challenges and risks for regulatory and supervisory authorities. The IMF has proposed support for developing and providing policy advice on Islamic banking-related issues in the context of fund surveillance, programme design, and capacity development activities.