Islamic Banking

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#Uzbekistan set to develop Islamic banking system

Uzbekistan is joining the rising number of Central Asian nations to develop a Shariah-compliant banking system given its large Muslim population. This month, the Uzbek government issued a draft resolution to create infrastructure for Islamic banking and finance in the country. The aim is to create alternative financing opportunities in the former Soviet republic and open the doors for Islamic investors from the Middle East and Southeast Asia. To that end, the central bank has been tasked with developing a legal and regulatory framework not just for Islamic banking, but also for Takaful and securities trading, as well as financing for small and medium enterprises and Halal microfinance. The framework will include the launch of the Islamic Development Bank of Uzbekistan (IDBU), which will provide standard retail banking services, trade financing, property and commercial real estate financing, as well as leasing, Takaful and securities services.

Islamic finance feels heat from $700mn Dana saga

Global standards are likely to become more explicit and a shift to centralised regulation may accelerate after Dana Gas reached a conditional deal with creditors on its contested $700mn sukuk issue. Dana shook the industry last June, saying it would not redeem its sukuk on maturity. It proposed swapping them for new sukuk with lower profit rates. The original sukuk used a mudaraba structure, which Dana said had fallen into disuse. Investors have been worried by the prospect of other issuers avoiding redeeming their sukuk by saying conditions have changed. According to Akram Laldin, deputy chairman of the Malaysian central bank, the Dana saga had strengthened the case for setting up centralised bodies that could approve Islamic contracts and rule on disputes. The Dana case appears to mean the end of the old mudaraba sukuk structure, criticised as un-Islamic by some scholars due to features such as guarantees on principal and fixed returns.

Deloitte launches new Islamic finance insights series

Deloitte’s Islamic Finance Knowledge Center (IFKC) in collaboration with the Chartered Institute of Securities and Investment (CISI), UK published its latest whitepaper entitled "Scalable and sustainable source of funding social infrastructure". The success of infrastructure projects in using Islamic finance has inspired investors in countries such as Bangladesh, Indonesia, Kazakhstan and Malaysia to seek pursuing sustainable funding through Islamic finance. According to Dr. Hatim El Tahir, Director of Islamic finance at Deloitte, this whitepaper developed practical analysis and forward thinking thoughts as how Islamic finance can play its natural role in this pivotal sector of economy. The analysis suggests there should be continued industry dialogue between practitioners, policy makers, regulators and market participants, to articulate and assess suitable investment and funding structures.

Asia’s Islamic finance industry growing stronger by the year

The Malaysia International Islamic Finance Center (MIFC) published in cooperation with the Islamic Corporation for the Development of the Private Sector (ICD) the latest report entitled “Islamic finance in Asia: Reaching new heights”. According to the report, Asia’s Islamic finance assets registered an annual growth of 8.4% between 2011 and 2016 and stood at $528.7bn, or 26% of the world’s Shariah-compliant financial assets, at the end of 2017. Furthermore, Asia has grown to the largest market for sukuk. $52.3bn or 52.5% of all newly issued sukuk came from Asia in 2017, with most notable contributors being Hong Kong, Indonesia and Pakistan. The region also has a global market share of 60.7% of sukuk outstanding and is market leader in Islamic funds. The report states that Malaysia, Bangladesh, Brunei and Indonesia are currently among the most developed Islamic banking jurisdictions in Asia.

#Afghanistan enlists faith-based banks to aid financial inclusion

Afghanistan hopes its first Islamic bank will attract more customers and improve access to financial services in the country. The central bank granted its first Islamic license last month and is now developing wealth management products and new digital banking services. There are currently six banks that offer sharia compliant products through so-called Islamic windows and their conversion would require setting up an internal sharia board and having a clean bill of health. The latter may be a challenge for some because of difficulties in converting impaired loans into Islamic equivalents. The government is also working on legislation that would allow for the issuance of sukuk, although such plans are still at a preliminary stage.

Islamic Banking on the Blockchain, Hada DBank, Releases Token Sale Structure

The first blockchain-powered Islamic Bank, Hada DBank, has launched its token sale on May 1st, 2018. HADA DBank is a platform aimed at providing Islamic banking methodology. The platform offers a maximum liability to asset at a ratio of 1:3. Hada DBank aims to design and develop an Exchange platform offering a No fee policy on both cryptocurrency and non crypto-related transactions. The bank will also provide its users with physical and virtual debit cards, inclusive of cashback and discount schemes with merchants and affiliate partners. Users can gain full access to Bot HUDA, a bot in charge of financial management, while artificial intelligence, HADI, will be a personal financial advisor to the platform’s clients. Hada DBank has pegged the soft cap of its Token Generation Event at 5,000 ETH and hard cap at 30,000 ETH. The first set of 1,000,000 HADACoins will be distributed at 3,000 HADA per 1 ETH at a minimum contribution of 0.15 ETH.

#Turkey holds great potential for Islamic finance

According to Abdelilah Belatik, secretary general of the General Council for Islamic Banks and Financial Institutions (CIBAFI), Turkey's potential for Islamic banks is very big. Turkey has three participation banks, Al Baraka, Kuwait Turk, and Turkiye Finans, which are operating overseas already. Turkey's Banking Regulation and Supervision Agency (BDDK) started developing comprehensive regulations for participation banks. Belatik said countries like Bahrain and Malaysia have developed their entire system of infrastructure for Islamic finance, which is very important for the development of the industry. This year, CIBAFI chose Turkey to host its annual Global Forum. The Forum is focusing on how the industry will fulfill its obligations while remaining competitive and relevant within global financial markets.

Lack of scale, lower returns in Islamic finance need addressing

According to Sultan Nazrin, Islamic finance needs to address the lack of scale, volatility in Islamic equity markets and lower returns for Islamic investing. In his keynote speech at the Franklin Templeton 2018 Islamic Forum in Kuala Lumpur, he highlighted four key areas that need to be addressed. While the overall sukuk market has posted growth in recent years, the resilience of Islamic equities and funds cannot be taken for granted as most of them lack scale. Another issue to be addressed is the greater volatility seen lately in global Islamic-listed equity markets. Sultan Nazrin said that an unparalleled benchmark for governance must be established that balances financial and ethical considerations. He added that innovation represents a challenge and an opportunity for the industry, thus Islamic finance must embrace the modern era of disruption, with a continued strong focus on product innovation.

Islamic banks’ financial profile to stabilise in ’18

According to S&P Global Ratings, the GCC Islamic banks’ financing growth will reach 4-5% in 2018-19, supported by strategic initiatives by the regional governments. Powered by Qatar FIFA World Cup, Dubai Expo 2020 and Saudi Vision 2030, and higher government spending in Kuwait led by Kuwait 2035 Vision, the region’s Islamic banks will continue to expand. Asset growth should remain in the low single digits due to slow economic growth, unless oil prices rebound significantly. However, Islamic banks’ cost of risk will increase due to the adoption of International Financial Reporting Standards (IFRS) 9 and Financial Accounting Standards (FAS) 30. While the volume of sukuk issuance increased in 2017 thanks to jumbo issuances by some GCC countries, issuance volume is currently uncertain for 2018.

SECP registers Al Hilal as first Shariah advisory company in #Pakistan

The Securities & Exchange Commission of Pakistan (SECP) has registered Al Hilal Shariah Advisors as the first Shariah Advisory company in Pakistan. Al Hilal aims at converting the conventional interest-based economy to the Islamic financial system under the guidance of Shariah Scholars and financial experts. Al Hilal Shariah Advisors provides Shariah Advisory, Shariah audit and training services in the field of Islamic Finance. It is also active in the field of halal food certification. Al Hilal CFA Faraz Younus Bandukda said they were proud to be the first Shariah Advisory Company in Pakistan and hopeful that more companies would now implement Shariah regulations.

The Role of Islamic Finance

The gap in financing for SDGs is currently estimated at US$ 2.5 trillion every year and Islamic finance could better respond to these needs. The core principles of Islamic finance are highly aligned with the spirit of the SDGs. The Islamic Development Bank found Islamic Finance to be especially relevant in addressing ten of the 17 SDGs, including goals pertaining to poverty alleviation, infrastructure development, financial stability, and beyond. In Indonesia, for example, UNDP is partnering with BAZNAS to apply Zakat funds towards local SDG plans, beginning with renewable energy projects in underserved communities. UNDP Indonesia is also working with Badan Wakaf Indonesia to collaborate on SDGs and develop a digital platform for waqf contributions. UNDP is also working with the Indonesian Ministry of Finance to support the issuance of their first $1.25 billion sovereign green sukuk.

#FinTech Hive programme now includes Islamic finance

FinTech Hive at DIFC has announced that its upcoming programme will expand its themes to include insurance, Islamic finance, and regulatory technology services. This year’s cycle will welcome First Abu Dhabi Bank, Arab Bank, and Noor Bank as new Financial Institution partners, along with returning partners such as Abu Dhabi Islamic Bank, Citigroup, Emirates Islamic, Emirates NBD, HSBC, Mashreq, Standard Chartered, UAE Exchange and Visa. The participating Financial Institutions will partner with startups in a wide-ranging 12-week mentorship and networking programme. FinTech Hive at DIFC will also feature the Dubai Islamic Economy Development Centre (DIEDC) as a strategic partner again this year. In addition, FinTech Hive at DIFC will collaborate with Accenture’s FinTech Innovation Labs to connect regional innovators to the international FinTech ecosystem.

First full-fledged Islamic bank approved in #Afghanistan

Afghanistan’s central bank has granted a license to the Islamic Bank of Afghanistan (IBA). IBA Chief Financial Officer Faizan Ahmed said the bank had completed the conversion of its balance sheet. It plans to introduce wealth management products and launch new digital banking services in the coming months. Afghanistan’s banking sector is small, but Islamic finance is seen as an important feature that could help attract more people into the financial system. IBA estimates that only 5.7% of the population has dealings with the banking sector and the majority of the country in unbanked. Islamic banking has been offered in Afghanistan by a handful of firms through so-called Islamic windows, but there have been no full-fledged Islamic banks so far. Lenders with Islamic windows include Afghan United Bank, Ghazanfar Bank and Afghanistan International Bank.

Green developments in Islamic finance

Increasing environmental awareness worldwide has seen a marked rise in the appetite for green bonds. Malaysia has been the market leader in the issuance of Green Sukuk, with guidelines issued in 2014 for socially responsible investment (SRI). These set out that the proceeds can be used to preserve the environment and natural resources, conserve the use of energy, promote the use of renewable energy and reduce greenhouse gas emission. Malaysia launched the world’s first Green Sukuk on 27 June 2017. The UAE's Green Growth Strategy was launched in 2012 to become a global hub and a successful model for the low carbon green economy. There will most certainly be challenges, like drafting of documentation acceptable to governments, investors and Shari’ah scholars. There is increasing appetite for environmentally friendly products and considerable potential in the UAE.

The Fourth Amongst DFM's Series Of Shari'a-Compliance #Standards: Dubai Financial Market Invites Experts To Advise On Its 'Standard On Investment Funds'

Dubai Financial Market (DFM) released the draft of its "Standard on Investment Funds", the first of its kind all-inclusive standard. The DFM invited Islamic finance professionals to provide counsel and feedback on the standard. The consultation period will be concluded on 11 May 2018. Dr. Hussein Hamed Hassan, Chairman of DFM’s Supervisory Board said the Standard complements the DFM Standard for Issuing, Acquiring and Trading Shares. It comprehensively explains the two ways of Shari’a-compliant fund management, Mudaraba or an investment agency contract (Wakala bil Istithmar) and the circumstances stipulating that fund management is responsible to pay Zakat. It also defines the key disclosures that should be included in the financial statements.

Islamic finance — focus on capital market development

The Islamic finance sector is a subset of the overall domestic financial sector. Governments face pretty much the same contingent liabilities with Islamic banks as they do with conventional ones. Some 73% of total Islamic finance assets are within Islamic banks. Takaful accounts for a mere 2%, while the remainder 25% constitute assets within capital market instruments such as sukuk, mutual funds and others. Thus, within the Islamic finance space, banking is at least three times the size of capital markets. Policymakers would be well advised to seek not just to grow Islamic finance, but focus on the capital markets component. This is not just good from a macroeconomic vulnerability viewpoint, but is also more in keeping with the Shariah philosophy of risk sharing.

World Bank, IDB urge Islamic finance to play the long game

The World Bank and the Islamic Development Bank want to increase the use of long-term investments in Islamic finance. The two multilateral bodies set out a series of policy recommendations in a joint report, aiming to capitalize on the risk-sharing and asset-backed features of Islamic finance. Islamic banking products have often been developed under the same regulatory regime as conventional lenders, so instruments are sharia-compliant but economically similar to their interest-based counterparts. This contributes to an over-allocation of savings to short and medium-term financial instruments, with a reliance on risk-transfer rather than risk-sharing. To counter this, policymakers could help develop sector-specific investment banks as well as non-bank Islamic firms such as leasing companies, venture capital firms and crowdfunding platforms. The report also raised the need for tax incentives and Islamic insurance schemes to help extend maturities.

Islamic bank to meet business world in Izmir this month

Turkey's Aegean province of Izmir will host an Islamic Development Bank Group (IDB) event between 26-27 April. The announcement was made by Turk Eximbank CEO Adnan Yildirim, who said that Turkey aims to boost trade relations with the IDB's 57 member countries. He added that Turk Eximbank wants to raise Islamic countries' 10% share of world trade to 20%. Turkey's current trade with IDB member countries is around $45 billion and the bank hopes to raise it to $100 billion within 10 years. Turk Eximbank aims to double its support to companies in IDB member countries. The lender ranks second globally after South Korea's Eximbank in terms of financing exports.

#Malaysia remains lead in Islamic finance

Malaysia has great potential to broaden its market share and strengthen its leadership in Islamic finance. According to the latest report by the Malaysia International Islamic Financial Centre, Asia’s Islamic financial assets amounted to US$528.7 billion (RM2.05 trillion), or 26% of the world’s Shariah-compliant financial assets as at end-2017. Malaysia continued to be the main driver for both sukuk outstanding and issuance for the year, with a market share of 51% and 36.2% respectively as at end-2017. The country also led in the Islamic wealth management industry with US$28.3 billion (36.5% global share). It also ranked first in terms of number of funds with a total of 394 funds and 27.9% global share, followed by Pakistan with 147 funds and Indonesia with 143. In the banking sector, Malaysia ranked third globally after Iran and Saudi Arabia with a total Islamic banking assets of US$204.4 billion as at end-2017.

DFSA hosts accounting standard-setters for Islamic finance

The Dubai Financial Services Authority (DFSA) recently hosted the International Accounting Standards Board (IASB) as part of a consultancy meeting. The Authority's involvement reflects its commitment to developing an effective and supportive regulatory framework for Islamic finance. The DFSA is a member of the Islamic Finance Consultative Group (IFCG), which focuses on challenges that may arise in the application of International Financial Reporting Standards (IFRS). The meeting was attended by IFCG members from Bahrain, Indonesia, Malaysia, Pakistan, Saudi Arabia, the UAE and the United Kingdom.

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