Malaysia Plans Sukuk for Public to Spur Trade: Islamic Finance

Malaysia plans to let issuers sell to individual investors sukuk that can be traded on the local stock exchange as the government seeks to reverse a 24 percent decline in sales in the world’s biggest market for Islamic bonds.
Bursa Malaysia Bhd., the exchange operator, is working with regulators on rules to enable companies to issue Islamic debt that would be affordable to the public, Chief Executive Officer Yusli Yusoff said last week. Issuance of the securities fell to 19.8 billion ringgit ($6.4 billion) this year from 26.2 billion ringgit in 2009, the steepest drop since 2003.
Bursa Malaysia is working on developing the sukuk for individual investors.

Sign posts to Islamic finance 2.0

At a macro level, it is needed, beyond short term liquidity and risk management, standardisation, scholars, qualified human capital the following:
First, we need to scientifically establish the size and growth rate of the industry.
Second, we need to establish leading and lagging economic/financial indicators for this geographically fragmented market, some will be same as “conventional”, but others will be different, i.e., more emphasis on applied over academic research.
Third, post crisis, deposit taking Islamic banks need to under go a stress test, as exposure to realty is greater, risk and liquidity management is not as robust, issues with deposit insurance, etc., as a confidence building measure.
Areas that need work are: syariah screening, funds, convergence of IF and halal industry, and venture capital (VC).
Suggestions for Malaysia:
There are five FSA approved Islamic banks in the UK, a G20 country, but not one had a Malaysian founding shareholder, and, now, the European wholesale market may have potential for comparable profits to Indonesian retail.

HSBC to launch Islamic banking services in full scale

HSBC Amanah, the Islamic banking window of banking giant HSBC, is planning to launch its Islamic banking services in full scale in Bangladesh, a visiting top official of HSBC said Tuesday.
With the re-launch, HSBC Amanah in Bangladesh will be the largest presence in South East Asia, the deputy CEO said. Currently HSBC Amanah is operating in the UK, Malaysia, Middle East countries, Indonesia and other countries.
HSBC Amanah products are rigorously audited and approved by HSBC central Shariah committee.

Indonesia Trailing Malaysia in Sukuk on Taxes: Islamic Finance

Indonesia is under pressure from banks to match tax breaks and product offerings announced by Malaysia last week to catch up in developing Islamic finance.
Malaysia has the largest market for sukuk and is a global hub for the Islamic finance industry that manages $1 trillion of assets. The government will cut taxes on Shariah-compliant transactions next year to promote “innovation in Islamic securities".
Indonesia failed to sell all of the government sukuk it offered in an auction on Oct. 5, even after suspending sales for two months because investors demanded higher yields than the government was willing to offer.
Malaysia in the past year has issued permits to global investors including Aberdeen Asset Management Plc and Franklin Templeton Investments to start Islamic fund management. The funds, which will invest in ringgit and non-ringgit denominated assets, will be exempt from paying taxes until 2016, according to the central bank.

UAE Central Bank Planning “Sharia Compliant” CDs

UAE (Khaleej Times) Initially, the CDs will be available only to fully Islamic banks and then extended to the Islamic banking units of other commercial banks.
The Sharia-compliant instrument, on the lines of Islamic Murabahah transaction will help soak up the excess liquidity in the Islamic money market.
A banker welcoming the move told Khaleej Times that Islamic banks with this offering can invest their surplus liquidity in Sharia-compliant certificates of deposit which will also offer them financial gains.
Malaysia, the world’s biggest market for Islamic bonds, Bahrain and Indonesia sell bills to help soak up cash in the financial system and set benchmarks for short-term bond sales. A Murabahah transaction is a sale and deferred-payment agreement based on an asset in which the cost and profit margin are pre-agreed between a bank and its customer. Transactions in Islamic finance are based on the exchange of assets rather than interest to comply with Sharia principles.

Malaysia’s Islamic Banking Assets Climb to 20 Percent of Total

Islamic banking in Malaysia, the world’s biggest market for sukuk, rose 21 percent in the first seven months of 2010 from a year earlier, and accounted for 20 percent of the total, the government said in a report.
The Southeast Asian nation, where about 60 percent of the 27 million population are Muslim, lowered foreign-ownership limits in financial institutions in 2009 to attract more international investors. The central bank has issued Islamic licenses over the past year to global funds that include Aberdeen Asset Management Plc and Franklin Templeton Investments.

Saudi Arabia, Malaysia discuss Islamic finance

A Malaysia International Finance Centre (MIFC) delegation, headed by Raja Nazrin Shah, crown prince of Perak, visited Saudi Arabia recently to promote Islamic finance relations. The 33-member delegation included representatives of 17 Islamic banks and 12 Islamic fund management companies and some asset management firms, aside from Takaful operators, and legal and other professional services firms.
With the sukuk market acquiring going global dimensions market education and knowledge, especially of Islamic Capital Markets (ICM), becomes a necessity. This is met by the Islamic Markets Programme (IMP), which is held annually by the Securities Industry Development Corporation (SIDC), the training and development arm of the Securities Commission Malaysia (SC).

Women and Islamic Financing

Fozia Amanulla has grown accustomed to the pressures of negotiating multi-million-ringgit deals during her career in Islamic finance.
At a meeting with a client in Saudi Arabia, where men and women are commonly segregated in public life, she was the only woman in the building -- a fact reinforced by the absence of any toilets for women.
Fozia, one of the first women to lead an Islamic bank in Malaysia, has had no shortage of reminders that her industry -- in which investments are made according to Islamic principles -- is a male-dominated one.
But the number of female faces is multiplying.
Jamelah was appointed managing director of RHB Islamic Bank in Malaysia in 2007 and is believed to have been the first woman in the world to head an Islamic bank.
Linda Eagle, president of the Edcomm Group Banker's Academy, a consulting firm based in New York, said that while branches for women only had existed in Saudi Arabia for decades, such branches had opened in Dubai and Iraq in recent years.

Muddy waters

Islamic finance is struggling to streamline regulations as it moves into the mainstream, but seems overwhelmed by scholar reforms.
Islamic finance is toughening supervision of its powerful religious advisers as shareholders worldwide demand increasing accountability from directors, but key reforms may do little to boost independence and transparency.
Islamic banking is overhauling rules that govern the conduct of its influential sharia advisers, with competition for investor dollars and a growing market putting pressure on the once-arcane industry to adopt clearer, more uniform guidelines.
Key to these challenges is the small number of scholars advising a growing number of banks on increasingly complex financing structures, raising issues such as transparency of rulings, independence of advisers and how to groom new scholars.
The International Sharia Research Academy for Islamic Finance, which is backed by Malaysia's central bank, is planning a global regulatory body for sharia advisers.
Others point out that uniformity is hardly attainable, as markets range from Saudi Arabia's established sector to South Korea's infant industry.

No Shariah Rules for Breaking Deals Gets Regulator Review: Islamic Finance

The leading global Islamic Finance accounting regulator is introducing conditions for contracts that comply with religious laws, seeking to standardize an industry with $1 trillion in assets under management.
The Bahrain-based Accounting & Auditing Organization for Islamic Financial Institutions will for the first time provide a “Shariah-compliant way” for parties to enter and exit contracts, Mohamad Nedal Alchaar, secretary-general of the agency, in Manama.
While civil law already offers legal cover in disputes, counterparties want protection based on Shariah principles, according to Dawood Islamic Bank Ltd. in Karachi, Pakistan. Establishing a global standard would bolster confidence for sukuk investors, said Madzlan Mohamad Hussain, a partner at Zaid Ibrahim & Co., Malaysia’s biggest law firm.

Bank Negara Malaysia reviews new guidelines for Takaful products

Because of market developments and increasing competition which has led to product innovation and diversity, the Prudential Financial Policy Department of Bank Negara Malaysia has reviewed the regulatory framework for insurance and Takaful products "to further enhance consumer protection while according greater flexibility for insurers and Takaful operators to respond to changing market conditions, both in managing risks and enhancing their competitiveness".
The guidelines, stressed Bank Negara, which is also the insurance and Takaful regulator in Malaysia, aim to improve the time-to-market for insurance companies and Takaful operators to introduce new products; to promote sound risk management practices in managing and controlling product risk; and to further strengthen the duty of care owed to consumers in ensuring that products developed and marketed are appropriate to the needs, resources and financial capability of targeted consumer segments.

Negative outlook for Borcos Shipping sukuk

YARIKAT Borcos Shipping Sdn Bhd, Malaysia’s second-largest provider of offshore support vessels, had the A1 rating on RM160 million of Islamic medium-term notes placed on rating watch with a negative outlook at RAM Rating Services Sdn Bhd.
This reflects a decline in daily charter rates and low utilization of its offshore support vessels. A1 is RAM’s fifth-highest investment grade.

Muslim Center’s Developer to Use Islamic Loan Plan

The developer of the planned Muslim community center and mosque near ground zero hopes to finance the bulk of the $140 million project using instruments developed to allow many Muslim investors to comply with religious prohibitions on interest.
Most of that core group, Mr. Gamal,the developer, expects, would be non-Muslim neighborhood residents and commuters. Muslims from around the region would make up a larger but less frequently visiting group — what he calls the “dinner and a date” crowd — many of them choosing the cheapest $375 family membership for cultural programs.
In sukuk construction projects, the investors own the real estate asset, and the developers lease it back; the investors’ profit on the rent is analogous to the yield on a bond. Some Islamic scholars do not accept the system, but it is widely used in places like Malaysia and Dubai.

Could women play a bigger role in Islamic finance?

Recent Western debate about the role of women in Islam may have centered on the veil, but from its early years, Islam was receptive to women in business and finance. And today, Malaysia is an example of how making money has little to do with gender in Islam.
Not only does Malaysia boast a female central bank governor devoted to helping Islamic finance grow, but Malaysia's Islamic institutions also boast women executives in top positions.
More surprising perhaps, Malaysia is also home to several woman scholars of Islamic law, or sharia, who provide companies with the approval they need to brand their business as compliant with Muslim principles that include a ban on interest.

Malaysia Debt Ventures plans RM500m sukuk

Malaysia Debt Ventures Bhd, a venture capital firm owned by the Ministry of Finance, plans to issue about RM500 million of Islamic bonds in its third sukuk sale next year to fund investments, chief executive officer Md. Zubir Ansori Yahaya said in Kuala Lumpur.

Asia-Pacific Universities Adding Islamic Finance Courses

With the Islamic finance industry worth an estimated $1 trillion and growing rapidly, it is perhaps no surprise that a number of Asia-Pacific nations are among a growing band of countries worldwide to signal their intention to carve out a larger share of the market.
Countries like Malaysia, Indonesia and Singapore, along with Hong Kong, have set their sights on becoming hubs for Islamic finance, where investments are made according to Islamic principles.
While their sectors may be at varying stages of development, they are facing a common predicament: a shortage of professionals skilled in Islamic finance.
Education institutions around the Asia-Pacific region, like their counterparts in the Middle East and Europe, are increasingly seeking to fill that gap by adding Islamic finance specialization to their master’s programs in business administration and elsewhere.

Pak, Afghanistan pushing Islamic banking for growth

Islamabad —Pakistan, Afghanistan and Senegal, among the world’s 50 poorest nations, are turning to Islamic banking to spur economic growth by encouraging people to take out loans and open savings accounts. Outstanding domestic bank lending accounted for 3.5 percent of Afghanistan’s gross domestic product in 2008, 25 percent in Senegal, 27 percent in Nigeria and 46 percent in Pakistan, according to data compiled by the World Bank. The rates compare with 224 percent in the U.S. and 115 percent in Malaysia, a global hub for finance that conforms with Shariah principles.
Developing Islamic nations have shunned banking in part because of the religion’s ban on interest, limiting access to funds for project financing and stunting business growth, according to the International Monetary Fund. Governments should improve regulations, products and institutions that comply with Shariah law to accelerate the industry’s development, Patrick Imam and Kangni Kpodar, economists at the IMF, said in a telephone interview from Washington on Sept. 14.

Winds of change in S. African tax laws for Islamic finance products

The South African government's recent confirmation that it is in the process of introducing tax neutrality laws for Mudaraba (trust financing), Murabaha (cost-plus financing) and Diminishing Musharaka (diminishing shared ownership) contracts is a long overdue recognition of the potential Islamic finance has for the country and the region. Financial services industry sources stress that the proposed tax neutrality measures are just the start and the wider objective is to introduce a comprehensive regulatory and legal framework to facilitate Islamic finance in the country both for financial inclusion and market liberalization and development reasons.
It may also have something to do with the ambition of the country to develop Cape Town into an international financial hub, an ambition which was confirmed by Alan Winde, the finance minister of the provincial government of the Western Cape; and South Africa's aim of attracting inward foreign direct investment (FDI) from the Middle Eastern countries and others such as Malaysia and Brunei.

Ramadan Best Time To Pitch Islamic Banking

Jakarta-based Bank Syariah Mandiri joined Islamic lenders worldwide to use Ramadan to remind Muslims to obey the teachings of the Prophet Muhammad that ban interest. Emirates NBD of Dubai waived payments on personal loans during Ramadan, while Maybank Islamic in Kuala Lumpur started automating charitable donations. Banks in Indonesia, the world’s most populous Muslim nation, offered limited-edition products to generate Ramadan-linked revenue and publicity. Bank Syariah Mandiri, the Islamic unit of Indonesia’s largest bank by assets, Bank Mandiri, collaborated with a local TV operator on a program aimed at promoting Shariah-compliant banking during the holy month. Shariah finance prohibits the charging of interest as well as investments tied to gambling and alcohol. Returns are generated as a share of profits from assets.

Maybank opens Islamic banking hub in S'pore

MAYBANK, Malaysia's biggest lender, has set up a dedicated Islamic banking hub here as part of a concerted push to expand the business beyond its home market, as it strives to gain an edge over rivals vying to stamp their name on South-east Asia. About one-third of the bank's Islamic financing portfolio comprises corporate and business loans, while the rest includes home loans, receivables from car and equipment hire-purchase financing schemes, credit cards and personal loans, he said. In Indonesia, Maybank is converting its subsidiary Bank Maybank Indocorp into a full Islamic bank that will be re-branded Maybank Syariah Indonesia. It will then use the distribution network of Maybank's other subsidiary there, Bank Internasional Indonesia, which has 290 branches, to sell Islamic banking products and services.

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