Somaliland's President has signed the Central Banking Act into law. According to Central Bank Governor Abdi Dirir the Commercial Banking Act will be passed in the next three to four months.
Back in 2012 the financial sector agreed to have a Dual Banking system where both Conventional and Islamic banking systems operate in the country. However, the Commercial Banking Act is more than four years overdue. Economically, Somaliland's longterm competitiveness can only be ensured by introducing the Dual Banking System in the country.
The Islamic Financial Services Board (IFSB) has announced the fourth dissemination of data on financial soundness and growth of the Islamic banking systems from 17 IFSB member jurisdictions, covering quarterly data from December 2013 to Q3 of 2015. The 17 member countries include Afghanistan, Bahrain, Bangladesh, Brunei, Egypt, Indonesia, Iran, Jordan, Kuwait, Malaysia, Nigeria, Oman, Pakistan, Saudi Arabia, Sudan, Turkey, and United Arab Emirates. The total assets of the Islamic banking industry grew from $1,216 billion in 2014Q3 to $1,245 billion in 2015Q3. Total funding/liabilities declined from $1,007 billion in 2014Q3 to $946 billion in 2015Q3. Financing by Islamic banks from the jurisdictions participating in the PSIFIs project reached $710 billion in 2015Q3 from $681 billion in 2014Q3.
The controversial sale of the Kasb Bank to Bank Islami has been challenged before the Islamabad High Court. The petition was filed by Mohammad Khalid Randhawa, a shareholder of the Kasb bank, who claims that Kasb Bank was sold to the Bank Islami for only Rs1,000. He was praying before the court to declare the sale illegal. Judge Aamer Farooq made documents related to the inquiry of the deal as part of judicial record and adjourned the case.
In Book I of Plato’s Republic, Socrates discusses the morality of repaying debts. Cephalus, a businessman living in the commercial Piraeus district, states the typical ethic that it is fair and just to pay back what one has borrowed or received. Socrates replies that it would not be just to return weapons to a man who has turned into a lunatic. Because of the consequences, paying back the debt would be the wrong thing to do. At issue is not the micro-economic morality of paying a debt, but how this act affects society. The morality of paying back all debts is not necessarily justice. It should not be surprising that modern financial elites are fighting back against democratic moves. It has all happened before – and so have revolts by debtors and other exploited victims of such 'economism'.
As the referendum on whether to leave or remain in the European Union looms in the UK, voices are getting louder, particularly in the country’s financial industry that it would not necessarily be a good idea to vote for a Brexit. Since the weight of the UK in the global financial market is substantial – the financial sector of the City of London has a 20% share in the global market for trading foreign securities and a sizeable part of it depends on the UK’s access to the internal EU market – such a strong position would be certainly threatened.
This could have serious impact on the growing role of Islamic finance in Europe which is entrenched in the UK and from there makes its way into the continent. Since the 1990s, when the first mortgages in the UK were set up in line with Shariah law, the country has aggregated the most advanced experience in Shariah-compliant finance in the Western world. Corporate sukuk followed a decade later, and in 2014, the UK became the first country in the EU to issue some sovereign sukuk and listed them on the London stock exchange. From then on, Islamic finance steadily entered the rest of Europe.
On Thursday, the Mo Ibrahim foundation announced that its prestigious Mo Ibrahim Prize for Outstanding African Leadership and Governance will have no winner for 2015. This makes it the fifth year this prize has gone unclaimed since its inception in 2006.
In a statement issued by the Chairman of the foundation, Mo Ibrahim, he agreed with this verdict. “When we launched the prize ten years ago, we deliberately set a very high bar.” The Sudanese-British mobile communications entrepreneur and billionaire founded the foundation with a clear objective: to encourage better governance in Africa based on the belief that governance lays at the heart of tangible and shared improvements in the equality of life of African citizens. However, this recent announcement means that a number of revered heads of states such as Emilio Guebuza (Mozambique) and Jakaya Kikwete of Tanzania, both widely credited with the sharp reduction of poverty in their respective states, and presiding over periods of notable economic success, have been overlooked for this year’s prize.
The Award has now been unclaimed more times than won
Algeria is preparing to launch Islamic financial services as the OPEC member seeks new ways to raise money after a sharp fall in energy earnings. Algeria’s outdated financial system has been a barrier to investment as the government seeks to diversify its economy away from oil and gas, which account for 60 percent of the state budget. Boualem Djebbar, head of the state-run Banks and Financial Institutions Association, said a legal framework would need to be finalized before introducing Islamic financial services. Djebbar said developing the banking system had become inevitable, with a particular focus on electronic payment systems, which are still little used in Algeria.
A Memorandum of Understanding was signed between the Islamic Development Bank (IDB) and India’s EXIM Bank, which enables IDB to open its first branch in Ahmedabad. During Prime Minister Narendra Modi’s visit to Saudi Arabia there were a wide range of discussions on business and investment in the background of the Kingdom’s $2 trillion Public Investment Fund. Islamic banking could restore equilibrium in Indian society by providing succour to debt-ridden farmers, labourers and other marginalised groups. Hence, Islamic banking has potential as a tool of financial inclusion.
The Silk Road Economic Belt and Maritime Silk Road initiative, now known as One Belt One Road (OBOR), was designed in 2013 to develop economic cooperation between China and Eurasia. The Chinese government has now decided to speed up the operation of the Silk Road fund. Proposals to strengthen the cooperation of China-ASEAN Interbank Association have also been completed. Also a High Speed Rail project in China is considering using Islamic securities to raise a fund for almost 30 billion Chinese yuan (US$4.7billion). In addition, Hainan Airlines Group is planning to raise US$150 million for ship purchasing and to raise offshore Islamic securities.
Unless tax systems properly accommodate Islamic finance transactions, prohibitive tax costs can arise. The legislation in South Africa, Singapore and Malaysia explicitly refers to Islamic finance transactions. Strictly speaking, this introduces a religious test into secular tax law, which may not be acceptable to other countries. The UK takes a different approach. UK tax law proceeds by only looking at the economic implications of the transaction, without any concern for whether it qualifies religiously as Islamic finance or not, so religious tests do not enter into the UK tax system. UK law already operates to avoid additional VAT costs. In other countries specific legislation will be needed to create parity of tax treatment between conventional finance and Islamic finance.
Roughly one-third of those suffering from extreme poverty worldwide live in member states of the Organisation of Islamic Cooperation (OIC). In 21 of those 57 countries, fewer than half of the population has access to adequate sanitation. Instability places enormous strain on national budgets. The capital accumulated in some of the OIC countries could play an important role in helping them. If Islamic finance is to play its full part, governments will need to undertake important reforms. There is a need for stronger legal institutions that protect property rights and ensure that contracts are enforced. The industry will need to be standardised and regulated.
Dubai Islamic Bank is opening subscriptions on Tuesday for a 3.16 bn dirham ($860.3 mn) rights issue. The bank is offering 988.4 mn new shares to shareholders in total, with subscription open on the basis of one new share for every four currently held. Shares are priced at 3.2 dirhams each, a substantial discount to Monday's closing share price of 4.95 dirhams. DIB is the latest bank in the Gulf to replenish reserves after a period of strong lending growth. At the end of March DIB's total capital adequacy ratio stood at 15.6%, above the UAE's regulatory minimum of 12%.
Al Baraka Bank Egypt announced that the net income of the bank jumped by 101% for the first quarter of 2016 compared to the same period in 2015. Total assets also increased by 4%, financing and investments portfolio by 4%, deposits by 5% and equity by 6% at the end of March 2016. Chairman Adnan Ahmed Yousif said the bank has an ambitious branch expansion and geographical spread plans. It is on track to complete its new headquarters building in the New Cairo area. The bank's rolling expansion programme envisages a network of 42 branches by 2020.
Offshore jurisdictions have become increasingly popular with Islamic finance institutions in the recent past. Such jurisdictions allow the hassle-free incorporation of trusts, special purpose vehicles or other financial intermediary bodies necessary to be established between parties within an Islamic finance structure. Also, offshore financial centres are usually offering services at lower costs in a favourable tax environment. The most developed in this respect are the Cayman Islands, Luxembourg and Labuan in Malaysia, as Kuala Lumpur-based International Islamic Finance Center pointed out.
Russia is hoping to close deals shortly to attract Islamic banks to invest in Russia to help make up for a shortfall in international finance caused by Western sanctions. The head of Vnesheconombank Sergei Gorkov said funds invested by Islamic banks will be used for infrastructure projects in the country. He added that that Russia is expected to close its first deals to attract Islamic capital in the autumn of 2016. However, the active introduction of Islamic banking is opposed by some Russian lawmakers.
The Islamic world is sizeable market by any global standard: 1.7 billion consumers, with a birth rate growing two times the pace of the world average. Consumer spending in 2014 tallied $1.8 trillion (Dh6.6 trillion) and is slated to surge to $2.6 trillion by 2020 according to a study by Thomson Reuters. The market development is being led primarily by a handful of countries with Malaysia, the UAE and Singapore standing out. The fastest growing sectors are halal food, halal travel and leisure, the pharmaceutical and cosmetics arena and Islamic finance. But the reality is too many countries are being left behind. Poverty rates remain too high, with a quarter of the population for example in Egypt still living on less than $2 a day.
Kenya has a higher percentage of Christians compared to Muslims, but this country is seeing a surge in Islamic financing. According to Rahma Hassan Hersi, Managing Partner at Awal Consulting, the lack of regulations is deterring potential growth. There is a need to address this issue in tandem with the central bank. There is also very limited expertise. The penetration of Islamic finance in Kenya is estimated at 2% with a limited number of banks and insurance companies playing in that space.
Saudi Arabia’s government is investigating the country’s banks for creating structured products which allow traders to speculate on the possible end of the currency’s US Dollar peg. Saudi officials continue to maintain that the country has no plans to devalue, and a number of political analysts say such a move would be a last resort. Saudi Arabia’s oil price driven crisis has seen the country’s budget deficit widening out to 19% of GDP. This caused a collapse in government spending which has slowed economic growth to near zero. A devaluing of the Riyal would increase oil revenues in Riyal terms and provide more domestic revenues for the government, but would make imports a lot more expensive.
Crowdfunding is a way to connect ordinary individuals with the innovative projects they support. It is possible for retail investors to become venture capitalists and probably own shares in the next giant tech company. In Indonesia, however, this method of raising money might face some challenges. Firstly, Indonesians have trust issues with money transactions carried out over the internet. Secondly, there is a lack of crowdfunding education among retail investors. The government needs to undertake supervisory and regulatory functions to respond to the problems.
In Uganda the outgoing minister of Gender and Social Development has advised commercial banks to urgently develop products for Islamic Banking. Muruli Mukasa said the parliament passed the law and the all the communities in Uganda have accepted this model of banking. The Financial Institutions Bill 2015 paved way for the introduction of three new products: Islamic Banking, Bancassurance and Agency Banking. But Bank of Uganda still has to issue regulations that will guide commercial banks on how to manage the new form of banking.