Reuters

New products, standards buoy Islamic trade finance business

Islamic trade finance is poised for change with the launch of new products and common standards. Islamic banks have been laggards in trade finance but some see a business opportunity here. According to the General Council for Islamic Banks and Financial Institutions (CIBAFI), digital tools such as blockchain can support this by helping to lower costs and speed up sharia-compliant transactions. Islamic trade finance is estimated at around $186 billion, compared to the $4.4 trillion worth of trade finance activity in Muslim-majority countries. Some firms are now introducing digital Islamic trade finance platforms. Emirates Islamic Bank has already launched its online supply chain tool. There is also a push towards standardisation of practices. The Bankers Association for Finance and Trade (BAFT) and the International Islamic Financial Market (IIFM) are developing standard documentation for both Islamic-funded and unfunded trade finance deals.

MOVES-#Britain's largest Islamic bank Al Rayan appoints new COO

Birmingham-based Al Rayan Bank appointed Paul McMillan as chief operating officer as part of the bank’s expansion efforts. McMillan, a former chief executive of mortgage servicing firm Acenden, takes over the role from the bank’s previous COO Venkat Chandrasekar. Al Rayan is one of the five standalone Islamic banks in Britain and is owned by Qatar’s Masraf Al Rayan.

#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 finance body AAOIFI issues #standard for agency contracts

The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) has issued its first standard covering wakala, or investment agency contracts. The guidance aims to address the use of wakala in areas such as over-the-counter instruments, treasury placements and Islamic bonds. Wakala is common as a standalone product, but AAOIFI opted to focus its standard on more complex instances where it is combined with other contracts. Islamic banks use wakala for both their short and long-term funding needs, and in recent years have incorporated the contract into hybrid sukuk versions. In wakala, one party acts as agent for another and the AAOIFI standard focuses on this principal-agent relationship. It states that the relationship does not transfer ownership rights of the assets to the agent, the principal should account for the assets in its accounting books. The standard also requires the principal to evaluate the nature of the investment at inception.

After downturn, Islamic finance eyes profits, #fintech: survey

Islamic banks and insurers are focusing on profitability and new financial products. Surveys by the General Council for Islamic Banks and Financial Institutions (CIBAFI) show a strong focus on fintech and digital transformation. Islamic banks are launching technology departments and forming joint ventures with fintech firms. The survey showed that technology-related risks have been steadily increasing and are now the biggest perceived risks. This means Islamic banks must ramp up product innovation efforts, as crowdfunding, P2P and payments platforms will be a major focus in the medium term. The CIBAFI survey on Takaful showed a mixed view on technology, suggesting concerns were focused on operational efficiency rather than innovation.

Islamic finance body IFSB to develop financial inclusion guidance

The Malaysia-based Islamic Financial Services Board (IFSB) plans to develop a technical note on financial inclusion. The technical note will cover regulatory issues including Islamic microfinance, financial technology and integration of social finance. The guidelines will be funded by a grant from the Islamic Development Bank to be implemented over the next three years. Tens of millions of people in the Muslim world lack bank accounts because of poverty, poor education and a lack of infrastructure, but religious reasons are also an important element. Research from the International Monetary Fund has shown that religious concerns play a role in keeping people out of the financial system in countries such as Afghanistan, Iraq and Tunisia.

Exclusive - #Malaysia's Maybank prepares to spin off and list #insurance unit: sources

Malayan Banking (Maybank) is preparing to spin off and list its Etiqa insurance arm on the local stock exchange. Etiqa operates in Malaysia, Singapore, the Philippines and Indonesia and is estimated to be worth at least $1 billion. As part of the transaction, Maybank’s investors are expected to receive shares in the insurance company in proportion to their existing holding in the bank. Etiqa provides life and general insurance as well as family and general takaful. In 2017 Eitqa reported a record revenue of 6.2 billion ringgit ($1.6 billion). Profit before tax rose 18.5% to 1 billion ringgit last year. In March, Etiqa said it maintained its top position in Malaysia’s general insurance and general takaful segment with an 11.8% market share. It was ranked fourth in the life and family segment, with an 8.9% market share.

#UAE's Sharjah Islamic Bank gives initial price guidance for dollar #sukuk

Sharjah Islamic Bank has given initial price guidance in the 160 basis points over mid-swaps range for a planned five-year dollar sukuk issue that has been capped at $500 million. The bank is expected to price the Islamic bonds later on Wednesday. The bank has appointed HSBC and Standard Chartered Bank as global coordinators and Bank ABC, Dubai Islamic Bank, Emirates NBD Capital, First Abu Dhabi Bank, HSBC, Noor Bank, and Standard Chartered Bank as joint lead managers and bookrunners for the issue.

Industry body AAOIFI close to finalising #standards for Islamic endowments

The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) is close to finalising governance and sharia standards for Islamic endowments, known as awqaf. Deputy Secretary General Omar Mustafa Ansari said the development of an accounting standard for awqaf was underway. A governance standard for awqaf would provide guidance on internal controls, policies and procedures, transparency and disclosures. According to a Dubai government estimate, awqaf may hold around $1 trillion in assets around the globe. Most awqaf do not disclose full financial figures, although their underperformance is believed to be considerable since they are run by administrators rather than return-oriented investment managers.

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.

#Qatar central bank backs three-way Islamic bank #merger

Qatar’s central bank hopes the planned merger between three local Islamic banks can proceed this year. Masraf Al Rayan, Barwa Bank and International Bank of Qatar have been discussing a merger, though they missed the target date to complete the proposed deal. Saudi Arabia, the United Arab Emirates, Bahrain and Egypt cut diplomatic and transport ties with Qatar last June. Qatar accused them of trying to sabotage its financial markets and manipulate its currency. Sheikh Abdullah said that since the embargo started, the central bank had been meeting regularly with executives of banks to ensure daily control of liquidity levels and financial transfers. He added that Qatar plans to issue roughly the same amount of riyal debt in 2018 as it did in 2017, when it issued 47.5 billion riyals ($12.3 billion). That included 18.5 billion riyals of bonds and 15.4 billion riyals of sukuk.

WGC, IIFM to develop #standards for gold-based Islamic contracts

The World Gold Council (WGC) and the International Islamic Financial Market (IIFM) plan to develop a series of standard templates for sharia-compliant gold contracts. Gold had traditionally been classified as a currency in Islamic finance, but new guidance has opened the door for a wider range of products. The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) developed a sharia standard for gold in 2016. The proposed contract templates from IIFM would add to those efforts by standardising the operational aspects of gold transactions. Natalie Dempster, managing director of central banks at the WGC, said the new standards would include physical allocation of gold, confirmation of ownership and spot transactions. Allocated gold agreements, consignment agreements, swap product confirmations and other gold-based products were also discussed at the consultation meeting, which was hosted by Borsa Istanbul, Turkey.

Turkiye Finans gets regulatory nod for $450 mln #sukuk

Turkish Islamic lender Turkiye Finans has been granted regulatory approval to raise $450 million via dollar-denominated sukuk. It previously issued dollar-denominated sukuk in 2013, a $500 million five-year deal that matures in May. The bank has been a frequent issuer of sukuk in the domestic market and has also tapped investors in Malaysia through ringgit-denominated deals.

#Kuwait Finance House to split shareholding of Turkish asset manager

Kuwait Finance House (KFH) will divide the ownership structure of its Turkish asset management firm between local and Kuwaiti units, as the Islamic lender continues to build on its Turkey franchise. KT Asset Management will transfer 5 million shares representing a 50% stake to KFH Capital. Both Kuveyt Turk and KFH Capital are subsidiaries of KFH. KFH Capital is the main investment arm of KFH, which has restructured activities in recent years to streamline operations and focus on growth markets such as Turkey.

Saudi Dar Al Arkan Real Estate hires banks ahead of 5-year dollar #sukuk deal

Dar Al Arkan Real Estate Development has mandated banks to arrange investor meetings ahead of a planned U.S. dollar five-year sukuk offering. If the deal goes ahead, Dar Al Arkan will be the first Saudi company to issue an international bond this year. The banks mandated are Alkhair Capital, Deutsche Bank, Dubai Islamic Bank, Emirates NBD Capital, Goldman Sachs International, Nomura, Noor Bank and Standard Chartered Bank, who will act as joint bookrunners of the deal.

Islamic Development Bank gives initial price guidance for dollar #sukuk - lead

Islamic Development Bank (IDB) has given initial price guidance for a senior, unsecured five-year U.S. dollar-denominated sukuk in the high 30 basis points over mid-swaps. IDB President Bandar Hajjar said that the bank planned to launch a $2.5 billion sukuk soon. CIMB, Citi, Emirates NBD Capital, HSBC, Natixis, SMBC Nikko and Standard Chartered Bank are the banks leading the deal.

#Saudi crown prince seeks solution to banks' $2.6 billion Islamic tax row: sources

Saudi Crown Prince Mohammed bin Salman has directed the government to resolve a dispute with banks facing higher Islamic tax liabilities. The General Authority of Zakat and Tax (GAZT) is demanding tax for years going back as far as 2002. Banks are contesting the extra payments, which are estimated at around 9.8 billion riyals ($2.6 billion) across 11 of the kingdom’s 12 listed banks. Although Saudi banks and other firms generally do not pay corporate tax, they are subject to zakat, a 2.5% levy on each bank’s net worth. Lenders and the authorities have been at loggerheads over the amount of zakat they pay for more than a decade. The dispute has captured more attention recently as the kingdom seeks to attract billions of dollars of foreign investment from global equity indexes. Bankers say the way the tax is calculated is opaque and the heavy financial demands on banks threaten the stability of the banking sector and capital markets.

#Saudi will issue #sukuk as soon as market conditions allow-DMO chief

Saudi Arabia is committed to the sukuk market and will issue Islamic bonds as soon as market conditions allow. Fahad al-Saif, president of Saudi Arabia’s debt management office (DMO) said Saudi Arabia had a ratio of 65% to 35% for local to international issuance, plus or minus 10%. He added that the DMO aimed to develop the local market but not to crowd out the banks. Saudi Arabia started issuing debt in the international markets in 2016 when it issued $39 billion in bonds, including a $9 billion sukuk. Domestically, the government has raised a total of over 70 billion riyals ($18.67 billion) through monthly local currency sukuk issues. The kingdom has recently agreed the refinancing, extension and upsizing of a $10 billion loan it had raised in 2016. The loan has now been increased to $16 billion. Furthermore, a new dollar bond sale is expected over the coming weeks.

UPDATE 1-Islamic Development Bank to launch $2.5 bln #sukuk "soon" -president

The Islamic Development Bank (IDB) announced it would launch a $2.5 billion sukuk "soon". Bank President Bandar Hajjar said the IDB was also planning to set up a $500 million fund to support science and technology start-ups. The institution has recently hired banks as joint lead managers and bookrunners for a new U.S. dollar-denominated sukuk. The banks are CIMB, Citi, Emirates NBD Capital, Gulf International Bank, HSBC, NATIXIS, SMBC Nikko and Standard Chartered Bank. Hajjar added he expected to sign a memorandum of understanding with the China-led Asian Infrastructure Investment Bank (AIIB) soon, on joint investing in Africa. Timing and size of the cooperation were not disclosed, but it would target the 26 poorest countries on the continent.

Green, Islamic investors find common ground with Indonesian #sukuk

#Indonesia became the first Asian sovereign to sell green sukuk, raising $1.25 billion via a five-year deal, alongside a $1.75 billion 10-year sukuk. Proceeds will be used on eligible projects, ranging from renewable energy to waste management. Indonesia’s sukuk was based on an agency contract known as wakala and also incorporated a green framework assessed by the Centre for International Climate and Environmental Research (CICERO). Such a convergence of investment principles could widen the appeal of sukuk beyond Asia and the Middle East to include ethical investors in Western countries. More transactions might be needed to fully test the appetite of green investors for sukuk, as Indonesia’s green sukuk saw stronger takeup from regional investors.

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