IslamicFinance.de

According to the Islamic Corporation for the Development of the Private Sector (ICD), Islamic finance assets are projected to reach $3.8 trillion by 2022 from $2.2 trillion in 2016. In cooperation with Thomson Reuters, the ICD released its new report on Islamic Finance. In the report Bahrain features prominently among all GCC countries and second globally behind Malaysia. Bahrain is at the forefront of providing access to Islamic finance in addition to promoting it via education and financial literacy initiatives. The Central Bank of Bahrain recently released a new Shariah governance module which is impacting the Shariah compliance and governance standards of Islamic banks. Also, Bahrain continues to invest in technology and capitalize on the development of the ICT sector.

2018 may prove to be a pivotal year for Islamic finance stakeholders and their approach to FinTech. Potential areas where FinTech is likely to have an impact on Islamic finance are remittances, takaful, investment advisory services and online trading. Commentators see FinTech as an opportunity to provide genuine Islamic-compliant alternatives to the traditional banking model. In December 2017, KFH Bahrain, Al Baraka Banking Group and Bahrain Development Bank announced the establishment of a company dedicated to research and development in the Islamic-compliant FinTech sector. Operated by the Bahraini bank consortium, ALGO Bahrain will open in February 2018 and will be the largest dedicated FinTech hub in the Middle East and Africa. Bahrain FinTech Bay is operated by Singapore-based fintech incubator FinTech Consortium.

The role and status of cryptocurrencies remains a hotly disputed issue in the Muslim world. While entrepreneurs and Islamic finance startups openly encourage the use of digital currencies, others keep thinking otherwise. The latest escalation in the dispute was a fatwa against all cryptocurrencies issued by the Egyptian Grand Mufti Shawki Allam. He said that since trading of cryptocurrencies was similar to gambling, it was forbidden in Islam. His fatwa came after Bitcoin in mid-December soared to almost $20,000 per token but then lost one third of its value in just 24 hours. In addition, Egypt’s legitimate bodies also do not consider trading a virtual currency to be acceptable. However, nations that play a substantial role in Islamic finance, namely Malaysia, Indonesia, UAE, Turkey and even Saudi Arabia have no problem to accept cryptocurrencies. In Dubai, OneGram was the first company to set up the Shariah-compliant cryptocurrency called OneGramCoin. There are already two real estate developers in Dubai, which accept payments in digital currencies.

Sharjah Islamic Bank (SIB) has successfully completed the issuance of Dh266.8 million worth of Sukuk convertible into equity of the bank to the Sharjah Social Security Fund (SSSF). SIB chairman Abdul Rahman Al Owais announced that income generated from the bank’s dividends will be used for uplifting social activities in the emirate. The Ruler of Sharjah nominated an entity engaged in endowment activities to subscribe to Sukuk equal to 10% of SIB’s capital and converting it into equity for the bank at a nominal value of Dh1 each. Al Owais expects that the capitalisation ratios will be strengthened by around 100 bps with the issuance of this capital. He added that by virtue of this exercise, SIB’s shared capital has increased from Dh2,668,050,000 to Dh2,934,855,000.

According to ratings agency S&P Global, the outlook for Islamic bonds remains uncertain for the coming year. Global Sukuk issuance in 2017 reached $97.9 billion, an increase of 45.3%, from the $67.4 billion recorded in 2016. The increase was underpinned by large issuances by GCC countries, particularly Saudi Arabia. Non-GCC countries also contributed to the rise, with Hong Kong tapping the market again last year and Nigeria issuing its first Sukuk. Morocco and Tunisia are expected to issue Sukuks this year. The report said while core Islamic finance countries will continue to have "significant" financing needs in 2018, the Sukuk market could be held back by tightening global liquidity.

State Bank of Pakistan has been voted as the Best Central Bank in Promoting Islamic Finance by a poll conducted by International Finance News (IFN). The central bank has also won this award in 2015. In 2016, Pakistan was awarded Global Islamic Finance Award (Advocacy Award) by Edbiz Consulting Limited, UK. This recognizes the dedication and commitment of State Bank of Pakistan for laying the foundations for the sustainable growth of Islamic finance. In September 2017, the share of Islamic banking stood at 11.9% in terms of assets, while in terms of deposits its share is 13.7% with a network of 2,368 branches across the country.

Growing at a fast rate, Shariah-compliant assets now represent 34.6% of the total assets of the Non-Banking Financial Institute (NBFI) industry. According to the Securities and Exchange Commission of Pakistan (SECP), the number of Shariah-compliant mutual funds has reached 109 and Shariah-complaint funds have 41% of the assets. In Pakistan the Takaful industry comprises of five dedicated Takaful operators and 21 window Takaful operators. Takaful sector assets represent 2.7% of the total assets of the insurance industry. During the year, the SECP took a number of initiatives for regulation and development of Islamic finance across the sectors it regulates. Tax neutrality for Sukuk was achieved by amending the Income Tax Ordinance. A new concept of a Shariah-compliant company was introduced through the newly promulgated Companies Act, 2017. To facilitate issuance of Sukuk, relevant regulations were amended both for public offering and for private placement.

The Islamic Financial Services Board (IFSB) announced the dissemination of country-level data on financial soundness for Q2 of 2017 from 15 IFSB member jurisdictions. This eighth dissemination completes the availability of quarterly data from Q4 of 2013 to Q2 of 2017. According to Secretary-General of the IFSB, Zahid ur Rehman Khokher, the IFSB has both extended the coverage of PSIFIs banking sector database to several new countries, as well expanded the database coverage to Islamic insurance and Islamic capital market sectors. The PSIFIs project is currently collecting Islamic banking data on a trial basis from newly-joined contributors: Bank of England, Central Bank of Lebanon (Banque du Liban), Palestine Monetary Authority, and Qatar Central Bank.

Islamic banks have been urged to adopt a strategy to make effective use of financial technology. At a seminar held recently, Ahmed Ali Siddiqui, director of Centre for Excellence in Islamic Finance at IBA, said there has to be a strategy for Islamic finance in the digital world. According to fintech expert Ashar Nazim, Pakistan is doing well in Islamic finance, but the country's finance industry has to adapt to fintech. Market Link Executive Director Ishan Kanji said that using fintech will support the agricultural sector by providing easy access of loans and facilities to farmers. He stressed on the need to tap into the informal economy, which is twice the size of formal economy in Pakistan. At the seminar Hasan Bilgrami, CEO of BankIslami, shared the success story of BankIslami being the first bank in Pakistan to use biometric technology.

According to Standard & Poor’s, favourable market conditions supported the growth of corporate and infrastructure sukuk issuance across the GCC in the first nine months of 2017, but the outlook for 2018 is uncertain. Issuance in this segment increased to $6.8 billion (Dh24.97 billion), up from $2.8 billion during the same period of 2016. This growth suggests improvement in overall capital market activity, even though the number of corporate sukuk issuers remains low. Rising infrastructure needs and relatively low interest rates were the two support factors for corporate and infrastructure sukuk. GCC banks traditionally operate with high levels of capital, but analysts expect Basel III to make less of it available for project finance. That could make issuers consider capital market options in the form of conventional project finance debt or sukuk as an alternative to bank finance.

Dubai Islamic Bank (DIB) and Shahnawaz have entered into a strategic alliance agreement. Shahnawaz is the authorized general distributor of Mercedes-Benz in Pakistan. This initiative will help in establishing Dubai Islamic Bank Pakistan as the preferred financial services partner for Mercedes-Benz in the country. The signing ceremony was held in Karachi in the presence of M Naeem, CEO of Shahnawaz, Naseem Shaikh, General Manager of Shahnawaz and Junaid Ahmed, CEO of Dubai Islamic Bank Pakistan. Junaid Ahmed said this alliance enables the bank's high net worth clientele to achieve their dream of driving their own state-of-the-art Mercedes.

#Pakistan's National Accountability Bureau (NAB) initiated an inquiry into the alleged misuse of authority by SBP officials at the amalgamation of KASB Bank into BankIslami. According to the State Bank of Pakistan (SBP), a smear campaign was run in the media against them. SBP added that the onesided views presented in the media led to misjudgment about the authority of SBP as a guardian of the financial sector. All stakeholders of the defunct KASB Bank were well aware of the poor financial conditions of the bank. The State Bank gave ample time to the sponsors of KASB Bank to inject further capital into the bank. Besides capital shortfall, the bank and its sponsors engaged in fraudulent practices and were siphoning off more than Rs 3 billion from the bank. SBP stated that none of its officials misused authority nor were involved in any kind of corrupt practices.

There are several rumors about possible mergers of the smaller Islamic banks in the GCC region. According to UCapital, the relatively small size of Islamic banks is one of the compelling reasons for them to consider consolidation. However there is no compelling reason for a big number of regional banks to rush into merger deals. Banks across the region are facing pressure on profitability and tighter liquidity. The UAE, Bahrain and Oman would benefit from consolidation as many banks in these countries lack sufficient scale. A proposed merger of Kuwait Finance House and Ahli United Bank is expected to result in second biggest Islamic Bank in the GCC. Merger of Qatari banks Masraf Al Rayan, Barwa Bank and International Bank of Qatar which was announced last year is progressing and is expected to complete by end of the year.

The Dubai Center for Islamic Banking and Finance in Hamdan Bin Mohammed Smart University (HBMSU) concluded the 2nd China-UAE Conference on Islamic Banking and Finance. The two-day event focused on the objectives of the One Belt, One Road (OBOR) initiative, which aims to revitalize the Silk Road connecting Asia and Europe. The event was organized in cooperation with China Islamic Finance Club, ZhiShang Intercultural Communication, and Knowledge Partner Thomson Reuters. Talks focused on challenges and prospects for Islamic finance in achieving the goals of the ambitious Chinese initiative. The agenda comprised a series of panel discussions moderated by key international figures such as Prof. Baydoun; Mr. Gao Lin, Vice Director, Shenzhen Municipal Commission of Economy, Trade and Information Technology, and Dr. Adnan Chilwan, CEO of Dubai Islamic Bank.

Pakistan's Polio Eradication Senator Ayesha Raza Farooq said the country was highly indebted to the Islamic Development Bank (IDB) for its support and acknowledges the critical support of the bank for Polio eradication. The senator was talking to an IDB delegation visiting the National Emergency Operation Centre (NEOC). The IDB delegation was led by Dr Sadik Mohammad Teyeb, senior health specialist of the bank from Jeddah and Inamullah Khan, Country Representative of the Bank in Pakistan. The current epidemiology in the country is quite promising with only 3 Polio cases reported in 2017 compared to 14 reported by 7th August in 2016. The most significant progress has been made in the core reservoirs of Karachi and Khyber-Peshawar which have not reported any Polio case since January and February 2016.

Astana International Financial Center (AIFC) has gained the support of technology financier Malaysia Debt Ventures (MDV) to develop both green and Islamic finance in Kazakhstan. Under a newly agreed MoU, AIFC and MDV will work closely with each other to share best practices, expertise and knowledge in these two areas. Apart from sharing knowledge, both parties will also explore financing green projects using Islamic financing tools. While not fully operational yet, AIFC is keeping busy by setting the groundwork. Green finance received a huge boost earlier in January when the European Bank for Reconstruction and Development agreed to launch the Green Financial System for Kazakhstan project, financed by Finland. With eyes on a comprehensive green financial system, engaging MDV could culminate in a variety of Islamic financial products for sustainable eco-friendly projects including green Sukuk.

According to a recent report issued by the Central Bank of Oman (CBO), the Islamic banking industry is growing at a faster rate than conventional banking, with Islamic banking assets up more than 62% year on year. Total assets held by Islamic banks and Islamic banking windows in February 2017 amounted to 3.27 billion Omani riyals (Dh31.2 billion), compared to 2.43 billion riyals a year earlier. This took Islamic banking’s market share from 5.1% in 2015 to 10.8% by February 2017. Islamic banking has a sizeable market share of more than 25% in the GCC. Saudi Arabia dominates the region with an Islamic banking market share of 51.2% in terms of total banking assets, followed by Kuwait at 45.2%. In UAE, Qatar and Bahrain Islamic banks’ market share stood between 20-30% of gross assets. In Oman, within a span of four years from introduction, the Islamic banking segment has reached OMR 3.07 billion in gross assets with a market share of 10.8% as of February 2017. The two main players in Oman are Bank Nizwa (BKNZ) and Alizz Islamic Bank (BKIZ).

The Middle East has been a late adopter of financial technology, or fintech. According to Accenture, of more than $50bn in fintech investment globally since 2010, only 1% has gone to the Middle East and North Africa. Now several cities are racing to establish themselves as fintech hubs. Last year Cairo launched two accelerators and Abu Dhabi has created the region’s first regulatory sandbox, allowing new products to be tested for two years without full regulatory compliance. In March Abu Dhabi signed an agreement with the Monetary Authority of Singapore to undertake joint fintech projects and Dubai’s new fintech accelerator has already begun accepting applications. Bahrain, too, has teamed up with Singapore to develop a fintech ecosystem. Fintech can serve the masses of migrant workers in need of remittance services and it can also bring cheaper services to the unbanked. According to the World Bank, over four-fifths of the population in the region are unbanked, which means a higher proportion than anywhere else in the world.

The Government of Dubai has announced that the $600 million (Dh2.2 billion) Sukuk Trust Certificates issued on May 2, 2012 reached maturity on May 2, 2017. Upon maturity, all the certificates were redeemed in full along with the accrued profit. According to Abdul Rahman Saleh Al Saleh, Director-General of the Department of Finance, this settlement reaffirms the government’s commitment to deal with its repayment obligations in a proactive manner. It also strengthens the government’s resolve to honour all its financial obligations on time.

Maybank Islamic is turning to its home markets for growth, in particularly Indonesia where it manages $2 billion worth of assets and is aiming to compete with domestic Islamic banks. According to CEO Mohamed Rafique Merican, the bank could grow beyond its core markets of Malaysia, Singapore and Indonesia, but expansion in other markets would be opportunistic. Indonesia remains a key market for the bank, after Malaysia which accounts for 90% of the bank's business. As part of the ASEAN banking integration framework (ABIF), Indonesia and Malaysia have agreed in August to give their banks greater access to each other's markets. The move would give Malaysia's Islamic banks a potential lead to tap into the world's biggest Muslim-majority country, and one that continues to restrict to foreign lenders.