IslamicFinance.de

The Malaysia-based Islamic Financial Services Board (IFSB) plans to develop more detailed guidance on financial safety nets relating to sharia-compliant transactions in areas such as insolvency and bankruptcy. Such efforts are important as Islamic finance expands in both established and new markets, while transactions are under heightened scrutiny due to the perceived risk of non sharia-compliance or sharia risk. IFSB Secretary General Zahid ur Rehman Khokher said the safety net may include more detailed work on deposit insurance in 2018, while work on dispute resolution and insolvency may be completed later. The IFSB currently has a membership of 75 national regulators. Last month, the IFSB admitted eight new members, including Saudi Arabia’s Capital Market Authority, the Abu Dhabi Global Market and German financial watchdog Bafin.

The Malaysia-based Islamic Financial Services Board (IFSB) plans to develop more detailed guidance on financial safety nets for Islamic finance. Such efforts are important as Islamic finance expands in both established and new markets, while transactions are under heightened scrutiny due to the perceived risk of non sharia-compliance or sharia risk. IFSB Secretary General Zahid ur Rehman Khokher said the safety net may include more detailed work on deposit insurance in 2018, while work on dispute resolution and insolvency may be completed later. The IFSB currently has a membership of 75 national regulators. Last month, the IFSB admitted eight new members, including Saudi Arabia’s Capital Market Authority, the Abu Dhabi Global Market and German financial watchdog Bafin.

The Islamic Development Bank (IDB) and the World Bank are to use the Islamic finance market for infrastructure development projects through public-private partnerships (PPP). The IDB recently organized a forum in Washington in partnership with the World Bank on this subject. The World Bank suggested that the Islamic financial market has reached $1.9 trillion over the past six decades. IDB spokesperson Dr. Abdul-Hakim Elwaer said the aim of the forum was to create awareness about the potential for infrastructure development through PPP. This falls in line with the new development orientations of IDB member countries. For example, Saudi Arabia is targeting to increase the private sector’s contribution to the GDP from 40 to 65%. The Kingdom aims to achieve this through increasing the use of PPPs and through the privatization of government entities.

Bank Islam Malaysia has recently launched its social finance initiative, Sadaqa House. It aims to provide products and services to collect sadaqah, waqf and hibah. The public can contribute to realising social finance projects for sectors such as healthcare, education and entrepreneurship through the bank’s digital crowdfunding partnership with Ethis Ventures and GlobalSadaqa.com. Bank Islam CEO Khairul Kamarudin said the bank was utilising technology in its Shariah solutions to deliver a service that is aligned with the current digital trend. Also, contributors can ensure the funds contributed are being channelled accordingly and track the progress of the chosen project. Ethis Ventures founder Umar Munshi said the platform was not limited to Muslims and Malaysians. Any amount of money can be donated by the public into the Sadaqa House fund account, while Bank Islam will match the raised fund at the rate of 1:1 to a maximum of RM500,000.

Saudi Arabia has asked banks for proposals to refinance its $10 billion international syndicated loan. The refinancing of the loan, which was raised in 2016, will include a repricing of the facility and the extension of its maturity to 2023 from 2021. An Islamic finance tranche using a murabaha structure will be added to the loan. Fahad al-Saif, president of the debt management office, said the plans were a step towards Saudi Arabia's ambition of establishing a prominent position in international debt markets as part of its economic reforms. The country's $10 billion syndicated loan in early 2016 was followed later that year by a $17.5 billion debut bond issue, the largest bond ever sold by an emerging market issuer.

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.

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.

Reserve Bank of India guidelines specifically state that banks are compulsorily required to charge an interest and pay taxes to the central government. However, the Muslim Fund Trust in Deoband headed by Haseeb Siddiqui is a financial institution that works on an interest-free loan module. The trust offers loans to only those who have a savings deposit account with them. Conventional banks demand security before issuing loans, which it has the option of falling back upon, in case the consumer defaults. The Muslim Fund Trust accepts only ornaments as security. Locals who avail the services of the Muslim Fund Trust identify Siddiqui as a social worker. Popularly known as Abbaji, Siddiqui has been politically active as a member of BSP. The trust neither has debit or credit cards, nor does it have netbanking facilities like other banks. The Muslim Fund Trust also runs an eye-care hospital, driver-training centre and an orphanage.

According to Qatar's Finance Minister Ali Shareef Al Emadi, Qatar's Islamic Banking sector is the third largest contributor to global growth in Islamic banking. At the 4th Doha Islamic Finance Conference, the Minister called for continued growth in the Islamic finance sector through concerted efforts to confront financial risks. The Minister noted that Islamic finance accounts for 50% of banking services in the GCC, where most GCC citizens prefer Sharia-compliant banking services. More and more international universities are adopting programs in Islamic finance, including the Master of Islamic Finance at Hamad bin Khalifa University in Qatar. The rapid growth of electronic financial transactions have brought new challenges requiring further cooperation, coordination and discussion. New products require the development of clear frameworks. Al Emadi added that increasing transparency in this field will help Shariah scholars to identify the correct structures and it will enable banks to make these products more attractive.

The UK's Department of International Trade has announced the launch of a wide-ranging campaign in the Middle East and the Gulf to encourage investment in the UK. London is considered the largest market for Islamic finance outside the Islamic world and has more than 20 banks providing Islamic financial services. According to the Dubai-based Media and Communications Center, Britain ranks 22nd out of 124 countries in the world that use Islamic banking, placing it first in Europe and fourth among non-Muslim majority countries after Singapore, Sri Lanka and South Africa. Supportive government policies created a tax and regulatory framework aimed at expanding the Islamic finance market, including the elimination of double taxation, the extension of Islamic mortgage tax and the reform of debt arrangements. The United Kingdom is the first sovereign Western country to issue sovereign sukuk. In September, London also hosted the fourth annual meeting of the Global Islamic Finance and Investment Group (GIFIG) to discuss inter-state cooperation.

Islamic Finance has seen massive growth since the recession in 2008 as sovereign and institutional investors consider them more stable than the conventional banking system. Fintech has been very popular in the West over the last few years, but the uptake to digitization in the Islamic Finance world has been relatively slow. 2018 is expected to be the year when Islamic Fintech players will start emerging across the world. This has its own challenges, in terms of awareness, regulatory standards across Sharia jurisdictions and product innovation. Islamic Fintech is on the rise in the GCC and Malaysia thanks to various ecosystems and institutions. Bahrain has recetnly launched ALGO Bahrain, the first Fintech consortium specializing in Islamic finance. Eight more regional banks are expected to join in the next 12 months. Dubai, Abu Dhabi and Bahrain have all launched their regulatory sandboxes namely Innovation Testing Licence, RegLab, and Bahrain’s regulatory sandbox (expected to be the largest in MENA).

The African Export-Import Bank (Afreximbank) has raised around $260 million via three Islamic finance facilities to support small- and medium-sized businesses in the region. The Egypt-based bank obtained a $100 million financing from the Islamic Corporation for the Development of the Private Sector (ICD). It also signed two financing agreements with the International Islamic Trade Finance Corporation (ITFC) worth $100 million and 50 million euros ($59.8 million) to help finance exports among African countries. Both ICD and ITFC are part of the Saudi-based Islamic Development Bank group of companies.

The Bank of Tokyo-Mitsubishi UFJ has provided an Islamic syndicated loan to the Malaysian affiliate of Saudi Telecom. The ringgit-based loan amount is about 41.7 billion yen ($353 million). BTMU is the first Japanese bank to act as an agent bank for a syndicated loan in Malaysia. The loan will be provided with HSBC and Standard Chartered Bank of the U.K. Japanese banks in Malaysia mostly provide loans to Japanese companies operating in the country. Now, BTMU aims to expand operations in the country through Islamic finance. BTMU has extended foreign-currency Islamic loans in Malaysia since 2008 and ringgit-based Islamic loans since 2014. The ratio of Islamic finance to total loans in Malaysia rose to about 30% at the end of 2017, from 17% at the end of 2009.

Saudi Telecom Co (STC) has obtained a 1.51 billion ringgit (US$378.5 million) Islamic loan through its Malaysian subsidiary. The company will use the Islamic loan to refinance existing debt originally used to acquire a stake in Malaysian mobile-phone firm Maxis. STC Malaysia Holdings hired Bank of Tokyo-Mitsubishi UFJ (Malaysia), HSBC Amanah Malaysia and Standard Chartered Bank Saadiq to arrange the deal. The syndicated financing uses a sharia-compliant structure known as commodity murabaha. Bank of Tokyo-Mitsubishi UFJ (Malaysia) will act as the investment agent to manage the cash flows of the facility and to execute the commodity murabaha transactions.

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.

In this interview Ayman Sejiny, CEO of Ibdar Bank, speaks about the future of Islamic finance. Ayman Sejiny believes that fintech is going to be one of the biggest drivers of change in the new Islamic banking era. Fintech initiatives will not only improve existing customer’s banking experience, but also have the potential to bring the two billion financially-excluded individuals into the banking system. Malaysia, Indonesia, the UAE and Bahrain, driven by an influx of start-ups in the crowdfunding and payment space, have already positioned themselves to lead the field. They started to formally regulate crowdfunding and implement sandboxes or special fintech licencing schemes. These markets should therefore see huge growth in crowdfunding, P2P and payments platforms and even an increase in the use of AI in the form of robo-advisers. The UK and even the US will also see more investment in fintech startups to meet the demand for Shari’ah products in these markets. Ibdar Bank has set out a comprehensive plan for the engagement with fintech service providers.

Qatar is planning to set up a central Shariah committee for Islamic banks to create consistency in Islamic finance. According to Central Bank Governor HE Sheikh Abdulla bin Saoud al-Thani, this move ensures that the country’s financial regulations are benchmarked to international standards. A recent report by the World Bank and the Bahrain-based General Council for Islamic Banks and Financial Institutions suggested further action by regulators to strengthen the sector’s governance. One of the action points of the Qatar Central Bank (QCB) is assessing remuneration and commission framework of financial advisers and insurance intermediaries and implementing an appropriate conduct of business regime. In 2016, the QCB issued new regulations for insurers on licensing, controls, accounting, risk management and actuaries’ reports and also stipulated minimum capitalisation levels and limits on risky asset classes. QCB's new strategy is looking at supporting the growth of the asset management sector through aligning requirements across regulatory frameworks.

In 2018 the expansion of Islamic finance into non-Muslim jurisdictions is set to continue. Conventional investors have started to appreciate the potential of Islamic finance at times of a persistent low-to-zero-interest rate environment. According to data collected by financial intelligence firm Dealogic, issuance of Islamic debt by non-Muslim countries climbed to a three-year high in 2017. Islamic finance is perceived by them as being more stable compared to the conventional banking system. However, the industry is likely to face a continued backlash in the GCC caused by the current economic woes in the region, particularly in Saudi Arabia. According to rating agency Standard & Poor’s, Islamic finance assets should be back in growth mode in 2018 in the GCC, but at a slow pace of just around 5%. One impulse for growth could be the creation of Shariah-compliant pension schemes modelled after Malaysia, as well as other obligatory social insurances in GCC countries. A new trend is likely to transform into a new Islamic finance asset class in 2018: green and sustainable sukuk, as part of impact investing.

Regarding its economic situation and the quest for a solution in Nigeria, Islamic Finance is believed to be able to redeem it because of the ethical and moral values within the Islamic banking system.
Alhaji Sulaimon Yusuf, who spoke at the Muslim Association of Nigeria 34th Triennial National Conference in Lagos, said that Islamic finance is playing an important role in promoting socially desirable investments, economic empowerment, employment opportunities and resuscitation of real sector of economy. Further he said: "We have confidence in the economic packages and policies of the present administration and feel that a lot more needs to be done to alleviate the suffering of the masses"