IslamicFinance.de

US President Donald Trump has been accused of courting international trade friction and a new international debt crisis. There were already signs given the huge debt built up over a decade of record low interest rates, and that rates had begun rising. The next international debt crisis could well be in the emerging market corporate sector. Global debt has reached US$217 trillion, equal to a record 325% of global gross domestic product. Investors in Brazil, South Korea, Thailand, Chile, Czech and Malaysia especially have been big borrowers. While most of this has been in local currencies, corporates in India, Saudi Arabia, Turkey and Russia as well as Hong Kong and Singapore have borrowed heavily in foreign currency. This creates a currency mismatch situation.

Dear Reader,

Two obstacles blocking the substance of Islamic finance and destabilsing the economy, one is the risk weighting of Basle regulation discouraging banks from giving equity finance, the other the interest deductibility as cost factor discouraging corporates from taking equity finance.

At least the latter may slowly be resolved, reports FT Alphaville:

"US tax reform now contemplates ending the tax “subsidy” for interest. Ultimately, we concluded that the favoured tax treatment for debt and interest was unjustified, a position that inspired the primary private equity lobbying group to issue a 2,422 word press release assailing the FT piece."

https://ftalphaville.ft.com/2017/02/06/2183520/what-lbo-modeling-suggest...

It is worth reading completely; and I still wonder why Muslim majority countries are so slow to show any action to this adverse piece of damaging taxation.

Best regards,

Michael Gassner
www.islamicfinance.de

The Investment Corporation of Dubai (ICD) has completed the issuance of a US$1 billion 10-year sukuk. The $1billion sukuk will be listed on the Nasdaq Dubai exchange and is the first to be issued from the region in 2017 and the second for ICD since 2014. International investor participation was robust with 26% of the issuance subscribed by investors based in the United Kingdom and Europe and 15% by investors based in Asia. Regional investor participation consisted of 58% of the total subscription with the remaining 1% of the investors based around the rest of the world. CEO Mohammed Al Shaibani said the issuance proves the ICD’s ability to provide a stable foundation that supports the ongoing success of Dubai.

#India will soon have Islamic Banking facilities. The Saudi Arabia-based Islamic Development Bank will start its operations from Gujarat soon. During Prime Minister Narendra Modi's visit to UAE in April last year, the Indian Exim Bank had signed a memorandum of understanding with IDB for a $100 million line of credit to facilitate exports to IDB's member countries. The Reserve Bank of India had proposed opening of an Islamic window in conventional banks for introduction of Sharia-compliant or interest free banking in the country. The proposal was taken up to ensure financial inclusion for those sections of society which remain excluded due to religious reasons.

Islamic finance is the area where Malaysia leads the world. Malaysia has 54% of global sukuk outstanding, 314 Islamic investment funds worth RM100.6 billion ($22.7 billion), and an Islamic capital market that has tripled in size since 2005, accounting for 60.1% of the total Malaysian capital market. In August the Employees Provident Fund (EPF) launched its Shariah savings scheme to give members the option to convert their conventional account to an Islamic one. It has said it expects to invest an average of RM25 billion in Shariah assets every year and it intends to allocate a minimum of 45% of its assets into Shariah-compliant forms. Thus, EPF has sufficient scale to be very interesting to asset managers worldwide. Largely through that mechanism, there are now 20 fully fledged Islamic fund management companies operating in Malaysia.

The National Development Fund of Iran (NDFI) plans to make investments in international money and financial markets. According to the fund's director, Ahmad Doust-Hosseini, the fund is also ready to support foreign investors as well as Iranian exporters by extending loans. Doust-Hosseini said from the next Iranian year (March 21, 2017), 30% of revenues from the sale of oil, gas and their related products will be deposited with the NDFI. He added that the fund belongs to the private sector and non-government enterprises, so state-owned entities will not receive any loans. Ali Salehabadi, CEO of the Export Development Bank of Iran (EBDI), said his bank will allocate working capital to export projects in the form of foreign exchange and rial loans in partnership with NDFI.

Finance Minister Ama Muhith has sought explanation from Bangladesh Bank about allegations of foreign investors of Islami Bank Bangladesh Limited (IBBL). The Islamic Development Bank (IDB) alleged that the IBBL board made the recent high-level changes in the absence and without consent of foreign shareholders. Two foreign investors including IDB hold 52% shares of the IBBL. At the board meeting January 5, former bureaucrat Arastoo Khan was elected chairman of IBBL. Changes were also brought to the posts of managing director and heads of various committees of the bank and also to chief of the Islami Bank Foundation. At present, of the 16 board of directors, seven are independent directors, seven from little known companies and two are foreign sponsors’ representatives.

The Islamic Development Bank (IDB) expressed dismay at the recent changes that took place at Islami Bank Bangladesh (IBBL). In a letter to Finance Minister Ama Muhith, IDB said the foreign shareholders feel that the governance of the bank has been taken away from them, although they own more than 52% of the shares, while IDB has a 7.5%. The IDB also criticised the way a board meeting at IBBL is convened. Furthermore, the IDB voiced its concern about the recent changes, about appointing the new managing director in an abrupt manner, not following the rigorous recruitment process. As a response to IDB's letter, Islami Bank said in a statement that all banking rules have been followed properly.

Dubai Islamic Bank will meet fixed income investors in London on Feb. 6 ahead of a potential sukuk issuance. A five-year benchmark issue, which usually means upwards of $500 million, might follow. The lender has appointed Bank ABC, Dubai Islamic Bank, Emirates NBD, HSBC, KFH Capital, Maybank Investment Bank Berhard, National Bank of Abu Dhabi, Sharjah Islamic Bank and Standard Chartered Bank as joint lead managers and bookrunners.

The Dubai Islamic Economy Development Centre (DIEDC) announced the launch of its refreshed strategy for 2017-2021. Making the announcement, Sheikh Hamdan said the first part of the strategy includes identifying new key performance indicators (KPIs) for monitoring the growth of important sectors. The second component is enhancing Dubai’s status as a reference for Islamic finance, Halal sector and Islamic lifestyle that includes culture, art, fashion and family tourism. Sultan bin Saeed Al Mansouri said the DIEDC’s latest goal is to demonstrate the positive impact of Islamic economy. It is necessary to establish the structural framework of the ecosystem. Finance, production and consumption must feature in it as integrated systems aligned with the UN Sustainable Development Goals. Al Mansouri pointed out the need for universally accepted standards across Islamic economy sectors and stressed that the UAE will focus on refining these standards.

Turkey's privately-owned Aktif Bank has received regulatory approval to sell up to $120 million via sukuk. Turkey has seen steady issuance of sukuk from the government and the country's Islamic banks, but corporate issuance remains rare. Aktif Bank will sell the sukuk through its asset leasing company, Aktif Bank Sukuk Varlk Kiralama. Companies can sell sukuk directly by setting up their own asset leasing companies, but the process can be onerous for smaller firms. The government has previously granted tax exemptions for lease-based sukuk, but in August it extended those incentives to all other types of sukuk contracts.

The government of Indonesia plans to sell another series of sharia-compliant government retail bonds (Sukri). The offering period is planned for 4 February-2 March 2017. In last year's Sukri issuance the Indonesian government set an indicative target of IDR 30 trillion (approx. USD $2.2 billion) for its SR-008 series. However, due to robust demand authorities raised a total of IDR 31 trillion. The three year SR-008 bonds carry a fixed coupon of 8.3% per year. It was the government's biggest ever sale of Sukri bonds. In 2017 the Indonesian government plans to sell IDR 597 trillion worth of bonds, mostly rupiah-denominated government bonds. Robert Pakpahan, Head of the Debt Office within Indonesia's Finance Ministry, earlier said Indonesia will offer retail bonds twice this year, consisting of Sukri and Indonesian Retail Government Bonds.

Al Rayan Bank has revealed that applications for two of its home finance plans reached an all-time high in 2016, as demand for Islamic finance soared. Both the bank’s home purchase and buy-to-let purchase plans received a record number of eligible enquiries last year. This surge follows a 9% rise in applications to the bank in 2016, marking a 99% increase over the past five years. Keith Leach, chief commercial officer at Al Rayan, said there was still substantial room for growth in the market and the bank expects demand to continue to rise in the coming years. Al Rayan estimates that 94% of its fixed-term deposit customers who joined last year are not of the Muslim faith. The announcement comes just weeks after Al Rayan launched a Sharia-compliant buy-to-let range in Scotland.

The Emir of Gwandu Muhammad Iliyasu Bashar has commended Jaiz Bank for its banking policies and principles of making life better for people. The royal father made the commendation at his palace when the Managing Director of the bank, Malan Hassan Usman, the Regional Manager, Dr. Nurudeen Liman and Habibu Isa Muhammad, the branch Manager of Birnin Kebbi paid him a courtesy call. Malan Hassan Usman expressed his appreciation of the support rendered by the Emir towards the establishment of the bank. He said the bank started operation 5 years ago with provisional approval to open three branches in Abuja, Kaduna and Kano but now the Central Bank of Nigeria (CBN) has given full approval to the bank to open its branches nationwide. Currently the bank has 27 branches with 3 new ones coming next week.

The Islamic Research and Training Institute (IRTI) and the Islamic Development Bank (IDB) have organised a regional consultation workshop on the Sukuk Model Law Project. Partner of the workshop was the Central Bank of West African States (BCEAO). The workshop was held at the BCEAO headquarters in Dakar, Senegal from 23-24 January 2017. The objective of the Project is to create a model Sukuk law and guidelines that leverage global best practises for creating a legal framework for Sukuk issuance and regulation. Subsequent regional consultations are planned for South East Asia, Central Asia and the MENA regions. IRTI Director General, Prof. Mohamed Azmi Omar, said the workshop reaffirmed the importance of Sukuk as an emerging instrument of resource mobilisation.

#Singapore's Sabana Shariah Compliant Industrial Real Estate Investment Trust (REIT) clarifies the article published by Straits Times titled "Angry investors want REIT manager kicked out". Sabana REIT stated that the closing price of its unit was 37 cents on 24 Jan 2017. Sabana REIT clarified that the manager's fee structure is in line with market practice in Singapore's REIT sector. All acquisitions were approved by board of directors in accordance with property funds appendix and sgx-st listing manual.

Yinson Holdings' subsidiary Yinson Production (West Africa) has converted its existing US$780mil conventional loan to an Islamic Murabahah term financing facility. Group executive chairman Lim Han Weng said this was the largest Islamic facility for floating production storage and offloading (FPSO) financing to-date. Maybank Investment Bank acted as the coordinating bank for the conversion while Maybank Islamic acted as the syariah adviser. Upon completion of the conversion, Yinson is expected to meet the debt over total assets financial ratio benchmark required by the Securities Commission for a syariah-compliant security.

The Canadian fintech company Goldmoney has certified its gold-based financial products as sharia-compliant. The move illustrates how fintechs are broadening their footprint to include the core markets for Islamic finance in the Middle East and Southeast Asia. Goldmoney provides financial products that are fully-backed by reserved gold. Goldmoney says it has more than 1.3 million users across 150 countries and administers $1.7 billion in client assets. Several other fintech ventures were launched in 2016. In February, a group of six Islamic lenders launched an internet-based investment platform to serve as a central marketplace to finance small and medium-sized businesses. Malaysia-based HelloGold has also launched a sharia-compliant online platform that uses blockchain. HelloGold is currently rolling out its product in Malaysia with plans to enter Indonesia, the Philippines and Thailand later this year, and China by 2019.

Before handing over his charge to present Reserve Bank of India (RBI) Governor Urjit Patel, former Governor Raghuram Rajan had proposed working with the Government to introduce Islamic Banking. Most recently, Union Finance Ministry said that Islamic banking was not relevant any more as the Government has already introduced several programmes for all citizens towards financial inclusion. Finance Minister Santosh Kumar Gangwar said various legal changes are needed if even limited products were to be introduced under Islamic banking. It is estimated that 180 million Muslims in India are unable to access Islamic banking because of non-availability of interest free banking. RBI in its report had said it would explore to introduce interest-free banking products in consultation with the government, but before the consultation could be held, the Government of India derailed this whole process.

Shariah-compliant pension funds are entering the wealth and asset management segment worldwide. One example for a state-backed Shariah-compliant pension fund is the Islamic savings scheme option introduced in Malaysia. Here $25bn of the fund’s entire assets of $160bn have been dedicated to the new Shariah-compliant investment line. According to Moody’s global head of Islamic finance, Khalid Howladar, Shariah-compliant investments now represent 15% of the fund’s entire investment, which makes it the largest standalone Islamic pension fund globally. Another country where Islamic pension funds are in growing demand is Pakistan. A number of banks, financial service providers and fund managers offer private or voluntary state-supported retirement savings schemes whose investments are made strictly in Shariah-compliant instruments. In the Western World, the UK and Australia were the first to offer Islamic pension schemes. In the Gulf Cooperation Council (GCC) countries, Islamic pension funds are yet comparably small, particularly state-backed ones.