IslamicFinance.de

Across the world, organisations can no longer define success or efficiency solely on the merit of financial results or revenue earned. Reporting is still very much driven by numbers, and performance is measured in terms of hard outcomes, rather than the more qualitative aspects. An integrated approach asks the management of an organisation to consider a wide variety of capitals — beyond financial and manufactured capital. The concept is fairly new to the GCC, sustainability has become a major focus for businesses and organisations of all kinds. Today, sustainability cannot be separated from other business practices and needs to be fully integrated into each function within the organisation.

Launched by Al Mal Investment Company (KPSC), Takharoj is the region's first web-based application that connects minority investors in Unlisted Securities to offer them big investment privileges. A variety of functions are covered, such as management, representation, policy-making and selling shares. Commenting on the launch of Takharoj, Abdul Wahab Al Mutawa, CEO of Al Mal Investment said Takharoj's objective is to group like-minded minority shareholders to negotiate optimal outcomes. Clients only need to upload their basic investment information on the web-portal so that Takharoj can act on their behalf and in their best interest.

Lawyers have warned that failure to prevent economic crime could lead to more senior individuals being prosecuted for misconduct. The UK government's proposed legislation could lead to deferred prosecution agreements with the Serious Fraud Office. The involved companies would potentially give evidence against individuals implicated in misconduct. According to Judith Seddon, partner at Clifford Chance, the corporate criminal liability will provide for an additional serious consequence of failing to satisfy existing requirements for anti-money laundering and financial crime prevention.

Fitch Ratings has affirmed the rating of The Goldman Sachs Group's JANY Sukuk Company guaranteed trust certificate issuance programme at 'A'. The equalization of the certificate programme's rating is due to the Sukuk's structure. Upon a trust dissolution event, J. Aron will be obliged under the Murabaha Agreement to acquire, or arrange for a third-party purchaser to acquire JANY's beneficial interest in the commodities in the Wakala portfolio. Goldman will unconditionally and irrevocably guarantee the payment obligations of J. Aron under the Murabaha contract. The Sukuk program does not benefit from a cross-default provision within the guarantee documents.

Elizabeth Warren wants the FBI and Justice Department to explain why no bankers were prosecuted for the 2008 financial crisis. She wants the agencies to explain why they didn't act on the recommendations from the Financial Crisis Inquiry Commission to prosecute top Wall Street executives. The commission was charged with investigating the cause of the 2008 financial meltdown. Warren said the commission recommended actions against 14 Wall Street firms including Citi, Fannie, Merrill and AIG, as well as Freddie Mac, Goldman Sachs, JPMorgan, Credit Suisse, UBS, Societe General, PriceWaterhouseCoopers, Moody's, Washington Mutual and Lehman Brothers. Some of those firms reached civil settlements with authorities, but none faced criminal charges.

Corporate and infrastructure sukuk issuance in the Gulf region and Malaysia has continued to stagnate so far this year and this may carry over to the coming quarters, according to S&P Global Ratings. Despite the slump, essential infrastructure funding requirements, low interest rates, and investors' appetite for Islamic assets in their portfolios continue to be supportive for the world's core corporate sukuk markets.

In the GCC, corporate and infrastructure sukuk issuance totalled $2.5 billion in the first eight months of 2016, compared with $2.3 billion for the preceding eight months. Versus the same periods in 2013 and 2014, issues are down sharply from $5 and $6.5 billion, respectively, S&P said.
"Further out, we see possible brighter prospects for issuing corporate and infrastructure sukuk over the medium to long term. We estimate that Gulf government spending on projects alone - including infrastructure contracts awarded over 2016-2019 - could be about $330 billion," said S&P Global Ratings analyst Karim Nassif.

Qatari Islamic banks’ short-term high quality liquidity assets to cover monthly net cash outflow is comparable to those of their conventional peers and their funding pressures are to some extent mitigated by frequent bonds and sukuks issuance by the government, according to Moody’s, a global credit rating agency.

“In Qatar, the LCRs (liquidity coverage ratios) of Islamic banks are comparable to those of their conventional peers. This situation reflects the absence of sizable retail deposit franchises among the Qatari banks, coupled with heightened systemic liquidity pressures that had led to banks relying more heavily on market funding,” Moody’s said in a report. The funding pressures are mitigated somewhat by the frequent issuance of bonds and sukuk by the Qatari sovereign, a situation, which provides local Islamic banks with the same good access to HQLAs (high quality liquid assets) as their conventional peers, it said.
The rating agency found that five of the six GCC countries are Basel III compliant and have introduced LCRs, namely Saudi Arabia, Qatar, Kuwait, Bahrain and Oman; only the UAE has yet to adopt a LCR framework for its banks.

Moody's Investors Service says that the liquidity coverage ratios of Islamic banks in key Asian and GCC countries highlight sound liquidity profiles and broad compliance with Basel III regulatory requirements.
"In the report, we highlight that a key driver of LCR performance is the funding profile of banks and, in this context, over-reliance on corporate deposits and unsecured wholesale funding means higher potential liquidity pressures," says Simon Chen, a Moody's Vice President and Senior Analyst. "However, banks with a greater proportion of retail deposits that are considered more 'sticky', typically display stronger LCRs," adds Chen.

Malaysia’s stock exchange operator is discussing a tie-up with Indonesia’s bourse and plans further alliances to mobilize funds targeting the world’s almost $12 trillion in Shariah-compliant equities.

Bursa Malaysia Bhd. is in talks with the Indonesia Stock Exchange to explore various forms of cooperation such as allowing cross listings and hopes to start collaborating by mid-2017, Jamaluddin Nor Mohamad, Bursa’s Islamic capital market director said in an interview in Kuala Lumpur. Bursa plans to forge partnerships with exchanges in Asia and the Middle East to develop the Islamic capital market, he said.
Malaysia already tightened compliance rules for Shariah stocks in 2013 as it sought to draw overseas funds who have a stricter view on permitted investments. Shariah law forbids investments in shares of companies involved in activities considered unethical such as gambling, prostitution, alcohol and pork-related businesses.
Some 669 stocks, or 74 % of the total shares listed on Bursa Malaysia, comply with Shariah principles, according to the Securities Commission. The market regulator reviews the list twice a year based on the companies’ audited financial statements.

Lender Maybank Indonesia has called on the Indonesian government to promote Islamic financing as an alternative funding to boost infrastructure projects in the country. Its president director Taswin Zakaria said infrastructure projects covered tangible assets such as land and equipment that could be securitized for Islamic financing such as sukuk.

"We view Islamic financing as an alternative, not a substitute, that can be used simultaneously with conventional financing […] We’re looking to finance more government projects using Islamic loans," he said during Maybank's Invest ASEAN 2016 event on Wednesday in Jakarta. Islamic financing, he further said, would attract money from the Islamic world, such as from Middle Eastern investors in Indonesia as the infrastructure projects were mostly supported by the government.
Maybank's sharia unit, Maybank Syariah, disbursed 80 % of its Rp 10.8 trillion (US$ 817.25 million) loans in the first half of 2016 to the infrastructure sector. However, it is currently struggling with unsafe gross non-performing financing (NPF) of 5.58 %.

A Dubai-based subsidiary of Islamic investment bank GFH Financial Group has sold its remaining 18 % stake in English football club Leeds United, ending nearly 4 years of Middle Eastern involvement in the club. GFH Capital sold the stake to Eleonora Sport, operated by Italian businessman Massimo Cellino. Eleonora now owns 100 % of the club, Leeds United said.

GFH bought Leeds United in December 2012 but within months began looking for new investment in the club, and in 2014 Cellino bought a majority stake in it. GFH Financial did not reveal the price at which it sold its remaining stake but said the deal would reflect positively on its financials and liquidity for 2016. Crippled during the global credit crisis in 2008, GFH Financial went through several debt restructurings but has resumed expanding in the financial services sector. In August it signed a memorandum of understanding to buy most of Bahrain's Bank Al Khair.

Switching from conventional ‘Western’ financial practices to Islamic banking gives distinct advantages to banks, with the change improving the liquidity and value of stocks. Researchers at the Universities of Birmingham and Brighton studied a merger that took place in Bahrain, between an Islamic bank and a conventional bank in the wake of financial crises that rocked the world between 2007 and 2009.

Their study showed that the 2009 acquisition of Bahrain Saudi Bank by the Islamic institution Al Salam Bank Bahrain (ASBB) prompted a significant increase in the liquidity of ASBB after adopting an Islamic banking system. Published in the Journal of International Financial Markets, Institutions and Money, the study looks at how the amalgamated bank operated after the merger, concluding that Islamic banking offered the institution significant advantages.

Bank Islam Malaysia Bhd said the proposed move to allow developers to provide loans to house buyers will not have a severe impact on the bank, as it will continue to focus on its target market.
“For us, we don’t see any reduction in (our) approval rate, mainly because our target market remained stable,” its deputy CEO Khairul Kamarudin told reporters after launching the bank’s Visa Infinite Business Credit Card-i (business card-i) here yesterday. “Our target market has always been the middle income (segment) and we will continue focusing on our target market and we are seeing the same approval rate (going forward)”. Khairul said the bank’s approval rate last year was 70%, and slightly better this year at 71%, to date. He also said the bank has not experienced high loan rejections despite the current uncertain economic conditions. “People (borrower) who are eligible last year are also eligible this year. For the ones who have their applications get rejected are maybe for the ‘high ticket’ properties,” he added, noting that the bank is more focused on providing loans for affordable housing.

If we look back at the emergence of the Muslim Lifestyle markets as a global phenomenon, we can see an interesting pattern developing. From 2004 - 2007, Malaysia was the epicenter of the Halal movement, bringing the terms ‘Halal market’ and ‘Halal industry’ into the global business vocabulary. Bidding to become a global Halal hub, the development of their Halal food sector made Malaysia a role model for other countries looking to position themselves in this fast-growing marketplace. Abdalhamid David Evans, Founder, HalalFocus.net/ImaratConsultants.com, will be speaking about this topic at the Muslim Lifestyle Expo 2016 in Event City, Manchester on the 30 October 2016.

The Reserve Bank of India’s proposal to tap Islamic banking to provide banking services to Muslims - who are averse to a interest-based model, has raised hope of this system becoming a reality in the near distant future.

According to Dr D.K. Batra, marketing professor, IMI, New Delhi, a large section of Muslims in India did not access banking services on religious grounds due to the element of interest which is prohibited in Islam. So it is interesting that “RBI will explore the opportunity to offer interest-free banking in consultation with the government to open Islamic banks,” he said. This requires a law to be passed, and therefore legislative support, since it concerns net interest margin for banks. The Islamic finance has not grown fast enough as the concept faced opposition from political parties, said Dr Batra.

In the New York Times Deal Book, Professor Steven Davidoff Solomon writes about new steps to disapprove merchant banking by the FED to reduce risk but at high cost. From an Islamic point of view, it just looks like another door for equity investments by the banking sector is about to be shut down, while the contrary makes sense in times of an ongoing debt crisis.

Professor Solomon defines Merchant Banking as ""simply the practice of buying operating companies. The risk to a bank holding company is twofold. First, the bank could lose its money — as with any investment. Or second, it could be held liable for the debts of that company." Already he outlines that "banks are penalized for these investments by having a charge applied to their allowable capital. Second, the bank must sell the investment within 10 years, a period that can be extended by application to 15 years. These investments are monitored heavily these days to ensure they are not unduly risky."

The overall profitability of Takaful industry is under strain largely because the industry has yet to break into some of the most profitable lines of business that are dominated by conventional payers, according to rating agency Standard & Poor’s.
“In our view, the takaful sector is underperforming, especially in the UAE, because it lacks the advantages of conventional insurers, which are often larger and benefit from better economies of scale. They have more-established distribution mechanisms and so their revenue generation is less dependent on intermediaries,” said Emir Mujkic, Associate Director, Finance Services of Standard & Poor’s.
The crowded UAE and other Gulf Cooperation Council insurance markets often suffer from overcapacity, which can often trigger aggressive price wars. “In our opinion, Islamic insurance companies require considerable capital investment to become established, yet relatively new companies often come under pressure to generate profits and deliver healthy returns to their investors,” said Mujkic.

The Malaysian Rating Corp Bhd (MARC) has affirmed its ‘AAA’ rating on special purpose vehicle Aman Sukuk Bhd’s (Aman) Islamic medium-term notes (IMTN) programme of up to RM10 billion with a stable outlook. MARC said the rating reflects the credit strength of the government as the sole paymaster of the sublease rental payments that are sufficient to meet the principal and profit payments under the IMTN programme.
In the statement the rating agency added the stable outlook reflects its expectations that the sublease rental stream backing the transaction will continue to be supported by timely receipt of payments from the government.
Aman is a wholly owned funding vehicle of Pembinaan BLT Sdn Bhd (PBLT), the developer of 74 projects comprising quarters and facilities for the Polis DiRaja Malaysia. The projects, which are located throughout the country, were developed under a build, lease and transfer (BLT) project model. As at end of August 2016, PBLT has fully completed the construction of the 74 projects with a value of RM7.5 billion, of which 73 projects have been awarded with certificates of completion and compliance (CCC).

The Sr. Vice President FPCCI has lauded the decision of Finance Minister for formulating a Committee for the implementation of recommendations of the Steering Committee for the promotion of Islamic Banking. The expansion and promotion of Islamic banking is the need of the hour because it is risk-sharing and asset-backed nature and was growing and unaffected in the period of global financial crisis.

Sr. Vice President FPCCI Shaikh Khalid Tawab, elaborated that Islamic Banking has become an emerging field in global financial market and the time has proved that it has tremendous potential and is growing at a very fast pace all around the world. He added that Pakistan, with more than 95 % Muslim population, and a constitutional obligation of ensuring a riba free economic system, has huge potential of expanding Islamic banking. This is, if the deposits are used on the basis of detailed analysis to get rate of return more than the conventional banks because at present the return on the Islamic banks instruments is lesser than the conventional banks.

The existence of interest, variation of charges on the basis of amounts of cash withdrawals using the cards and the fact that the default rates with quite punitive charges are some of the features that makes the conventional credit cards non-compliant from the Islamic perspective.
In order to comply with the Shariah principles and guidelines, Islamic banking has embraced the needs of customers by repackaging and reimagining existing conventional banking products or engineering innovative products. These help regulating human interactions and transactions to promote transparency, fairness, justice and accountability to each other. The provisions of interest, the financing of business ventures involving alcohol, arms trade and undertaking excessive risks as well as ambiguous contractual obligations that end up benefiting some parties in transactions at the expense of others, form part of the Shariah’s prohibitions. Credit cards are therefore considered offensive to the Shariah standards