IslamicFinance.de

The high transaction costs involved in Islamic financing are likely to limit its use in funding infrastructure projects in Kenya. According to a new study commissioned by the Kenya Bankers Association (KBA) Islamic financing is deemed to be expensive. This fact is corroborated by the case study of Lekki project which utilised a loan financing scheme that attracts huge transaction costs paid by the special purpose company in terms of 1.5-4.0% one-off administration fees and notary fees. The working paper also recommended that a national Sharia board be set up so as to set standards for Islamic finance.

Russia continues to open new avenues and to provide new instruments for international investors through Islamic finance. Representatives of major banks and a high official of the Russian central bank will partake in the 23rd World Islamic Banking Conference in Bahrain’s capital Manama. The reason why Moscow is increasingly opening up to Islamic finance lies mainly within its quest to make up for a shortfall caused by Western sanctions. Three state-linked Russian banks, Vnesheconombank, Sberbank and Tatfondbank have all signed agreements with the Islamic Development Bank (IDB) in order to launch Islamic finance products. Maxim Osintsev, executive director at Sberbank, said there was now political will for Islamic finance to be developed in Russia. The ice has broken and people now understand that Islamic banking products can be in demand.

The Securities Exchange Commission of Pakistan (SECP) is in the process of drafting a Shariah regulatory framework. Addressing at the second day of "World Islamic Finance Forum" (WIFF), SECP Chairman Zafar Hijazi said SECP has established a full-fledged Islamic finance department to co-ordinate the Islamic finance initiative. He said SECP is fully supporting Shariah compliant business and the government has implemented the SECP's tax proposal for offering Sukuk. SECP is currently working on harmonisation and standardisation of regulations for a uniform regulatory environment. The commission has an independent Shariah Advisory Board to review product development and adjudicate on Shariah matters.

Speaking at the World Islamic Finance Forum, Pakistan's Finance Minister Ishaq Dar suggested investing in research in order to Islamise the whole economic system of the country. He said Islamic finance industry leaders should play an active role in promoting the industry. At the same time, the leaders should not remain complacent with the traditional model, but should help the finance industry evolve and innovate products based on Shariah compliance. Dar said economic growth in Pakistan had crossed 4% and had remained steady at 5% this year. This growth rate is expected to accelerate to 7% in fiscal year 2017-18. Later referring to a BBC report, he said Pakistan would become the 18th largest economy of the world by 2050 from the current 44th position.

The Islamic Research and Training Institute (IRTI), Thomson Reuters and the Institute of Business Administration (IBA) launched the Pakistan Islamic Finance Report titled "Innovation at Asia’s Crossroads". The ceremony, which took place in Karachi, was attended by senior government officials, market executives and industry professionals. The report highlights that the Islamic capital market sector registered a double-digit growth rate in the past decade, recorded mostly by Islamic mutual funds. In all Islamic finance industry segments, finance professionals and investors maintain a positive economic outlook, and Islamic finance institutions have built strong fundamentals.

While the number of Islamic products in #Malaysia has grown in the last 10 years, there still aren’t enough to cater for the needs of local investors. According to Rohani Mohd Shahir, president of the Association for Islamic Financial and Wealth Management Malaysia (AIFiWM) the growing demand is due to a greater awareness of compliance for religious purposes. There is a lack of Islamic real estate investment trusts (REITs) and fewer shariah-compliant stocks in Malaysia today due to the tightening of regulatory requirements. To increase the number of listings available, AIFiWM is championing a move to restore the shariah-compliant status of companies that were once deemed compliant.

The Reserve Bank of India (RBI) has said it will work with the government to introduce interest-free banking, as part of its efforts to improve financial inclusion. The RBI’s proposal paves the way for introduction of Islamic finance in India. In March 2015, State Bank of India (SBI) deferred the launch of a Shariah-compliant equity mutual fund at the last moment. SBI maintained that the decision was a commercial call, but there was speculation that the decision had to do with political pressure. Senior BJP leader Subramanian Swamy is among the most vocal critics of Islamic finance, arguing that it could encourage religious conversion and also open channels for terrorist organisations to channel money into India.

According to Standard & Poor’s Africa’s extensive infrastructure development needs to create a fertile environment for the growth of sukuk issuance over the next decade. S&P analyst Samira Mensah said African sukuk could provide diversification benefits for Islamic investors as well as additional financing opportunities. So far the African market comprises only $2 billion (Dh7.35 billion) of sukuk from a handful of issuers. By contrast, 17 Sub-Saharan African (SSA) governments issued $46 billion of conventional debt in 2015 alone. Despite sukuk’s appeal, analysts expect that only a few African countries will tap the sukuk market over the next 12 months. There is a general lack of clear legal regimes and in many cases the complexity of structuring sukuk could deter issuance. Multilateral institutions could be the key to unlock the full potential of Africa's sukuk market.

S&P Global Ratings believes that the drop in Islamic finance growth is likely to continue in 2017. Nevertheless, it estimates the industry’s total assets will reach $2.1 trillion at year-end 2016. S&P Global Head of Islamic Finance Mohamed Damak said Islamic finance will maintain growth of around 5% in 2017. The oil price environment will weigh negatively on economic growth in the GCC for the next two years. A broader consensus around the need to standardize legal structures and Sharia interpretation could help the industry to progress. Another great help could be the industry’s potential contribution to the United Nation’s sustainable development financing goals.

State Bank of Pakistan Deputy Governor Saeed Ahmed said that there is a dire need to create awareness to promote Islamic banking. According to the Global Islamic Finance Report (GIFR) 2016, Pakistan ranks ninth in terms of development of Islamic financial services industry. However, there is still a capacity of 40 million more people in the banking market that the Islamic finance sector can explore. In June the State Bank of Pakistan (SBP) noted that the Islamic banking industry had witnessed a growth of 7.4% in April to June quarter. Its assets reached Rs 1,745 billion while its deposits also increased by 9.3%. This shows a market capitalisation of 13.2%. There is still room to grow and the Islamic financing institutions can increase their operations and market shares.

Islamic entities known as participation banks offer bonds with potentially greater upside and more stability than standard government debt. According to a recent report from Standard & Poor’s, participation banks doubled their share of the country’s overall banking assets to about 5% between 2005 to 2015. Turkish President Recep Tayyip Erdogan’s support for further integration of Islamic law into all walks of life means participation banks are likely to grow. The system’s assets could reach some $300 billion by 2025, according to the Participation Banks Association of Turkey.

India's central bank has proposed working with the government to introduce interest-free banking. The Reserve Bank of India (RBI) made the proposal last week, as departing central bank governor Raghuram Rajan hands over the reins to Urjit Patel. Development of Islamic finance has been slow in India because of strong opposition from bureaucrats and politicians from the ruling Hindu-nationalist Bharatiya Janata Party. An estimated 180 million Muslims have been unable to access Islamic banking because of laws that require banking to be based on interest. The RBI said it would explore introducing interest-free banking products in consultation with the government, a key detail as this opens the prospects of supportive legislation.

The African market for Islamic banking is unique for several reasons. The continent is witnessing an unprecedented economic growth in the last decade. Return on investment in Africa is higher than in any other developing region. Moreover, Islamic banking in Africa is supported by a growing openness and acceptability by many regulators and politicians. There is growing interest from sovereign states in issuing sukuk and countries such as South Africa, Senegal Ivory Coast and Togo have already tested the international market. At the same time, there is a need to be aware of the challenges facing the industry and how the associated risks can be mitigated. African regulators need to adopt the right policies and increase the level of cooperation. They should work closely with the multinational financial institutions such as the Islamic Development Bank, the African Development Bank and the World Bank.

Emaar Properties has mandated Standard Chartered Bank as Sole Global Coordinator of its new US dollar Sukuk. Bank ABC, Dubai Islamic Bank, Emirates NBD Capital, First Gulf Bank, Mashreq, National Bank of Aub Dhabi, Noor Bank, Standard Chartered Bank and Union National Bank are mandated as Joint Lead Managers to arrange investor meetings in Asia, the Middle East and Europe commencing on 4 September 2016. USD 2 billion Trust Certificate Issuance Programme may follow subject to market conditions. FCA/ICMA stabilization applies.

In #Kenya the Higher Education Loans Board (Helb) has announced plans to introduce a Sharia-compliant product as a growing number of Muslim students join local universities. Helb CEO Charles Ringera said the proposal is contained in a Bill that is currently with the Attorney-General Githu Muigai for review. The new product will most likely assume the structure of Takaful finance. To roll out such a product, Helb will have to come up with special loan forms that require beneficiaries to commit that they will repay a Takaful contribution for the benefit of future students.

Dubai-based Emirates Islamic Bank has priced a $250 million tap of an existing Islamic bond issued in May. The tap was priced at 170 basis points over midswaps, the order book was worth $706 million. The 'new' deal is a copy of an existing bond with the same terms and conditions. Emirates Islamic's tap came off a $750 million five-year sukuk issued on May 23. That deal was priced at 220 bps over midswaps and carried a coupon of 3.542 percent. Chief Executive Jamal bin Ghalaita said the cash would support the bank's long-term growth and development plans. The new offering was arranged by Bank ABC, Dubai Islamic Bank, EMCAP and Standard Chartered.

Saudi Arabia's Bank Al Bilad priced an Islamic bond issue worth 2 billion riyals ($533 million) at 200 basis points above the three-month Saudi interbank offered rate. The sukuk have a tenor of 10 years, with the bank having the right to call the bond at the end of the fifth year. They were sold through a private placement. Bank Al Bilad said the raised funds would support its capital base in line with Basel III standards.

Despite all the instability and continued sectarian violence in parts of Iraq, the country’s few Shariah-compliant lenders see chances to expand their business. As a result of the ongoing internal conflicts since the toppling of the regime in 2003 by the US, Iraq has been widely reduced back to a cash economy. Cash payments keep dominating the economic system because the majority of the population does not have a bank account. According to World Bank data, just about 11% of Iraqis use the services of formal banking institutions. However, Islamic banks reckon that the majority of the Iraqi population does not use banking services because most of them fail to comply with the provisions of Islamic law. Islamic banks currently account for 1.5% of total assets of Iraqi banks, amounting to nearly 3tn dinars ($2.55bn), this could grow to nearly 6% in the coming years if the political and economic environment improves and the necessary legislation gets introduced.

The Capital Markets Authority (CMA) of #Kenya is banking on introduction of non-conventional financing options. According to CEO Paul Muthaura the move aims to absorb anticipated economic shocks arising from capping of interest rates. Last week, President Uhuru Kenyatta assented to the Banking Act 2015, which will cap interest rates to not more than 4% above the Central Bank of Kenya rate. The CMA plans to introduce Sharia financing where interest rates don’t feature but have an element of risk management. The CMA is also working on establishment of a Sharia Board that would screen all the products being offered so that it can determine their suitability to be treated as Sharia products.

Saudi Arabian construction firm Abdullah Abdul Mohsin Al Khodari and Sons has renewed an existing 132 million riyal (Dh129.2 million, $35.2 million) Islamic credit facility with Samba Financial Group. The facility will provide bonding commitments as well as capital and working capital requirements for projects and general business. Credit limits for projects covered by the facility will range from 36 to 60 months. Khodari has also won a 69 million riyal contract from the kingdom’s Ministry of Environment, Water & Agriculture for the maintenance of water networks. The financial impact of the project is expected to start in the third quarter.