IslamicFinance.de

Riyadh, Asharq Al-Awsat- For over 30 years, Islamic banking has been operating in the Arab world without being recognized by the Shariaa [regulatory] or supervisory bodies. What is meant by recognition here is operating under legislation, rules, and regulations that are commensurate with the nature of the Islamic banking industry. The Islamic banking industry's chances of competing fairly are small, as it operates under the umbrella of conventional banking laws, and due to the completely disparate nature of the two industries. Therefore, Islamic banking has tried to adapt to this odd state of affairs by duplicating conventional banking products and services in line with the requirements of Islamic Shariaa law. Those in charge of the Islamic banking industry are not aware of the damage that this odd state of affairs has done to this industry's growth and potential for innovation which is based on the [Islamic] principles that this industry is built upon.

Investors are showing increasing interest in offering Sharia-compliant financial services in the Kenyan market. The two Islamic banks, First Community and Gulf African Bank, last week said they had acquired regulatory licenses to roll out takaful — Islamic insurance covers. Business Daily spoke to Dr Hassan Anandwa, a scholar at the Thika College for Sharia and Islamic Studies, on the new products.
Conventional financial services involve earning or charging interest. The Islamic versions, however, prohibit interest earning which is called haram. Those that comply with the above condition are called halal.
Savings and current accounts are halal and so are commissions and fees charged on these and other services like money transfers.
Ordinary banks earn the bulk of their income from interest on loans. Instead of earning interest on loans, Islamic banks simply put a markup on the value of the loan a borrower is seeking. There are several ways of doing this. One, the bank and borrower enter into a joint investment funded largely by the bank.

Investors are rolling out more Sharia-compliant financial services into the Kenyan market, betting on the growth of the Muslim population to boost the uptake of Islamic financial services that began five years back with simple current accounts.
The growth in numbers coincides with a string of new financial service investments that target the faithful.
The bank’s managing director, Mr Nathif Adam, said the entry into takaful is a first step towards offering integrated Islamic financial services, a strategy that has been echoed by Gulf African Bank that also announced plans to venture into other financial services in the near term.
Other conventional banks have also developed Sharia-compliant current accounts while conventional insurers are eyeing new opportunities in Sharia-compliant products.
Mr Adam told Business Daily the bank has signed up one conventional insurer and will soon rope in more underwriters to act as agents for its takaful offerings.
The two firms said they are targeting general insurance focusing on property and motor covers.

UAE (Khaleej Times) Initially, the CDs will be available only to fully Islamic banks and then extended to the Islamic banking units of other commercial banks.
The Sharia-compliant instrument, on the lines of Islamic Murabahah transaction will help soak up the excess liquidity in the Islamic money market.
A banker welcoming the move told Khaleej Times that Islamic banks with this offering can invest their surplus liquidity in Sharia-compliant certificates of deposit which will also offer them financial gains.
Malaysia, the world’s biggest market for Islamic bonds, Bahrain and Indonesia sell bills to help soak up cash in the financial system and set benchmarks for short-term bond sales. A Murabahah transaction is a sale and deferred-payment agreement based on an asset in which the cost and profit margin are pre-agreed between a bank and its customer. Transactions in Islamic finance are based on the exchange of assets rather than interest to comply with Sharia principles.

Moody's Investors Service has changed the outlook to positive from stable for Dubai Electricity and Water Authority (DEWA) including related entities (DEWA Funding Ltd. and its guaranteed debt instruments.
At the same time, Moody's has converted DEWA's issuer rating into a Ba2 corporate family rating (CFR) and assigned a probability of default rating (PDR) of Ba2, in line with the rating agency's practice for corporate issuers with non-investment-grade ratings.

The Board of Taxation is calling for submissions to its discussion paper on the tax treatment of Islamic finance, banking and insurance products.
The Board undertook a review of Australia’s tax laws in April to ensure that the law does not inhibit the expansion of Islamic finance, banking and insurance products. This week the Board released a discussion paper considering Australian’s finance taxation framework, issues raised regarding Australia’s current approach to finance taxation and how the taxation of Islamic finance, banking and products was approached internationally.
The Board has welcomed submissions on issues raised in the discussion paper and the closing date is Friday, 17 December, 2010.

Path Solutions the world's number one provider of Islamic banking software solutions, today announced that Shamil Bank of Yemen and Bahrain the third largest Islamic bank in Yemen, with a fully paid capital of six billion Yemeni Riyals, has gone live with Path Solutions' iMAL Islamic core banking suite.
SBYB is focused on expanding the range of Islamic products available to retail and corporate customers and improving the level of customer experience.
SBYB is now benefiting from the most advanced Islamic banking solution available on the market. With Path Solutions' iMAL the bank has greatly enhanced its ability to process trade finance transactions and grow its trade business as well as improve its local compliance and performance management capabilities.

Islamic banking in Malaysia, the world’s biggest market for sukuk, rose 21 percent in the first seven months of 2010 from a year earlier, and accounted for 20 percent of the total, the government said in a report.
The Southeast Asian nation, where about 60 percent of the 27 million population are Muslim, lowered foreign-ownership limits in financial institutions in 2009 to attract more international investors. The central bank has issued Islamic licenses over the past year to global funds that include Aberdeen Asset Management Plc and Franklin Templeton Investments.

Although Nakheel the Dubai-based master developer, currently has no plans to launch real estate investment trusts (Reits), it is not ruling out the option to raise funds in the future, Emirates 24|7 can reveal.
Under Nakheel's debt plan, trade creditors have been offered 40 per cent of what they are owed in cash and the rest through an Islamic bond.
The 60 per cent bond issue needs approval of 95 per cent of creditors.
Nakheel announced earlier that Al Shafar Transport and Contracting Company had started work on the 300 villas in the same project.

The Bahrain-based Islamic investment banking major, Gulf Finance House (GFH), and the Tunisian government have announced the launch of a $3 billion North Africa’s first offshore financial center as part of Tunis Financial Harbour. The mixed use waterfront development will provide the physical infrastructure for the planned offshore financial center.
The formal announcement was made by the GFH senior management and the governor of the Tunisian Central Bank on the sidelines of a reception for financial services institutions and policy specialists held in Washington, DC held during the International Monetary Fund’s (IMF) annual meeting. Both parties’ briefed attendees on the project as well as the development of Tunisia’s financial services regulatory environment.

Middle East governments and companies are raising cash again from debt and equity markets, while solid oil prices and improving economic fundamentals are helping the region recover and restructure.
Yet even as the region regains its footing after the global financial crisis, political tensions and concerns over security remain a nagging worry for investors in the region.
Outside the Gulf, banks in Egypt and Lebanon have emerged from the economic crisis relatively unscathed, with both states expecting strong economic growth.
In Egypt, the government expects growth of at least 6 percent in the fiscal year to the end of June 2011, up from 5.3 percent the previous year.
Growing political tension over an international investigation into the 2005 killing of former premier Rafik al-Hariri has prevented the unity government from implementing reforms or getting the 2010 budget through parliament.
If tensions escalate into sectarian violence many Lebanese could withdraw their savings and the Lebanese pound could come under pressure. But the country has bounced back quickly from previous conflicts.

Saudi Arabian shares fell for a fourth day after banks in the kingdom reported lower third- quarter profit on provisions for bad loans.
Saudi banks have been hurt since the onset of the global credit crisis as provisions for bad loans rose and lending slowed after the Saad and Algosaibi business groups defaulted on at least US$15.7 billion of loans. Saudi British Bank, the lender 40% owned by HSBC Holdings Plc, Al-Rajhi Bank, Saudi Arabia’s biggest by market value, and Arab National Bank were among 10 out of the 11 banks in the nation that reported a decline in third-quarter profit last week.
The country’s banks will be required to make 100% provisions against non-performing loans, central bank Governor Muhammad al-Jasser said in an interview shown on Dubai-based Al Arabiya television on October 12.

From Australia to Britain and even France, which recently banned the face-veil, Western economies are adjusting their laws to encourage growth in the Islamic finance sector they hope will attract wealthy Gulf investors.
Enthusiasm in the US has been tempered by politics, however, which could slow the growth of Islamic finance and push business from the oil exporting Gulf elsewhere. Islamic finance has faced scrutiny in the US, with critics suggesting the $1tn industry was a front to funnel funds to terrorists or a plot by Muslims to spread Shariah principles, which include a ban on interest.
The US Federal Reserve has launched an Islamic finance study group and is seeking consultants within the Islamic finance industry.
The US Treasury has launched the Islamic Finance 101 programme to teach government agencies about Shariah-compliant business.
The programme is run with Harvard’s Islamic Finance Project, which was created in 1995 to study Islamic finance from a legal perspective and foster collaboration among scholars inside and outside the Muslim world.
But these initiatives have also been politicised.

Global Islamic bonds are poised to extend gains after climbing to a record this week, buoyed by Asian economic growth and a pickup in Persian Gulf issuance.
Dubai Electricity & Water Authority, the government run utility, sold $2 billion of non-Islamic senior unsecured debt yesterday in its largest dollar denominated bond sale.
Islamic Development Bank, a Jeddah based multilateral lender, plans to sell $1 billion of bonds this quarter under a $3.5 billion sukuk program, Vice President Abdul Aziz Al Hinai said August 24. Saudi Arabian Oil Co, based in Dhahran, Saudi Arabia, and Total SA, based in Paris, plan to sell $1 billion in sukuk this year, Simon Eedle, global head of Islamic banking at Credit Agricole SA, the lead arranger of the sale.

Last year, the emirate issued another $400m worth of sukuk. The government of Dubai in September launched its first sovereign bond issue since a debt crisis.

Two UAE banks have presented a plan for their merger to the Central Bank despite conditions made by one of them not to shoulder any losses suffered by the other bank.
The Emirates Islamic Bank (EIB), which has been locked in negotiations to merge or acquire Dubai Bank (DB), stipulated that the government should handle DB’s losses which could range between Dh500 million and Dh2 billion.
Dubai’s Government holds around 29.8 per cent of Dubai Bank, which has an authorised capital of nearly Dh3.4bn. It is controlled by the Dubai Banking Group, an affiliate of the government-owned Dubai Holding.

Saudi Aramco and France's Total will launch $1 billion Islamic bond (Sukuk) in the Q4 to build 400,000 barrels per day crude refinery in Jubail.
Simon Eedle, global head of Islamic banking at Credit Agricole, said the long delayed $1 billion Sukuk which was part of the financing for the Jubail refinery will launch in the Q4. Credit Agricole, Deutsche Bank and Samba Financial Group are the lead arrangers for the Sukuk.
Global Islamic bonds are poised to extend gains after climbing to a record this week, buoyed by Asian economic growth and a pickup in Gulf issuance.
Gulf sales of Sukuk, which pay asset returns, are rising after Dubai World reached an agreement with creditors last month to change terms on $24.9 billion of debt. Companies in the region plan to issue about $5.8 billion of Islamic debt in the fourth quarter, the most for the period in three years.

Noor Islamic Bank has no plans to merge with another financial institution, it said in a statement on Sunday, dismissing speculation it may tie up with troubled Islamic lender Amlak.
A newspaper report last week said the UAE government was considering merging privately-held Noor Islamic with Emirates Islamic Bank — an affiliate of Emirates NBD — and Dubai Bank. The combined entity would then purchase Amlak.
Amlak’s fate has been in question since the long-touted plan for it to merge with rival Islamic lender Tamweel was scuppered after Dubai Islamic Bank raised its stake in Tamweel in September.
The two firms have not traded since November 2008 when the United Arab Emirates government stepped in to restructure them.
Media reports have circulated in recent days that Emirates Islamic Bank is in talks to buy Dubai Bank and then purchase Amlak.

After a lengthy delay, the government is on track to issue Kazakhstan’s first sovereign sukuk, or Islamic bond, before the end of this year – a key step in the country’s desire to become a regional financial hub, says Arken Arystanov, head of the Regional Financial Centre of Almaty City (RFCA).
Amendments to Kazakhstan’s law on Islamic finance and banking, currently being considered by parliament, are due to be adopted within the next two months, Arystanov says, paving the way for the government to issue its debut sukuk - most likely in the $500m range - by the end of 2010.
It’s certainly true that for some Kazakh companies there has been no difficulty in raising money by traditional means recently. State nuclear company Kazatomprom’s debut Eurobond in May 2010 was eight times oversubscribed; the issue by national rail operator Kazakhstan Temir Zholy in September was seven times oversubscribed.

From being a small and unimportant Islamic bank established in 1978 and under the loyal and unbroken stewardship of the seasoned General Manager Musa Shihadeh, Jordan Islamic Bank (JIB) has, over the last three decades transformed itself into the largest Islamic lender and the third largest domestic bank in Jordan. This is by all standards impressive given that JIB's main competitor in the market is the mighty Arab Bank Group, one of the largest banks in the Middle East and which has its own dedicated Arab International Islamic Bank.
The Ministry of Finance and the Central Bank of Jordan have given the go-ahead for Al-Rajhi Bank in Jordan to explore the possibility of issuing a sukuk. Assuming that the Treasury and the central bank are working on introducing enabling legislation for sukuk origination and listing in Jordan, this would open up new avenues of raising finance and investments for the likes of JIB.