IslamicFinance.de

Islamic finance is struggling to streamline regulations as it moves into the mainstream, but seems overwhelmed by scholar reforms.
Islamic finance is toughening supervision of its powerful religious advisers as shareholders worldwide demand increasing accountability from directors, but key reforms may do little to boost independence and transparency.
Islamic banking is overhauling rules that govern the conduct of its influential sharia advisers, with competition for investor dollars and a growing market putting pressure on the once-arcane industry to adopt clearer, more uniform guidelines.
Key to these challenges is the small number of scholars advising a growing number of banks on increasingly complex financing structures, raising issues such as transparency of rulings, independence of advisers and how to groom new scholars.
The International Sharia Research Academy for Islamic Finance, which is backed by Malaysia's central bank, is planning a global regulatory body for sharia advisers.
Others point out that uniformity is hardly attainable, as markets range from Saudi Arabia's established sector to South Korea's infant industry.

The Islamic Development Bank (IDB) will more than double the size of bonds, or sukuk, issued under an ongoing programme to $3.5 billion to help meet financing needs mainly from flood-ravaged Pakistan.
In 2009, the Saudi-based triple-A lender issued an $850 million sukuk which was the first tranche of a $1.5 billion bond. The issue was part of the $6 billion programme it established to soften the impact of the financial crisis on its member countries.

“The Islamic fund industry needs to evaluate new strategies to restimulate growth. Islamic fund assets remained flat in 2009 at $52 billion, whereas the potential wealth pool grew by 20 percent, now estimated at $480 billion,” concludes the Islamic Funds & Investments Report (IFIR) 2010.
The other key messages from the IFIR similarly are stark — the sector needs to achieve scale to ensure its long-term sustainability; the priority over the next two years is to rebuild investor trust through staying close to the investor base and to have transparency in cost and revenue structures.
The IFIR 2010 may serve a purpose to those interested in the Islamic funds industry. But it could have been much more useful if it had clarity in structure; concentration on the 3 major markets by far; in-depth analysis not only of the performances but also of the shortcomings — both regulatory, legal, management, investor knowledge, asset allocation etc; and above all a much more rigorous empirical approach in primary data collection which would have given the analysts at Ernst & Young to draw much more authoritative conclusions about the global Islamic fund and investment industry.

The crucial strength of Islamic finance over conventional systems in the economic crisis was asset quality.
Islamic principles meant that Islamic finance was not involved in investing in low-quality assets that lacked transparency, according to Professor Simon Archer.
Mr Archer said the industry needs these instruments to provide it with liquidity but it must be wary of how these accounts are structured because there is a danger that if you get too close to conventional financial bonds then you are no longer Sharia-compliant.
He said that at present there are not enough high-quality investment instruments to provide liquidity and that means institutions have to keep high levels of cash which affects profitability.

The leading global Islamic Finance accounting regulator is introducing conditions for contracts that comply with religious laws, seeking to standardize an industry with $1 trillion in assets under management.
The Bahrain-based Accounting & Auditing Organization for Islamic Financial Institutions will for the first time provide a “Shariah-compliant way” for parties to enter and exit contracts, Mohamad Nedal Alchaar, secretary-general of the agency, in Manama.
While civil law already offers legal cover in disputes, counterparties want protection based on Shariah principles, according to Dawood Islamic Bank Ltd. in Karachi, Pakistan. Establishing a global standard would bolster confidence for sukuk investors, said Madzlan Mohamad Hussain, a partner at Zaid Ibrahim & Co., Malaysia’s biggest law firm.

Emirates Islamic Bank is in talks to acquire Dubai Bank and possibly Islamic mortgage lender, Amlak, Arabic Al-Ittihad has reported, citing unnamed sources. The move is in line with Dubai's efforts to integrate small and medium-sized banks into larger more competitive banking entities. Talks are in the initial stages for the acquisitions.

With access to capital becoming more difficult, and valuations nose-diving across public markets, private equity firms are challenged to demonstrate the real value they bring to the investee companies, says Ashar Nazim, Director and Head of Islamic Financial Services at Ernst and Young.
Liquidity and credit surge during the past decade saw mushrooming of investment firms across emerging markets pursuing private equity business. Shari'a compliant investments especially remained in strong demand as investors sought to diversify risk and seek higher risk adjusted returns.
With access to capital becoming more difficult, and valuations nose-diving across public markets, private equity firms are challenged to demonstrate the real value they bring to the investee companies.

The Cabinet has recently allowed Al Rajhi Group to issue Islamic Sukkuk (bonds) to expand its investments in the Kingdom. The government requested the group to coordinate with the Iftaa Department and to sell the bonds to local banks in order to obtain the approval.
Al Rajhi group has previously asked the government to work on procedures for issuing Islamic sukuk in order to be able to finance the establishment of two factories for manufacturing glass and steel on the basis of Islamic Shari? principles.

IDb will more than double the size of bonds, or Sukuk, issued under an ongoing program to $3.5 billion to help meet financing needs mainly from flood-ravaged Pakistan.
In 2009, the Saudi-based triple-A lender issued an $850 million Sukuk which was the first tranche of a $1.5 billion bond. The issue was part of the $6 billion program it established to soften the impact of the financial crisis on its member countries.
Pakistan, Afghanistan and Senegal, among the world's 50 poorest nations, are turning to Islamic banking to spur economic growth by encouraging people to take out loans and open savings accounts.

Because of market developments and increasing competition which has led to product innovation and diversity, the Prudential Financial Policy Department of Bank Negara Malaysia has reviewed the regulatory framework for insurance and Takaful products "to further enhance consumer protection while according greater flexibility for insurers and Takaful operators to respond to changing market conditions, both in managing risks and enhancing their competitiveness".
The guidelines, stressed Bank Negara, which is also the insurance and Takaful regulator in Malaysia, aim to improve the time-to-market for insurance companies and Takaful operators to introduce new products; to promote sound risk management practices in managing and controlling product risk; and to further strengthen the duty of care owed to consumers in ensuring that products developed and marketed are appropriate to the needs, resources and financial capability of targeted consumer segments.

The current size of the Islamic finance of $1 trillion could be doubled by 2020. This potential can only be exploited through innovation, diversification and consolidation which will create sustained growth patterns, a top official at the Central Bank of Bahrain told.
The seminar titled Business Models in Islamic Finance: Challenges and Opportunities, was organised by the Islamic Financial Services Board (IFSB) and was sponsored by the Kuwait Finance House (KFH).
As a result, the Governor added, projections of spectacular future growth of the industry which rely on extrapolating the growth trends of the last five or ten years may not be the best guide to the future.

Corporate sukuks by UK organisations are expected in the coming few months following the recent launching of the first corporate sukuk out of United Kingdom by Gateshead-based International Innovative Technologies, or IIT.
A major GCC-based sukuk arranger, which is reportedly working on a corporate sukuk issuance for a UK healthcare company for the last year, hopes to launch the issuance in September. A London-based Islamic bank is also working on a sukuk issuance for a UK client which is near to being finalised. Tom Wilkinson, chairman of IIT, is confident that there is potential for other UK companies to access Islamic finance including sukuk as an alternative source of funding.
The sukuk issue was placed privately with Millennium Private Equity Ltd, leading private equity firm based in the Dubai International Financial Centre and regulated by the Dubai Financial Services Authority. The sukuk is essentially a convertible sukuk, whereby Millennium Private Equity Ltd can convert the sukuk into equity.

Africa’s reputation as a viable and profitable investment destination has grown in leaps and bounds and, importantly, its population presents a new market for many products and services.
Although it is sometimes narrow minded and naïve to consider the African economy as one entity or one whole, it can also be useful to consider the continent as an evolving organism, with many lessons learnt in one country, providing useful information for evaluating and doing business in another country. The ability to learn these lessons and adapt new strategies to new markets has been one of the greatest strengths of the major South African Banks in expanding their operations into other African countries.
Africa’s growth prospects are very positive. With the exception of 2009, the African economy has grown at about 5% or more every year for the last decade.

he asset management side of Islamic finance, which has been at a virtual standstill in the $1 trillion industry, is set to break out of its rut as demand rises for investment products catering to Muslim laws.
There are signs that investment managers are slowly moving to tap demand for Islamic products. Qatar First Investment Bank and Gulfmena Alternative Investments last week unveiled plans for a sharia-compliant asset management firm.
Islamic investment products are commonly perceived to underperform conventional asset classes due to restrictions on investment avenues and the overall conservatism of portfolios. But the MSCI World Islamic Index has managed to outperform the conventional MSCI World Index over the last 13 quarters due to its focus on low-debt companies and non-financial stocks.
The global financial crisis added risk aversion to the mix, with institutions becoming shy about investing in new funds.

Islamic bonds are poised to advance for a fourth straight quarter and post their longest stretch of gains since 2007 as increased confidence in Persian Gulf issuers’ ability to pay obligations helps lure funds.
Sukuk handed investors a 4.9 percent return in the third quarter, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index, extending a rally of 0.8 percent in the previous three months and a 5.1 percent gain in the first quarter. The last time Islamic bonds posted a yearlong winning streak was three years ago when issuance rose to a record.
Investors will prefer sovereign securities with “clearly defined cash flow” over corporate debt and equities because they are worried about weakness in the recovery of U.S. and European economies said Ahmed Talhaoui, the head of portfolio management at Royal Capital

The two-day Third Islamic Venture Capital and Private Equity Conference beginning Tuesday would act as a platform for venture capitalists and private equity investors to keep them updated with global market trends and Islamic alternative investments in the region.
This year's conference would focus on ways to develop a sustainable Islamic venture capital and private equity industry as well as analyse the vast opportunities ahead.
The conference will be opened by Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah.

As part of its efforts to promote Islamic finance around the world, the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) secretary-general Dr Mohamad Nedal Alchaar, and the Grand Mufti of the Shura Council of Russian Muftis, met in Moscow with the Russian Association of Experts in Islamic Finance.
The purpose of the meeting was to enhance the prospects of the development of Islamic financial institutions and products in Russia and the application of AAOIFI standards to regulate them.
Dr Alchaar highlighted the importance of establishing a suitable legal and regulatory environment to help accommodate and promote the Islamic financial industry in Russia, noting that the Islamic sukuks in particular have a promising market in the Russian economy.

YARIKAT Borcos Shipping Sdn Bhd, Malaysia’s second-largest provider of offshore support vessels, had the A1 rating on RM160 million of Islamic medium-term notes placed on rating watch with a negative outlook at RAM Rating Services Sdn Bhd.
This reflects a decline in daily charter rates and low utilization of its offshore support vessels. A1 is RAM’s fifth-highest investment grade.

Shareholders of Kuwait’s International Investment Group (IIG) voted on Wednesday to cut the troubled company’s capital by more than half to cover its losses.

Indonesia, the world’s most- populous Muslim nation, is reviving sales of Islamic bonds two months after consecutive auctions fell short of target because of concern over insufficient trading volume.
Southeast Asia’s largest economy, home to more than 192 million Muslims, is seeking to develop its Islamic finance industry to catch up with Malaysia, the world’s biggest sukuk market. Indonesia’s finance ministry is seeking to spur growth in the market after sales dropped 9 percent in the first four months of the year from 2009, government data show. The Religious Affairs Ministry, which manages money collected from Muslims to fund pilgrimages to Mecca, will buy 2 trillion rupiah of the debt in a private placement next month.