IslamicFinance.de

Countries in East Africa are increasingly joining the Islamic finance industry as their Muslim population grows and demand for Shariah-compliant banking and finance rises. In Ethiopia the central bank is planning to develop Islamic finance in order to improve financial inclusion, while Somalia’s central bank has given licences to six Islamic Banks and two takaful companies. Both Tanzania and Kenya have recognised the potential of Islamic finance, in Rwanda Islamic finance made its debut in 2016 with an Islamic microfinance Institution. Only Burundi, South Sudan and Eritrea don’t have ambitions to set up Islamic banks. The latest regional entrant in the Islamic finance sector is Uganda. Finance minister Patrick Ocailap said that a framework for the implementation of Islamic banking in the country has been developed and will be operational by October 2018.

Astana International Financial Center (AIFC) aims to be the driver of the Islamic finance development in Kazakhstan. For this, the AIFC is strengthening its capacity building by establishing the Bureau for Continuing Professional Development. AIFC managing director Yernur Rysmagambetov said two programs habe been launched. One of them is aimed at the training of specialists for the banking sector. The second program is focused on literacy of the end users on Islamic finance. The corporate sector is the main customer of the Islamic banks in Kazakhstan. Attraction of the retail customers in the Islamic finance is another trend of the past years.

Since the launch of Islamic 'participatory' banks in July 2017, more than 71 agencies have joined the non-interest banking program throughout Morocco. Abdellatif Jouahri, the governor of Bank Al Maghrib (Morocco’s central bank), said the participatory banks have granted a total of MAD 1.1 billion in loans. Jouahri highlighted the special interest that murabaha is especially attractive for both real estate and automobile customers. The governor stressed that Morocco is preparing to issue its first sukuk in July 2018, which will complement the services offered by participatory banks. While the order approving the takaful circular has already been finalized, the legislative texts are still being finalized.

In this podcast Zainal Izlan Zainal Abidin of Securities Commission Malaysia speaks about the country's strategy for socially responsible and sharia-compliant investing. He talks about the challenges in making Malaysia a global Islamic finance centre. He sees great potential for Malaysia as it rolls out new products, such as a sukuk ETF. Zainal believes the gradual harmonizing of Sharia definitions will fuel more cross-border transactions between Malaysia and the Middle East.

In #Uganda more than half of the 24 licensed conventional banks have expressed interest in providing Islamic banking products. The latest to show interest is EXIM Bank. Raj Banerjee, the deputy chief executive of EXIM bank, said they cannot wait to offer this service to their wide range of customers. At the moment they are going about installing the software and assembling a team that will be directly involved offering the Islamic Banking. Mr Banerjee believes this will be good for everybody. The bank is preparing to launch its Sharia compliant products as soon as the proposals are approved by the Bank of Uganda.

In #Kenya a lobby group has called for the review of regulations governing Islamic banking and Sharia'h compliant products offered by conventional banks so as to resolve the issue of interest rates. The group, Bayt-ul-Maal has commenced gathering signatures to petition Kenyan Muslims scholars to deliberate and craft a modern day Bayt-ul-Maal (Islamic Treasury) catering for the needs of Muslims. They embarked on a door-to-door campaign sensitizing the Muslim community on the importance of Bayt-ul-Maal. The group claims that since February this year debate has raged concerning the validity of Islamic banking and Sharia'h Compliant windows, as offered by some conventional banks.

The Muslim community of Uganda asked the Government to speed up the process of providing regulations for Islamic banking. According to Speaker of Parliament, Rebecca Kadaga, the laws for Islamic banking have been passed but Bank of Uganda is reluctant to draft the regulations as well as issuing licenses for Islamic banking. Financial experts have often criticised Islamic banking for higher creating costs and bigger risks, a situation that has not been remedied over the years. The lack of unique frameworks by the Government to regulate Islamic banking is the other challenge, leaving the Islamic banks to be regulated as other conventional banks.

Uzbekistan is joining the rising number of Central Asian nations to develop a Shariah-compliant banking system given its large Muslim population. This month, the Uzbek government issued a draft resolution to create infrastructure for Islamic banking and finance in the country. The aim is to create alternative financing opportunities in the former Soviet republic and open the doors for Islamic investors from the Middle East and Southeast Asia. To that end, the central bank has been tasked with developing a legal and regulatory framework not just for Islamic banking, but also for Takaful and securities trading, as well as financing for small and medium enterprises and Halal microfinance. The framework will include the launch of the Islamic Development Bank of Uzbekistan (IDBU), which will provide standard retail banking services, trade financing, property and commercial real estate financing, as well as leasing, Takaful and securities services.

Global standards are likely to become more explicit and a shift to centralised regulation may accelerate after Dana Gas reached a conditional deal with creditors on its contested $700mn sukuk issue. Dana shook the industry last June, saying it would not redeem its sukuk on maturity. It proposed swapping them for new sukuk with lower profit rates. The original sukuk used a mudaraba structure, which Dana said had fallen into disuse. Investors have been worried by the prospect of other issuers avoiding redeeming their sukuk by saying conditions have changed. According to Akram Laldin, deputy chairman of the Malaysian central bank, the Dana saga had strengthened the case for setting up centralised bodies that could approve Islamic contracts and rule on disputes. The Dana case appears to mean the end of the old mudaraba sukuk structure, criticised as un-Islamic by some scholars due to features such as guarantees on principal and fixed returns.

Deloitte’s Islamic Finance Knowledge Center (IFKC) in collaboration with the Chartered Institute of Securities and Investment (CISI), UK published its latest whitepaper entitled "Scalable and sustainable source of funding social infrastructure". The success of infrastructure projects in using Islamic finance has inspired investors in countries such as Bangladesh, Indonesia, Kazakhstan and Malaysia to seek pursuing sustainable funding through Islamic finance. According to Dr. Hatim El Tahir, Director of Islamic finance at Deloitte, this whitepaper developed practical analysis and forward thinking thoughts as how Islamic finance can play its natural role in this pivotal sector of economy. The analysis suggests there should be continued industry dialogue between practitioners, policy makers, regulators and market participants, to articulate and assess suitable investment and funding structures.

The Malaysia International Islamic Finance Center (MIFC) published in cooperation with the Islamic Corporation for the Development of the Private Sector (ICD) the latest report entitled “Islamic finance in Asia: Reaching new heights”. According to the report, Asia’s Islamic finance assets registered an annual growth of 8.4% between 2011 and 2016 and stood at $528.7bn, or 26% of the world’s Shariah-compliant financial assets, at the end of 2017. Furthermore, Asia has grown to the largest market for sukuk. $52.3bn or 52.5% of all newly issued sukuk came from Asia in 2017, with most notable contributors being Hong Kong, Indonesia and Pakistan. The region also has a global market share of 60.7% of sukuk outstanding and is market leader in Islamic funds. The report states that Malaysia, Bangladesh, Brunei and Indonesia are currently among the most developed Islamic banking jurisdictions in Asia.

Afghanistan hopes its first Islamic bank will attract more customers and improve access to financial services in the country. The central bank granted its first Islamic license last month and is now developing wealth management products and new digital banking services. There are currently six banks that offer sharia compliant products through so-called Islamic windows and their conversion would require setting up an internal sharia board and having a clean bill of health. The latter may be a challenge for some because of difficulties in converting impaired loans into Islamic equivalents. The government is also working on legislation that would allow for the issuance of sukuk, although such plans are still at a preliminary stage.

The first blockchain-powered Islamic Bank, Hada DBank, has launched its token sale on May 1st, 2018. HADA DBank is a platform aimed at providing Islamic banking methodology. The platform offers a maximum liability to asset at a ratio of 1:3. Hada DBank aims to design and develop an Exchange platform offering a No fee policy on both cryptocurrency and non crypto-related transactions. The bank will also provide its users with physical and virtual debit cards, inclusive of cashback and discount schemes with merchants and affiliate partners. Users can gain full access to Bot HUDA, a bot in charge of financial management, while artificial intelligence, HADI, will be a personal financial advisor to the platform’s clients. Hada DBank has pegged the soft cap of its Token Generation Event at 5,000 ETH and hard cap at 30,000 ETH. The first set of 1,000,000 HADACoins will be distributed at 3,000 HADA per 1 ETH at a minimum contribution of 0.15 ETH.

According to Abdelilah Belatik, secretary general of the General Council for Islamic Banks and Financial Institutions (CIBAFI), Turkey's potential for Islamic banks is very big. Turkey has three participation banks, Al Baraka, Kuwait Turk, and Turkiye Finans, which are operating overseas already. Turkey's Banking Regulation and Supervision Agency (BDDK) started developing comprehensive regulations for participation banks. Belatik said countries like Bahrain and Malaysia have developed their entire system of infrastructure for Islamic finance, which is very important for the development of the industry. This year, CIBAFI chose Turkey to host its annual Global Forum. The Forum is focusing on how the industry will fulfill its obligations while remaining competitive and relevant within global financial markets.

According to Sultan Nazrin, Islamic finance needs to address the lack of scale, volatility in Islamic equity markets and lower returns for Islamic investing. In his keynote speech at the Franklin Templeton 2018 Islamic Forum in Kuala Lumpur, he highlighted four key areas that need to be addressed. While the overall sukuk market has posted growth in recent years, the resilience of Islamic equities and funds cannot be taken for granted as most of them lack scale. Another issue to be addressed is the greater volatility seen lately in global Islamic-listed equity markets. Sultan Nazrin said that an unparalleled benchmark for governance must be established that balances financial and ethical considerations. He added that innovation represents a challenge and an opportunity for the industry, thus Islamic finance must embrace the modern era of disruption, with a continued strong focus on product innovation.

According to S&P Global Ratings, the GCC Islamic banks’ financing growth will reach 4-5% in 2018-19, supported by strategic initiatives by the regional governments. Powered by Qatar FIFA World Cup, Dubai Expo 2020 and Saudi Vision 2030, and higher government spending in Kuwait led by Kuwait 2035 Vision, the region’s Islamic banks will continue to expand. Asset growth should remain in the low single digits due to slow economic growth, unless oil prices rebound significantly. However, Islamic banks’ cost of risk will increase due to the adoption of International Financial Reporting Standards (IFRS) 9 and Financial Accounting Standards (FAS) 30. While the volume of sukuk issuance increased in 2017 thanks to jumbo issuances by some GCC countries, issuance volume is currently uncertain for 2018.

The Securities & Exchange Commission of Pakistan (SECP) has registered Al Hilal Shariah Advisors as the first Shariah Advisory company in Pakistan. Al Hilal aims at converting the conventional interest-based economy to the Islamic financial system under the guidance of Shariah Scholars and financial experts. Al Hilal Shariah Advisors provides Shariah Advisory, Shariah audit and training services in the field of Islamic Finance. It is also active in the field of halal food certification. Al Hilal CFA Faraz Younus Bandukda said they were proud to be the first Shariah Advisory Company in Pakistan and hopeful that more companies would now implement Shariah regulations.

The gap in financing for SDGs is currently estimated at US$ 2.5 trillion every year and Islamic finance could better respond to these needs. The core principles of Islamic finance are highly aligned with the spirit of the SDGs. The Islamic Development Bank found Islamic Finance to be especially relevant in addressing ten of the 17 SDGs, including goals pertaining to poverty alleviation, infrastructure development, financial stability, and beyond. In Indonesia, for example, UNDP is partnering with BAZNAS to apply Zakat funds towards local SDG plans, beginning with renewable energy projects in underserved communities. UNDP Indonesia is also working with Badan Wakaf Indonesia to collaborate on SDGs and develop a digital platform for waqf contributions. UNDP is also working with the Indonesian Ministry of Finance to support the issuance of their first $1.25 billion sovereign green sukuk.

FinTech Hive at DIFC has announced that its upcoming programme will expand its themes to include insurance, Islamic finance, and regulatory technology services. This year’s cycle will welcome First Abu Dhabi Bank, Arab Bank, and Noor Bank as new Financial Institution partners, along with returning partners such as Abu Dhabi Islamic Bank, Citigroup, Emirates Islamic, Emirates NBD, HSBC, Mashreq, Standard Chartered, UAE Exchange and Visa. The participating Financial Institutions will partner with startups in a wide-ranging 12-week mentorship and networking programme. FinTech Hive at DIFC will also feature the Dubai Islamic Economy Development Centre (DIEDC) as a strategic partner again this year. In addition, FinTech Hive at DIFC will collaborate with Accenture’s FinTech Innovation Labs to connect regional innovators to the international FinTech ecosystem.

Afghanistan’s central bank has granted a license to the Islamic Bank of Afghanistan (IBA). IBA Chief Financial Officer Faizan Ahmed said the bank had completed the conversion of its balance sheet. It plans to introduce wealth management products and launch new digital banking services in the coming months. Afghanistan’s banking sector is small, but Islamic finance is seen as an important feature that could help attract more people into the financial system. IBA estimates that only 5.7% of the population has dealings with the banking sector and the majority of the country in unbanked. Islamic banking has been offered in Afghanistan by a handful of firms through so-called Islamic windows, but there have been no full-fledged Islamic banks so far. Lenders with Islamic windows include Afghan United Bank, Ghazanfar Bank and Afghanistan International Bank.