IslamicFinance.de

There is a growing number of faith-based exchange-traded funds that attempt to marry moneymaking with religious principles. In the spring, Silicon Valley-based Inspire Investing launched its Global Hope Large Cap and its Small/Mid Cap Impact ETFs, pledging to apply Christian values as a screen. Those products join Global X’s Catholic Values ETF, which applies the investment guidelines of the U.S. Conference of Catholic Bishops. Inspire’s funds have garnered a respectable $80 million in their first six months and CEO Robert Netzly believes that biblically responsible investing will be the fastest-growing investment niche over the next decade. Investment giant Blackrock offers Islamic-oriented ETFs that are shariah-compliant. There are not any specifically Jewish-themed ETFs at the moment, but this can change easily. Juggling core values and full-on capitalism, however, remains a delicate business.

#Iraq’s Kurdistan region will immediately pay $1 billion to UAE-based Dana Gas and its partners to settle a long-running London court case. The full and final settlement of the $2.24 billion case is the latest effort by the semi-autonomous region to put its finances in order ahead of a referendum seeking independence from the government in Baghdad. Kurdistan has ramped up oil sales independent from Baghdad and is hoping to raise gas exports. The settlement is significant for both parties, with Kurdistan settling the dispute at a time it is working on reshaping public finances. For Dana, the Kurdish settlement will be eagerly watched by its bond holders which are disputing Dana's move to restructure its $700 million sukuk on the grounds it is no longer sharia-compliant.

Barwa Bank has almost finished legal and financial studies regarding its merger with Masraf Al Rayyan and International Bank of Qatar (IBQ). Barwa Bank CEO Khalid al-Subea said that any development in this regard will be announced through a joint statement by the three banks. Barwa Bank's recent Al Majd initiative offers its clients an exceptional banking package within the framework of various ongoing national initiatives. Barwa Bank also announced the launch of its new Shariah-compliant savings account that offers high flexibility and profit rate of an expected 3%, where profits are paid on a quarterly basis. The account allows clients to withdraw once every quarter up to 25% of the current balance.

In August 2017, the Central Bank of Nigeria (CBN) introduced two liquidity management instruments for non-interest financial institutions, a Funding for Liquidity Facility (FfLF) and Intra-day Facility (IDF). In a February 2017 report, the IMF mentioned the lack of such sharp liquidity instruments as a key risk to the financial systems of countries where there are Islamic banks. Therefore, the CBN’s recent move is a welcome development. More Nigerian banks would be wise to have Islamic banking windows, but they must be mindful of some potential pitfalls. Customers might be sceptical about whether the bank is truly able to separate its Islamic banking arm from its interest-earning entities. There is also the possibility of regulatory arbitrage, where the bank potentially transfers risk between the two arms, depending on which is favourable. The CBN seems well-geared to handle such potential abuses.

Al Hilal Bank opened its first client service branch in Almaty, which provides a full range of Shari'ah compliant banking services for corporate and private customers. Bank customers can now use deposit products, debit cards, and cash management services, while the investment deposits are a new and unique product for the market of Kazakhstan. Focusing on the needs of customers, the bank plans on launching a programme to finance individuals in the near future. Speaking at the branch opening, Gordon Haskins, CEO of Al Hilal Bank Kazakhstan, said that Islamic finance had a great potential for development and Al Hilal Bank aimed to bring benefits and establish benchmarking of Islamic financial instruments in the region. Al Hilal was established in 2010 as the first Islamic bank in Kazakhstan and the CIS region. It is a subsidiary bank of Al Hilal Bank PJSC, which is fully owned by the Government of the United Arab Emirates.

While Islamic banking is on a solid path to form competitive ecosystems within the global finance industry, takaful is still an underperformer within the sector. A look at the figures shows that takaful remains a small-volume and fragmented industry with total contributions of just $25bn and only around 300 takaful and retakaful operators worldwide. In comparison, the global volume of life- and non-life insurance was worth $3.6tn in contributions in 2016, according to figures from Allianz Group. According to Deloitte, the challenges are underdeveloped risk management and internal controls, improvable operational and business excellence, achieving better product governance and strategy, governance and regulatory compliance and a lack of talent building. Adding to these issues is that takaful is currently concentrated on just a few world regions. Most Islamic jurisdictions have untapped market potentials, but takaful operators are struggling with product innovation and general outreach to uninsured persons.

Al Baraka Bank Pakistan Limited (ABPL) has announced the successful issuance of its A rated privately placed tier-II Modaraba Sukuk. The Rs 1,500 million Sukuk issue was subscribed by a diversified investor base, in total, a number of 12 institutional investors participated in the issue. The Sukuk has a 7 years tenor, is redeemable at maturity and has a Call Option which is exercisable after 5 years with SBP’s consent. ABPL’s first tier II Sukuk issue of Rs 2,000 million was launched in 2014, as the first of its kind transaction in Pakistan. Speaking on the occasion, Shafqaat Ahmed, CEO of Al Baraka Bank Pakistan, expressed his thanks to all the investors for showing their continued confidence in the bank. He also appreciated the support and guidance extended by the State Bank of Pakistan.

The Dubai Financial Services Authority (DFSA) and Hong Kong’s Securities and Futures Commission (SFC) have signed an agreement to cooperate on Fintech innovation. The two public entities said the agreement will further strengthen the efforts of both authorities to develop an innovation-friendly ecosystem and regulatory environment. This continues a trend by both countries to ink bilateral relationships to boost emerging technology within the financial sector. The agreement was signed in Hong Kong by DFSA chief executive Ian Johnston and Ashley Alder, chief executive of the SFC. This step follows the introduction of regulations formalising a tailored regime for loan and investment crowdfunding platforms earlier this month. It also follows the launch of the FinTech Hive at DIFC and its Innovation Testing Licence (ITL).

The Nigerian central bank is setting up two new financial instruments to provide liquidity support for non-interest financial institutions. The new regulatory measures are designed for the proliferation of sukuk and takaful. Among the banks in Nigeria, only Sterling Bank, Stanbic IBTC and Jaiz Bank offer Islamic services. Jaiz, the only fully-fledged Islamic lender on the list, opened its doors in 2012. The Nigerian central bank stipulated several conditions for offering Islamic finance in October. Non-interest lenders must have a liquidity problem to be able to access a new discount window, which will offer it at zero interest, though lenders must post collateral.

The Islamic Corporation for the Development of the Private Sector (ICD) is planning to increase its activities in Africa to widen the appeal of Islamic finance across the region. ICD chief executive Khaled Al-Aboodi said the ICD was helping develop Islamic finance channels, that is Islamic banks, investment and ijara companies, takaful and retakaful firms. Africa represents around 12% of the ICD’s cumulative investment approvals and this figure is expected to rise in coming years. Some of the projects will be led by Senegal-based Tamweel Africa, jointly owned by the ICD and Turkey’s Bank Asya. Tamweel already holds stakes in Islamic banks in Senegal, Niger, Guinea and Mauritania. Further Islamic banks will be established in Benin, Mali and Chad. In Tunisia, the ICD has teamed up with the newly created sovereign wealth fund, Caisse de Dépôts de Tunisie, to set up a $30 million (R315m) fund to support businesses. The ICD also hoped to improve access to sharia-compliant financing for small and medium-sized enterprises (SMEs) across Muslim countries, Al-Aboodi said.

Bank Negara #Malaysia is developing a scorecard with Islamic banking players that will measure the adoption of value-based intermediation (VBI) initiative. According to deputy governor Abdul Rasheed Abdul Ghaffour, the VBI marks the next step to realise the full potential of Islamic finance. The VBI Community of Practictioners (COP) includes nine Islamic banking institutions, Bank Islam, Bank Muamalat, CIMB Islamic, Agrobank, HSBC Amanah, Maybank Islamic, AmBank Islamic, Alliance Islamic and Standard Chartered Saadiq. While VBI shares similarities with ethical finance, ESG (environmental, social and corporate governance) and SRI (sustainable, responsible, impact investing), the distinguishing factor is the Syariah aspect. Business propositions from new sectors such as small and medium-sized enterprises (SMEs) would benefit from financial applications based on potential value creation and not just their credit scores.

Moody’s Investors Service has upgraded Dubai Islamic Bank’s (DIB) local and foreign currency long-term issuer ratings to A3 from Baa1. The outlook for the bank has been changed from positive to stable. Moody's also upgraded the bank’s baseline credit assessment (BCA), adjusted BCA as well as the long and short-term counterparty risk assessment. The primary driver for the BCA upgrade is the bank’s significant improvement in its asset quality and provisioning coverage. The upgrade also captures DIB’s improving profitability in recent years, with return on assets (ROA) improving to 2.0% for 2016. DIB said that its net income rose 13.8% in the second quarter to Dh1.1 billion compared with Dh929 million in the same period last year. Going forward, the rating agency expects that the bank’s net profitability may face modest pressure, due to increased funding costs, but that it will remain above the domestic average and global median.

The Central Bank of Iran has stepped in and put a stop to the trading of the so-called Sakhab bonds. Sakhab is one of the many types of debt securities issued by the Irani government meant to clear its debts to contractors. It matures in a year and is priced at 1 million rials ($26.1) per bond. It could only be traded in certain branches of Bank Melli Iran. The new Minister of Economic Affairs and Finance, Masoud Karbasian, vowed to stand against the issuance of any bond issued by the government outside the capital market. The government issued 120 trillion rials ($3.13 billion) of Sakhab bonds late March and handed over the secondary trading to the banks. The opaque condition of secondary trading prompted the growth of a black market. Market experts have long raised concerns about a deepening gap between the equity and debt markets and further channeling capital toward low-risk, high-return bonds.

Kazakhstan’s previously commercial Zaman-Bank became an official Islamic bank on Aug. 17. The license from the National Bank of Kazakhstan allows the bank to tap into the Islamic banking sector and makes Zaman-Bank the second Islamic bank in the country. Al Hilal Bank, operating since 2010, had been the country’s only Islamic bank so far. Zaman-Bank is planning to focus on retail banking and small and medium enterprises (SMEs). The bank already offers a range of deposit options, including wakala and mudaraba. Head of the Islamic Finance Development Unit, Timur Rustemov, said the bank converted to an Islamic bank, because this sector is still open in Kazakhstan, especially consumer banking. He added that the bank plans to offer Islamic auto finance, Islamic mortgage and a range of products and services for SMEs.

Nigeria’s central bank is setting up two financial instruments to provide liquidity support to boost Islamic banking. The central bank has been working to set regulatory ground rules for sukuk and takaful to try to emulate the success of the industry in Malaysia. Islamic banking services are currently offered by the Islamic window of Sterling Bank, Stanbic IBTC and Jaiz Bank, but Nigeria wants to increase the sector. The country is gradually opening up to Islamic finance to bring non-interest banking to over 80 million Muslims. In October the regulator granted liquidity status at its discount window for banks' investment in Islamic bonds issued by national governments, and for banks’ liquidity ratios. Nigeria launched a 100 billion naira ($318 million) debut sovereign sukuk in the local market in June to help develop alternative funding sources.

In #Nigeria about $300 billion (N108.75 trillion) is required to close the country's infrastructure gap. To close the gap, the Federal Government has turned to the Islamic Development Bank (IsDB). Some financial analysts are warning that this is capable of undermining the nation’s constitution and its secularity. While insisting on the need to defend Nigeria’s secularity, some of them pointed out that there are other viable options and numerous non-religious lending institutions Nigeria can turn to for help. For example, public affairs analyst, Barr Obiora Akabogu, said Nigeria could fall back on the Sovereign Wealth Fund (SWF) to raise cash. Nigeria’s pension fund, which stood at N6.02 trillion as at last November, is another viable option to build infrastructure. Others have recommended the Public-Private Partnership (PPP) model for designing, building, financing and operating new infrastructure.

Consulting firm Solidiance launched its new report entitled Digital Evolution in Indonesia's Banking Industry. In this report millennials are projected to account for around 58% of Indonesia's total population by 2027. Indonesia has a population of more than 260 million people and only 36% of the population are connected to financial institutions, leaving in the region 150 million citizens unbanked. The report also noted that digitalization helps provide greater opportunities for banks to seize the market share. The market will be soon occupied with digital-native millenials who prefer to use the new channels available them. The Solidiance report estimated the number of Internet users in Indonesia is expected to explode in the coming years from as low as 35% of the population in 2015 to an estimated 68% in 2020.

Qatari banks are turning to Asia and Europe for funding after clients from other Arab states pulled billions of dollars from their accounts. Analysts warn that more heavy withdrawals are likely in the coming months. Qatar Islamic Bank has recently raised funds through private placement deals in Japanese yen and Australian dollars. It is now exploring more such deals in Europe and Asia, as well as a certificate of deposit program and a Murabaha facility. Many Qatari banks are facing greater urgency to secure funding since June when the United Arab Emirates, Saudi Arabia, Egypt and Bahrain imposed a boycott on Qatar, accusing it of funding terrorism. Qatar denies the allegations. The crisis has led to an outflow of around $7.5 billion in foreign customers' deposits and a further $15 billion in foreign interbank deposits and borrowings. In response, Qatar's government deposited nearly $18 billion with local banks in June and July.

Saudi Arabia auctioned 13 billion riyals ($3.5 billion) of local currency sukuk, with the offer 295% subscribed. It sold 2.1 billion riyals of five-year, 7.7 billion riyals of seven-year and 3.2 billion riyals of 10-year sukuk. The size of the issue was down slightly from the government’s offer in July, when it sold 17 billion riyals and attracted 51 billion of bids. The ministry qualified 13 Saudi banks to buy its sukuk issues in the primary market but hopes other institutional investors will eventually buy in the secondary market. Also, yields on Riyadh’s internationally issued US dollar sukuk have come down by about 12 to 15 basis points since the last domestic sale. Investment expert Mohieddine Kronfol said the way in which domestic and international Saudi yields were linked was a positive sign for Riyadh’s effort to develop a healthy debt market.

Some countries have introduced laws to level the playing field between Islamic and conventional finance when it comes to the relationship between VAT and financial products. Whereas countries like Malaysia and Singapore have legislated to level the playing field between conventional and Islamic finance by recognising its religious underpinning, the United Kingdom have dealt with the issue in a not dissimilar manner but with a secular approach. Customers have enough difficulty understanding conventional finance. Investment in training to ensure product sales persons can comfortably communicate their Islamic finance offerings will be essential.