IslamicFinance.de

Kuwait Finance House (KFH) is looking to merge with Bahrain's Ahli United Bank. The Gulf's banking sector is in consolidation as three years of low oil prices squeeze deposits and push up bad loans. KFH Chief Executive Mazin Al-Nahedh said the merger was currently only under study and there has been no agreement so far. In other regional bank mergers, First Abu Dhabi Bank was recently created in the United Arab Emirates after a tie-up between two Abu Dhabi lenders, while mergers are under way in Qatar and Saudi Arabia. KFH said in the statement that it was looking at a range of alternatives to boost its profitability, adding that such decisions require approval from regulators, including the central bank.

Alkhair International Islamic Bank (AKIIB) has appointed Yeow Tiang Hui as its chief executive officer effective Aug 1.
AKIIB said in a statement that he succeeded Datuk Adissadikin Ali, who left the bank last year to head RHB Islamic Bank. Yeow has worked at several multinational banks, including managing the multinational portfolio at Deutsche Bank and being vice-president of Citibank/Citicorp’s venture capital outfit and its head of commercial banking. From 2007 to 2016 he served as head of corporate banking at Kuwait Finance House in Malaysia.

Ongoing development of Islamic finance in Kenya is expected to innovate the financial services sector. One area that will see a hive of activity in the local market will be the introduction of sukuk. The Kenyan government is now preparing to issue the first Sovereign Sukuk with the aim of diversifying sources of funding at competitive rates. Usually, Sukuk derives its financing structure from the nature of the underlying assets available to the originator, regulatory and tax considerations as well as perspectives expressed by the Shariah scholars. However, what may be declared as Shariah-compliant by a team of scholars could be rendered invalid and non-Shariah-compliant by a team of other scholars. This informs the need to have one central Shariah body that regulates the industry to minimise confusion from multiple non-structured Shariah opinions.

The sukuk issued by Sharjah-based Dana Gas and recently denounced as non-shariah compliant will not damage confidence in the Islamic debt markets, as some have claimed. The gas provider's announcement in June that $700 million worth of its bonds are not compliant with shariah law in the United Arab Emirates (UAE) perplexed the market. The firm’s chief investment officer, Mohieddine Kronfol, said that the impact of this restructuring will be insignificant to the wider industry in the long-term. He added that Dana Gas is owed around $1 billion from Iraq and Egypt, Dana Gas is only one issuer in a global sukuk market with over 90 issuers. In his opinion, the media and public attention spent on Dana Gas is out of proportion with what has transpired so far.

The Islamic Financial Services Board (IFSB) in its annual report highlighted developments in the Islamic Finance Fintech space. To identify relevant crowdfunding platforms with a focus on equity- and loan-based platforms located in the Muslim world, the database of Crowdsurfer was consulted. It lists in 32 of the 57 member states of the Organisation of Islamic Cooperation (OIC) a total of 108 crowdfunding platforms. After some corrections, the Crowdsurfer database identifies 14 equity-based and 13 commercial loan-based crowdfunding platforms with an active status. The number of platforms in OIC member states that explicitly refer to Islamic finance or Shariah and offer investors financial returns is very small. There are two more Islam-oriented active platforms of this type outside the OIC: Ethis Crowd (Singapore) for real estate, and KapitalBoost (Singapore) for SME financing.

Dana Gas described decisions by the High Court of Justice in London as favourable, as the company seeks to restructure $700 million of outstanding sukuk. On July 5 the High Court upheld an injunction blocking holders of the bonds from enforcing claims related to the securities against Dana. The court ordered Dana to cancel an injunction in a court in Sharjah and to seek a stay of proceedings there. The company remains keen to engage with sukuk holders and reach an agreement on a consensual basis, which is not prevented by the injunctions in place.

The African Development Bank (AfDB) and the Islamic Development Bank (IDB) have signed an agreement to support projects in energy, agriculture and SME sectors on the continent. Both parties agreed to jointly pool together $2 billion over the next three years to finance projects in agriculture and food security, renewable energy, small and medium enterprises (SMEs). They also agreed to contribute $1 billion each over three years for joint activities focusing on these priority areas. CEO of AfDB, Akinwumi Adesina, reaffirmed the bank’s commitment and interest to build a stronger partnership with the Islamic Development Bank.

The Malaysian Institute of Accountants (MIA) announced that Malaysia could become the first country to incorporate the International Financial Reporting Standards (IFRS) in Islamic finance. MIA president Datuk Mohammad Faiz Azmi said the accounting body was looking into the prospect. He added that MIA will come out with a book on how to apply the IFRS in Islamic finance, as many countries have not adopted it yet. The book will be launched later this month with the help of the regulators and banks. According to MIA, Malaysia adopted the IFRS in 2012, in keeping pace with global trends. The IFRS brings transparency, accountability and efficiency to financial markets. Faiz said MIA’s role was assisting Malaysian Accounting Standards Board (MASB) to prepare the market for IFRS. For that, MIA carries out various workshops and courses.

The Mindanao Development Authority (MINDA) is currently pushing to fast track the institutionalization of the Islamic Financing Mechanism. MINDA assistant secretary Romeo Montenegro said they are proposing the amendment in order to have specific mechanisms for full implementation of the Islamic Finance Mechanism. He added the bill in the Senate is already in the committee level and are already waiting for the same version to be filed in the House of Representatives. Montenegro said they wish to have the Islamic Financing Mechanism to pilot at Marawi to help with the reconstruction efforts in the area. It is also targeted to be a channel for the Middle Eastern countries willing to shell out financial support for the victims of the Marawi siege.

Several African countries are vying to become regional hubs for Islamic finance. Kenya has three Islamic banks, as well as an Islamic insurance company. A further five conventional banks offer sharia-compliant products through dedicated Islamic 'windows'. Kenya also hopes to issue a sovereign sukuk to raise funds for infrastructure and help foster an Islamic capital market. Nigeria, which has one Islamic bank, plans to do the same. South Africa, Senegal, Côte d’Ivoire and Togo have already issued sovereign sukuk. In north Africa Islamic finance has long been held back by a fear that it means introducing sharia law through the back door. South of the Sahara the problems are more structural. According to Thorsten Beck of City University in London, Islamic banks’ sources of funds are mainly short-term, making it hard for them to offer long-term financing. Khaled Al-Aboodi of the Islamic Development Bank says regulators don’t yet know how to deal with the sector. In Kenya Islamic transactions still face double taxation, which makes it hard to compete.

#Kuwait’s Warba Bank announced a new Shari’ah-compliant, joint, multi-currency financial deal of $236 million with the Ziraat Participation Bank of Turkey. Warba Bank acted as the Lead Arranger and Subscription Manager of the deal, which was initially launched at $160 million. Due to oversubscription, the deal was increased so as to reach $ 236 million, with an increase of 52%. The Murabaha-based financing deal includes both US Dollars and Euros. It will be employed mainly in SME financing and income diversification at Ziraat Bank. Shaheen Hamad Al-Ghanem, Warba Bank’s CEO said the Bank was proud to be entrusted and to contribute to the financing of the agricultural sector, which is one of the pillars of the rise of the Turkish economy. This is the second participation of Warba Bank in arranging a financing transaction for the Ziraat Participation Bank of Turkey. In 2016, it contributed to a $155 million multi-currency co-financing transaction for the Turkish bank.

The Islamic Development Bank (IDB) Group organized an event on "Promoting Connectivity for Sustainable Development". The event was chaired by Hani Salem Sonbol, CEO of the International Islamic Trade Finance Corporation (ITFC) and the keynote speech was delivered by Aja Fatoumatta Jallow Tambajang, vice president of Gambia. The event provided an in-depth analysis of the IDB Group strategic objectives in financing infrastructure investments. The event was also an opportunity to bring together experts and exchange ideas on growth and connectivity among member countries. Sonbol stated that the IDB Group adopted a 10-year Strategy and one of its objectives is "Connectivity for Growth". The objective is to promote cooperation among member countries, both in terms of private sector and public-sector cooperation to enhance trade, investment, knowledge, and capacity development.

The external Shariah audit is the latest development in the area of Shariah governance of the global Islamic banking industry. Traditionally, Islamic banks appoint a Shariah supervisory board with the mandate to oversee Shariah compliance. An additional layer of assurance by an independent party will provide greater assurance to the Islamic banks' stakeholders. Several central banks are already using the external Shariah audit in their governance system, for example the Central Bank of Kuwait or the central banks of Oman and Pakistan. Several other jurisdictions, including Bahrain, are also likely to do the same. The Accounting and Auditing Organisation for Islamic Institutions (AAOIFI) recently issued an Exposure Draft specifically on external Shariah audit. Availability of human resource can be a challenge in implementing external Shariah audit. This can be overcome by taking initiatives to train both the professional accountants and Shariah experts to conduct an external Shariah audit.

The Nigeria Customs Service announced that only Jazz Bank was able participate in the first bidding of its e-auction exercise. Joseph Attah, the Customs National Public Relations Officer (PRO), said that Jazz Bank was the only one out of the 23 customs duty collecting banks that accessed the e-auction platform. The PRO said that all the 23 Customs duty collecting banks were carried along and the process was subjected to user acceptability test. Throughout the testing period, no bank indicated any problem with the platform. However, upon launch only Jaiz Bank was discovered to be ready and active on the platform. Attah noted that the first 48 hours bidding period produced 43 winners. Items uploaded were 130 vehicles, 43 people placed their bids and won vehicles.

In Spain the Muslim population exceeds two million being higher than that of Qatar or Bahrain and similar to the population of Kuwait. However, there are no Shari'ah compliant services or assets under management. Europe advances in this type of financing. The United Kingdom was the first non-Muslim country that held in 2014 an emission of sovereign Sukuk bonds amounting to 200 million pounds. In 2015 Kuwait Finance House (KFH) opened a subsidiary in Germany, Habib Bank Zurich will operate in the UK at the end of 2017. There is a clear tendency that Islamic banks are expanding their activities in Western countries and continue introducing their products in these markets. In Spain there is an excellent opportunity to implement Islamic finance as currently there is no market operator offering Shari'ah compliant products or services.

Dubai International Financial Centre (DIFC) signed a Memorandum of Understanding (MoU) with Dubai Islamic Economy Development Centre (DIEDC). Earlier this year, DIFC launched FinTech Hive, a 12-week accelerator programme which allows tech start-ups to test and develop FinTech related business ideas. As part of the agreement, the programme will include institutions such as Emirates Islamic Bank, Dubai Islamic Bank, and Abu Dhabi Islamic Bank, to mentor participants in the field of Islamic finance technology. Arif Amiri, CEO of DIFC said this MoU was an important step for FinTech, for the Islamic economy and for FinTech Hive. For his part, Abdulla Mohammed Al Awar, CEO of DIEDC, said FinTech Hive at DIFC will go a long way towards developing segments like mobile banking and payment systems, as well as SME financing.

Mohammed Younus, a director of Shahjalal Islami Bank, gave a newspaper advertisement to sell his holding in the bank violating securities laws. Directors of listed companies must give announcement on the Dhaka Stock Exchange (DSE) website if they want to sell their shares, but Younus did not make any such announcement. The board of the bank felt embarrassment about the issue as the director has not informed it about his planned sale of shares. The bank's executive director Subhankar Saha said this type of advertisement was undesirable. The current market price of 2 percent shares of Shahjalal Islami Bank is about Tk 26 crore.

Pakistan's central bank has issued guidelines for banks that want to be fully-fledged sharia compliant, setting a three-year time frame for applicants to complete the process. The rules aim to accelerate the growth of Islamic banking in the country. Eligible applicants must have existing Islamic finance operations and the conversion process must start within six months of approval. After the conversion of conventional branches, the applicant can then apply for a fully-fledged Islamic banking license. Such conversions are rare in Islamic finance but are seen as a way to increase the scale of the bank and widen its reach into under-served rural areas. Islamic banking in Pakistan currently includes five fully-fledged Islamic banks and 16 conventional banks offering Islamic financial products. As of March, they held assets worth 1.9 trillion rupees ($17.9 billion), a 16% increase from a year earlier and 11.7% of total banking assets. However, their capitalization and profitability ratios remain below the industry average.

Last month, Dana Gas tried to impose on investors a restructuring of the payment of its two outstanding sukuk tranches totalling US$700 million. The company got an injunction in the High Court in London restraining sukuk holders from taking any hostile action against Dana. The overriding concern is that if the High Court in London rules against Dana Gas, the matter goes to trial and Dana Gas wins, it would set an appalling precedent that can undermine the integrity of sukuk as a fundraising instrument. Syariah advisories agree that the only solution would be the introduction of a world sukuk standard supported by local laws, an Apex Sukuk Standard, which would give legal and syariah certainty. Any dispute could either be subject to arbitration or recourse to law. Dana Gas re-scheduled yet another conference call with sukuk holders to discuss the matter. The High Court in London scheduled a hearing for September. This saga is far from over.

According to Dana Gas CEO Patrick Allman-Ward, the company aims to communicate proposed terms of a restructured sukuk issue in coming weeks. He spoke to sukuk holders in a conference call, but there was no question and answer session and no immediate response from creditors. In mid-June, Dana stunned creditors by announcing it would halt payments on its four-year sukuk because they no longer complied with changing interpretations of the Sharia code. Dana said it would exchange the sukuk for new Islamic instruments with lower profit rates than the existing paper. Investors and bankers are concerned that other sukuk issuers could imitate Dana in refusing to redeem paper on the grounds that it has lost its sharia-compliance. CEO Allman-Ward insisted that Dana's arguments did not apply to other, lawful sukuk formats. Dana's existing paper features profit rates of 7 and 9%. The new sukuk would provide profit distributions at less than half the rates. Sukuk holders are contesting the plan in courts in London and the emirate of Sharjah.