IslamicFinance.de

In this interview, Iyad Asali, General Manger of Islamic International Arab Bank speaks about the future of Islamic banking in Jordan. The Central Bank of Jordan (CBJ) reported that 69% of the population in Jordan are financially excluded. This gives Islamic banks an opportunity to develop new financial services for this segment. Jordan’s Islamic banks are currently trying to take advantage of this situation to raise awareness of their services. They are also working to improve financial literacy through media, events, social networks and conferences. Over the past five years Islamic International Arab Bank has developed a new framework for sharia-compliant SME financing in coordination with the CBJ. This cooperation led to the founding of an Islamic tool for mobilising funds to SMEs at subsidised costs and the establishment of a sharia-compliant fund to guarantee start-ups financing. This programme empowers a large segment of SMEs across various sectors, especially those owned by young entrepreneurs and women, and those located outside Amman.

Brunei's efforts to expand the scope of the financial sector are aimed at ensuring a greater diversity of public and private sector financing. In April Brunei Darussalam issued two sukuk worth a combined $150m. The first, a $50m bond with a rental rate of 1.03%, has a one-year maturity, while the second offering, a $100m sukuk with a rental rate of 0.78%, will mature in July. In the period from 2001 to 2015 Brunei Darussalam offered 119 short-term sukuk, equivalent to 2.32% of the global market by value. The Sultanate stands alongside Indonesia and Malaysia as major issuers of Islamic financial instruments in the region and is poised to play a growing role in the issuance of sukuk in coming years.

The opening of the Islamic financial services (IFS) sector in Ghana is expected to create new financing and lending opportunities in the coming years, with sharia-compliant banking offering particular potential in the retail and small and medium-sized enterprise segments. In Ghana there is currently just one sharia-compliant financial institution – Ghana Islamic Microfinance, which began as an NGO – though there is significant scope for growth. The Bank of Ghana (BoG) may be preparing to issue the country’s first licence for a sharia-compliant bank in late 2015 or early 2016, with an accompanying reform to the regulatory framework also expected to be implemented.

A string of innovative financial products from Indonesian start-ups are circumventing the traditional payment and investment system, helping to broaden financial inclusion and challenging the established banks. Indonesia’s tech-savvy youth have already given rise to pioneering start-ups with social and religious missions and the so-called FinTech industry is set to disrupt traditional banks by offering everything from Bitcoin remittances to mobile pawn shops and retail lending platforms. With a large swath of the population still unbanked – in part due to the country’s challenging geography – new technologies in banking, transactions and payments offer significant growth potential, with banks under increasing pressure to respond to the trend.

Takaful is set to grow in Turkey, with its predominantly Muslim population showing increasing interest in Islamic finance products and the government keen to support their growth. However, insurance of any kind can be a hard sell in Turkey, with the population generally averse to insurance cover and penetration levels as low as 1.4%. Takaful also has a minimal profile in the Turkish market at present. The two firms that offer Islamic insurance products, Neova Sigorta and Asya Emeklilik, account for less than 0.5% of the insurance sector’s assets. However, the increasing success of Islamic banks could point to a market opening for takaful underwriters.

An increasing number of Kuwaiti lenders are moving away from traditional banking in a bid to tap into a booming market for Sharia-compliant financial products in the region - a move that could soon see Islamic financing overtake conventional banking in the Gulf state. Commercial Bank of Kuwait (CBK) is the latest to unveil plans to turn into a fully-fledged Islamic institution. There are already five other Kuwaiti Islamic banks; Kuwait Finance House (KFH), Boubyan Bank, Al Ahli United Bank, Kuwait International Bank, and Warba Bank, which was established in 2010. This compares with four conventional banks. Kuwait’s Islamic banking assets grew by 8.7% during the first nine months of 2013, reaching KD22.5bn ($79.7bn), while Islamic financing grew by 11.2% to hit KD13.5bn ($47.8bn) during the same period.

A cooperation agreement between the bourses of Malaysia and Saudi Arabia – the world's two largest Islamic financial services markets – stands to help the industry grow at a greater clip in both countries. The deal, signed on February 20, will see the exchanges in Kuala Lumpur and Riyadh share expertise and develop human resources jointly. It covers topics such as equities, mutual funds and sukuk. Combined, Malaysia and Saudi Arabia hold $682bn in Islamic banking assets. The Saudi exchange, Tadawul, lists the world’s biggest Islamic banks, while Bursa Malaysia hosts the largest and most liquid market for sukuk.

New regulations introduced by the Qatar Central Bank (QCB) in mid-June will curb local banks’ investment options, potentially making sovereign bonds more appealing at the expense of some private sector options. Under the new regulations, with which lenders must comply within six months, equities and bonds can account for up to 25% of a bank’s capital and reserves, although debt issued by the government and national banks are exempt from the limit. The cap had been previously set at 30%. The new regulations also limit the amount banks can place with individual companies and unlisted securities, establishing a maximum of 5% of capital and reserves for foreign investments and 10% domestically. The cap for total foreign equities is set at 15%. These new rules will apply to both conventional and Islamic lenders.

The Banking Regulation and Supervision Agency (BDDK) announced on February 13 that the Islamic financial services segment grew 12.6% in 2012. Total assets reached TL1.3bn ($0.72bn), driven largely by growth in the second half of the year, according to Mükim Öztekin, president of the BDDK. Expansion was due to a change in the perceived level of risk in the country, he added, together with an acceleration of capital inflow, decreasing interest rates and the overall economic growth trend. According to BDDK, sector profits hit TL23.6bn ($13.10bn) in 2012, up 19.2% on the TL3.8bn ($2.11bn) posted the previous year. Equity capital, meanwhile, increased by 26% to reach TL182bn ($101.13bn). While conventional banking assets and profits are growing at a steady pace, the Islamic finance segment has been earmarked as the industry’s next big growth story.

According to expectations, the measures introduced to bring the rules on takaful insurance up to date and expand them will be of help to the efforts of the segment to make inroads into the market share. The first Islamic policy writer opened in 1989, which, compared to other countries in the Gulf region and Asia, is very early. However, although Bahrain was working on becoming an insurance and takaful centre in the region, it is still necessary to strengthen its position. This could be accomplished by developing the Kingdom's human resources pool through advanced training programmes.

Sabah’s state banks have been positively assessed which results in rising confidence about the potential of its financial services sector and Islamic finance in particular. The “AA1” and “P1” issue ratings of the corporation have been reaffirmed by RAM Ratings in July. A month prior to that, Sabah Development Bank (SDB) received long- and short-term issue ratings of “AA1” and “P1”. All in all, a stable outlook and a leading strategic role of the Corporation are pointed out.

Read more on: http://www.oxfordbusinessgroup.com/economic_updates/sabah-islamic-bankin...

Brunei Darussalam strives to become a knowledge-based economy. Information and communications technology shall be a pillar for this ambition, which is why the country has been strongly supporting innovation in the industry and has benn investing in its infrastructure. However, Asian rivals make out huge competition in the field of software, which the Sultanate was hoping to boost its expert economy. In August, Authority for Info-communications Technology Industry informed about grants for the businesses as high as BN$250,000 ($197,930).

More on: http://www.oxfordbusinessgroup.com/economic_updates/brunei-darussalam-se...