Gulf Times

Islamic finance, an untapped funding alternative for PPPs

Public Private Partnerships (PPPs), arrangements between government agencies and private sector companies or investors to provide and maintain public assets and services are increasingly becoming popular, particularly in developing countries, to create infrastructure, utilities and healthcare facilities. In most cases, governments rely on the provision of private funding in exchange for fiscal benefits for the sponsor in the absence of sufficient sources of debt and equity financing on their own. Islamic Finance has evolved as an untapped source of funding for cash-strapped governments seeking alternative sources to invest in critical infrastructure and services.

Malaysia seen selling Islamic dollar debt as inflows quicken

Malaysia plans to tap the global Islamic bond market for a second consecutive year, joining Indonesia that’s planning a sale in March. Banks have reportedly been asked to submit proposals by next week for a benchmark dollar-denominated offer. Malaysia sold $1.5bn of US currency sukuk in April 2015, its first international bond issuance since 2011. The ringgit is the best-performing emerging-market Asian currency over the past three months as exports have held up and the government managed to keep its budget deficit within target even as oil prices slumped. Indonesia plans to offer Shariah-compliant sovereign dollar notes in March.

Fintech set to become game changer for Islamic finance

Fintech, or financial technology with its potential to disrupt traditional structures in the financial industry, is seen as an important factor to change the perception and dissemination of Islamic finance in the Muslim, as well as in the non-Muslim world. New ventures combine Shariah-compliant financing principles with new technologies, such as web-based Islamic crowdfunding and peer-to-peer lending, as well as other forms of IT-based alternative financing including special variants such as Bitcoin-based, Shariah-complaint micro-lending. The latest conferences on Islamic finance as well as the upcoming Islamic Banking & Investment Asia/Middle East Congress 2016 to be held in Singapore in early April all are focusing on new financial technologies featuring “out-of-the-box, forward-looking visionaries” from beyond the traditional confines of the Islamic finance industry.

Iran set to reshape global Islamic finance industry

Iran currently accounts for more than 40% of the world’s total Islamic banking assets, or around $482bn. Iran could easily cross the $1tn-asset mark by 2018 given the urgency for cash-strapped Iranian public and private companies to raise liquidity after years of isolation from the international finance industry. Analysts expect that a large number of sukuk and other Islamic financing vehicles will hit the world market soon. Adding to private companies, the country requires funds for its infrastructure development programmes earmarked for the next decade worth an estimated $1tn. However, analysts point out that the road back into the global finance system for Iran could be bumpy as the long isolation withheld Iranian banks from implementing globally accepted reporting and compliance standards, and restoring ties of its formerly stand-alone banking system to global financial institutions could prove regulatory and technically difficult.

Tajikistan keen on Islamic banking; seeks investment from Qatar

Tajikistan is keen to benefit from Islamic banking and utilise the experiences of Islamic banks in his country, Minister of Economic Development and Trade Nematullo Hikmatullozoda has said. Hikmatullozoda, who visited QIIB headquarters yesterday expressed the hope that Tajikistan would be able to attract Islamic banks to his country, where his ministry is making efforts to convince investors about the attractive investment opportunities available. In particular, Tajikistan is keen on expanding and further cementing the relationship with Qatar’s financial and business sectors.

Gulf clients look to Al Rayan Bank for long-term ‘safe’ UK property investments

Keith Leach, chief commercial officer (CCO), Al Rayan Bank, has an answer to the question if the new UK stamp duty charges announced in the autumn budget have a negative impact on foreign investment into property. His answer showed that potential investors are looking at the big, global picture. The tax changes — what might be on the horizon — wasn’t figuring in their thought processes. What was in their thoughts was the political and economic instability in the region, he explained. With regard to the impact of the 3% hike across all bands of stamp duty on buy-to-let landlords in the UK, Leach said it could lead to landlords faced with higher charges raising rents, or abandoning the buy-to-let market with a consequent reduction in availability of rental properties.

QInvest, Luxembourg host workshop to focus on Shariah finance themes

Luxembourg for Finance and QInvest are hosting an Islamic finance workshop next week in the European country to debate some of the pressing themes in the Shariah finance industry.
The event, which will be held November 24, will bring together investment fund professionals, bankers, corporate houses and industry practitioners to discuss sukuk issuance and ways of promoting the Shariah bond market as well as the emergence of Islamic high yield financing as an alternative.
The workshop will have presentations from several senior officials of QInvest as Hani Ibrahim, head of Debt Capital Markets; Alexander Armstrong, head of Financial Institutions and Structured Finance; and Dr Ataf Ahmed, head of Asset Management.
They will be joined by Luxembourg and international panellists, including the chief executive of Luxembourg Stock Exchange.

Funding shortfall of $13bn seen for Mena SME Islamic financing

More than one-third of small and medium enterprises in the Middle East and North Africa are out of the purview of banking sector and there exists a funding gap of up to $13bn for SME Islamic financing in the region.
Moreover sukuk, or Islamic bonds, have gained real momentum with many non-Muslim countries raising funds through these instruments, said Malaysian Premier Dato Sri Mohamad Najib bin Tun Haji Abdul Razak at the 11th World Islamic Economic Forum (WIEF), which got underway here yesterday and attended by more than 3,000 delegates from 98 countries.
“35% of SMEs in the Mena are excluded from the formal banking sector. Indeed, there is a financing gap of up to $13bn for SME Islamic financing in this region,” Razak said, quoting a study by International Finance Corp (IFC).


Islamic finance captures real estate market in UK

With Islamic finance entering London’s financial market and billions of dollars of investment in the UK and global real estate coming from Gulf Cooperation Council countries and other Muslim jurisdictions, the UK government was one of the first in the West that started propelling initiatives on Islamic financing vehicles for property purchases as early as in 2013. Meanwhile, Islamic financing facilities have become so popular for real estate transactions in the UK undertaken by Arab investors that the next International Real Estate Finance Summit, the premier real estate event in the UK scheduled to take place on December 1 and 2, 2015, in London, will entirely focus on the opportunities Shariah-compliant finance vehicles entail for property financing.

Maybank Islamic eyeing GCC for sukuk expansion

Maybank Islamic, is one of the leading arrangers of sukuk in the world, has viewed Gulf Cooperation Council, including Qatar, as its priority region in mobilising funds through Shariah-principled bonds.
“The GCC is definitely on our radar. It all depends on what kind of opportunities are available,” said Nor Shahrizan Sulaiman, deputy chief executive of Maybank Islamic, which is wholly-owned by Maybank Group with strong credit ratings from Standard & Poor’s and Moody’s.
The lender, a leading Islamic bank in the Asean region with assets to the tune of $42.65bn as on June 30, 2015, has a branch in Bahrain and a 30% stake in Anfaal Capital in Saudi Arabia.
Maybank is exploring opportunities in the Middle East through its stake in the Saudi Arabia’s Anfaal Capital. Almost 90% of the Maybank Islamic’s balance sheet is domestic and the remaining 10% is from overseas operations, according to Sulaiman.

Pakistan funds idled by sukuk shortage complain of exodus of investor

Shariah-compliant funds in Pakistan say the government’s plan to end a year-long hiatus in local sukuk sales is too little, too late to plug a shortage of assets that has put off their investors. The finance ministry will sell rupee-denominated sukuk once 233.8bn rupees ($2.2bn) of notes mature on November 21. That would be the first offering since it raised 49.5bn rupees in June last year. While Pakistan issued global bonds twice in the past 12 months, it has neglected local investors. A sovereign credit-rating upgrade in June, record foreign-exchange reserves and a narrowing current-account deficit make it an opportune moment to return to the Islamic debt market, after its conventional dollar bond sale in September drew bids for twice the $500mn offered.

Singapore’s Islamic finance industry hit by setback

News that Islamic Bank of Asia, a subsidiary of Singapore’s banking major DBS, will be closing down left the Islamic finance community in the city state baffled. The institution was founded just eight years ago by DBS to tap the Islamic finance potential in Southeast Asia and beyond – with $500mn of paid-up capital shared between DBS and prominent Gulf investors. However, DBS announced in a statement to the Singapore stock exchange on September 14 that IB Asia “will be gradually wound down as it was unable to achieve economies of scale.” The wind-down will likely take two to three years. The apparent failure of IB Asia has been partly attributed to Singapore’s lacklustre regulatory framework for Islamic finance and the absence of a larger local client base.

You can buy bonds in nation aided by yuan drop: Bangladesh

Bangladesh is a rare bird among developing nations: it benefits from a weakening Chinese yuan, is intervening to stop its currency gaining and is about to sell a debut Islamic bond in the quietest year for issuance since 2011. The nation is planning a $1bn note sale that may include a portion of Shariah-compliant notes anytime soon, central bank governor Atiur Rahman said. Only Hong Kong, Malaysia and Indonesia have issued global sukuk in Asia so far in 2015. Bangladesh Bank has sold $3.5bn of taka in the past year, boosting foreign-exchange reserves to a record $27bn, said Rahman.

Barwa Bank has found its niche in Qatar’s growing Islamic banking sector: Moody’s

Barwa Bank, Qatar’s newest Islamic bank in which government is a majority owner, has found its niche in the country’s growing Islamic banking sector, benefiting from Qatar’s strong economy and favourable operating environment, according to Moody’s. Continued high public spending will continue to create further business opportunities for local banks, particularly those with well-established government links like Barwa, the rating agency said. Furthermore, Barwa will benefit from regulators’ policies, which prohibit conventional financial institutions operating Shariah-compliant banking windows and reduce the competition for a fast-growing customer segment. Nevertheless, the bank’s asset quality will likely remain stable over the next 12 to 18 months.

Islamic REITs picking up momentum amid shaky market environment

Another upcoming placement of a Shariah-compliant Real Estate Investment Trust, or Islamic REIT, in Southeast Asia amid a shaky financial market environment shows that the demand for this kind of investment vehicle remains high and the formation of similar REITs in and outside their main playing ground Malaysia will likely pick up momentum. Johor Corp Bhd, the investment arm of Johor state, will list its second REIT, named Al-Salam REIT, on the stock exchange in Kuala Lumpur on September 29. The initial public offering is expected to bring in close to $60mn, with 98% of the units to be sold to institutional investors.

Gulf borrowers ducking market volatility to spur Islamic loans

Banks in the six-nation Gulf Cooperation Council can thank turbulence in the world’s bond markets for spurring Islamic lending to the highest in three years. Loans that comply with Islam’s ban on interest in the GCC have risen 22% this year to $11.9bn, the most since 2012. At the same time sales of Islamic bonds dropped 41% to $6.9bn. The increase in lending will be welcome for banks in the region, where oil’s more than 50% decline in the past 12 months threatens to curtail government spending and clip economic growth. Investors are demanding higher yields amid market swings, prompting companies including Dubai-based construction contractor Drake & Scull International to delay sales.

Asia Islamic bonds turn to losses as the confidence in leaders ebbs

Dollar sukuk returns are turning into losses in Asia’s biggest Islamic finance markets as confidence in government leaders sours amid a regional sell off. Indonesia’s Shariah-compliant sovereign bonds due in 2024 have dropped 3.8% since April and the 2025 Malaysian debt lost 2.6%, compared with a 2.4% decline in a Bloomberg index of emerging-market conventional government notes. In that period, the rupiah plunged 6.4%, and the ringgit 13%. Both countries are grappling with an economic slowdown, falling commodity-export prices and capital outflows as the US prepares to raise interest rates. The reality is, investors have had to resign themselves to stagnant growth, so they were let down after buying into the story.

Islamic finance arriving in the widening digital world

The recently released report “State of the Global Islamic Economy” commissioned by Dubai Islamic Economy Development Center and produced by business intelligence provider Thomson Reuters is highlighting a lot of new trends in the Islamic economy. However, and most importantly, the report points out that the Islamic economy is embracing the digital age which it sees as a “new frontier” in the Muslim world. The digital age will also bring Islamic finance a big step forward, another recent report, “The Digital Islamic Services Landscape“ authored by consultancy Deloitte and sponsored by Kuwait-based Noor Telecom, points out, highlighting the huge untapped potential of the digital Islamic services market.

Growing trend: Islamic finance goes offshore

The rise of Islamic finance and sukuk issuances have brought with it a growing phenomenon: Shariah banking is increasingly taking advantage of offshore banking jurisdictions. Many offshore centres around the world meanwhile offer a wide range of features allowing Shariah principles to be upheld when creating Islamic financial products. Many offshore jurisdictions also offer multiple other benefits such as low income, capital gains, profit or withholding taxes or no taxes at all, no restrictions on foreign exchange or foreign ownership, experienced service providers and operational support. Offshore financial centres that since have attracted Islamic finance are, among others, Cayman Islands, Jersey, Bermuda, British Virgin Islands and Labuan in Malaysia.

Junk no problem for yield hunters as Damac tops sukuk in Dubai

For debt that’s off limits to many banks in the Gulf region, junk-rated Damac Properties Dubai Co’s securities aren’t doing badly at all. The company’s $650mn of bonds maturing April 2019 were the best-performing sukuk in Dubai during July, returning almost 70% more than their nearest rivals. Even after the gains, the yield at 6.45% remained the highest for any non-perpetual Islamic bonds in the emirate as of July 31. While most regional banks don’t hold junk-rated bonds in their books due to capital adequacy requirements, estimates that sales may quadruple this year are boosting the allure of the Dubai developer’s debt to investors seeking higher yields in anticipation of the first US interest-rate increase since 2006.

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