Nigeria inches closer to establishing Islamic banking model

 

The Governor of the Central Bank of Nigeria, Mr. Lamido Sanusi’s initiative to establish an Islamic banking model in the country is getting closer to reality. To foreclose any doubt and capitulation to varied criticisms against the proposal, the apex bank‘s helmsman led a delegation from the CBN to the 16th Meeting of the Council of Islamic Financial Services Board in Khartoum, Sudan recently.

The meeting, the second attended by Nigeria since the CBN became a full member of the council in 2009, serves as a tonic for the regulator to reaffirm its commitment towards establishing the model of banking operated according to the dictates of Sharia law.

Sanusi, who has never hidden his passion for the non-interest banking paradigm, is of the opinion that the prevailing economic meltdown has increased the demand for Islamic financial products and services across the world.

His belief stems from the perception that while the recent economic meltdown lasted, Islamic institutions displayed strong resilience reflecting their conservative approach to business, balanced and ordered appetite for growth and focus on the basis of financial intermediation as opposed to innovation.

At the Khartoum gathering, Sanusi intimated the leadership of the Central Bank of Sudan of the ongoing efforts by the CBN to develop a regulatory and supervisory framework for non-interest banking and solicited the support and cooperation of the mainly Islamic country‘s banking regulator in that regard.

As expected, he got a positive response from the Advisor to the Governor of the CBS, Dr. Ahmad Ali Abdullah, who represented the Governor.

He was assured of the readiness of the banking regulatory authorities in Sudan to support the CBN in its implementation efforts through experience sharing and capacity building.

During the meeting, the council deliberated on several issues including strengthening of Islamic financial system and approved in principle to establish an inter-governmental special purpose entity to help in building liquidity management infrastructure at both domestic and international levels.

The CBN, in an e-mailed statement to our correspondent on Friday, said, ”Establishing the special purpose entity would be achieved by facilitating cross-border liquidity management among non-interest financial institutions through the acquisition and maintenance of global pool of sovereign assets.”

According to the council, such sovereign assets must be suitable for use as underlying asset on which it would benchmark the issuance of highly rated Islamic bonds to be traded globally.

Other areas which the council deliberated and agreed upon include the issue of capacity building among the operators and regulatory authorities with a view to strengthening their operations and ensuring efficient service delivery in the industry.

Sanusi believes that the global financial crisis exposed the deficiencies in the conventional banking system and damaged the confidence in the global governance system.

The CBN boss had said in an earlier gathering that he initiated actions to develop a regulatory and supervisory framework for Islamic banking in Nigeria in recognition of its benefits in a growing economy like Nigeria.

To realise the non-interest banking model, the CBN intends to deploy a number of strategies to address some of the identified challenges,

These include extensive capacity building through collaboration among the various stakeholders to develop cognate expertise in non-interest banking, development of an adequate regulatory and supervisory framework for the effective operation of non-interest banking in Nigeria, promotion of greater cooperation and coordination among relevant regulators and other stakeholders such as the Securities and Exchange Commission and the Nigerian Stock Exchange, the National Insurance Commission, the Nigeria Accounting Standards Board, among others.

source : the punch

First Islamic Microfinance Bank Launched in Lagos

The first Islamic micro finance bank in the country, Al-Barakah Micofinance Bank was yesterday commissioned in Lagos.

The bank is an initiative of The Muslim Congress which spans 16 years.

At a well attended event, the Chairman of Al-Barakah MicroFinance Bank, Dr.Abdul Hakeem Mobolaji said the bank is set up in response to the increasing demand for alternative micro credit products by the less privileged members of the society against the conventional banking practices.

He also said the bank would provide succour and financial service to the society in support of the Federal government’s drive to eliminate poverty in the country.

“What we are commissioning today represents our contribution towards providing an alternative banking for Muslims and non-muslims alike.

It is our fervent hope that more like-minded individuals and corporate body will embrace this window and deepen the financial market through provision of sophisticated Islamic instruments and finance”.

source : allafrica

Future of Islamic banking: Things can only get better

Several countries have started to place an emphasis on a consumer-friendly banking system that has evidently proven its ability to avoid the harsh effects of the global economic crisis.

Islamic banking created a shelter for these countries, though a small one, when their economies were hit by the worst economic depression in 80 years. Having proven its robustness, many pundits confidently claim today that Islamic finance has a bright future ahead with growing recognition all around the world. Badlisyah Abdul Ghani, the CEO of CIMB Islamic Bank Berhad, which was voted Best Overall Islamic Bank at the 2010 Islamic Finance News Awards, believes a bright future lies ahead for interest-free banking. Abdul Ghani says the outlook is very positive as Islamic banking is gaining prominence among customers, adding that with greater consumer awareness, the demand will likely grow in tandem. In Malaysia, Islamic finance already commands 20 percent of the total banking sector, 70-80 percent of the primary debt capital market, more than 60 percent of the total outstanding corporate bonds, 88 percent of the listed stock and 10 percent of the asset management industry. “The expectation is for these market shares to grow further in the next five years,” Abdul Ghani said. In fact, when it comes to Europe, the UK and France have already introduced Islamic finance into their financial system and the Kuveyt Türk Participation Bank is vying to gain a stronger footing in Germany with its interest-free banking applications. Jamzidi Khalid, CEO of Deutsche Bank AG International Islamic Banking and the head of Islamic Structuring for Asia ex-Japan, said in a bank press release dated March 1 that the bank hopes to increase its leading niche in the market. “Making our conventional product platform available to clients in a Shariah-compliant format greatly increases our competitive position, while contributing to the market’s broader development. This is particularly true of the Islamic bond market, where we hope to leverage our position as the number one arranger of conventional international bonds in Asia,” he said. Islamic banking banks are not confined to commercial and retail banking and have also tremendously expanded in asset management through Shariah-compliant fund management. According to an S&P report, assets of the top 500 Islamic banks expanded by 28.6 percent to total $822 billion in 2009, compared to $639 billion in 2008. Although Islamic finance survived the 2009 economic depression largely undamaged, it was not fully immune. The biggest Islamic banking market is held by Saudi Arabia. However, after the Middle East, Malaysia emerges as the leading nation in the Islamic banking system, due to its organization and long-term vision. Malaysia is recognized as Asia’s Islamic financial hub by PricewaterhouseCoopers. The firm concluded that as of the end of 2009, Malaysia’s Islamic banking assets equaled RM113.5 billion ($35.2 billion). In addition to that, according to a 2009 report by the Malaysia International Islamic Financial Center (MIFC), Malaysia had the largest “sukuk” — the Islamic equivalent to a bond — market in the world by 2007 with a total of $25 billion. Islamic banking has a similar rationale as conventional banking except that it operates in accordance with Shariah rules on transactions, forbidding interest as well as investment in businesses that provide goods or services considered haram, or contrary to Islamic principles. The obvious differences between Islamic banking in Malaysia and in the West are its products and services. For example, partly due to the fact that the majority of Malaysians are Muslims, Malaysia has more varied players, including Islamic banks, investment banks, insurance companies, development banks, savings institutions, fund management companies, stock brokerages and trusts. There is also a Pilgrims Management and Fund Board (Tabung Haji) to help people save for hajj, the pilgrimage to Mecca. There is little difference between Islamic banking in Malaysia and in the Middle East as Malaysia works closely and emphasizes strategic alliances through Islamic finance with emerging countries of the Middle East, Africa, Central Asia and Latin America, countries expected to experience the most rapid economic recovery. Malaysia has also taken several initiatives into account, including exempting a wide range of taxes across the Islamic finance spectrum, pioneering numerous global Islamic banking and finance initiatives, adopting a liberal foreign exchange regime and creating a comprehensive regulatory and supervisory framework to ensure transparency and accountability, all of which are important to its Muslim and non-Muslim constituents. Banks from all around the globe have taken an interest in Malaysia’s Islamic banking market, including Japan’s Bank of Tokyo-Mitsubishi UFJ (Malaysia) Berhad (BTMU), Germany’s Deutsche Bank AG and Saudi Arabia’s Al Rajhi Bank. Abdul Ghani underlines that investors have been confident about investing in Islamic banking in Malaysia. “Malaysia is one of the most successful and mature Islamic financial markets in the world thanks to our focus on the robustness, integrity and stability of the market — due to an effective and facilitative legislative, regulatory, legal and Shariah framework. This approach helps build confidence in the industry,” he added. Islamic banking has its critics. Many doubt, for instance, that its principles and the products are attractive enough to interest non-Muslims. For that reason, therefore, conventional banking is also regarded as a significant part of the financial system in countries where Islamic banking takes place. There is also the issue of human resources and expertise scarcity in Islamic banking, which hinders the system’s global growth. In Malaysia, the International Shariah Research Academy (ISRA), the Islamic Banking and Finance Institute Malaysia (IBFIM), the International Center for Leadership in Finance (ICLlF) and the International Center of Education in Islamic Finance (INCEIF) were established to ensure a deep pool of talent and expertise to support Islamic financial development. Jordan’s central bank governor, Umayya Toukan, told Reuters in March that it is important for Islamic banking to be part of the global banking system, noting that it should not be isolated and that the international standards of financial systems such as accounting standards, regulations and capital adequacy requirements must be available for Islamic banking, too. To achieve this standardization, Malaysia has established prudential standard-setting bodies. The Islamic Financial Services Board (IFSB) and the Association of Islamic Banking Institutions Malaysia (AIBIM) have adopted two standardized agreements, which are the Interbank Murabahah Master Agreement (IMMA) and the Master Agency Agreement (MAA) for deposit-taking and placement transactions. Vatican suggests Islamic system as model for Western banks L’Osservatore Romano, the semi-official newspaper of the Holy See, reported during the global economic crisis that the Vatican favors Islamic financing and noted that banks should use Islamic finance as a model in their efforts to increase consumer confidence. The Vatican suggested that Western banks, which have been negatively affected by the global crisis, should look at rules governing Islamic finance to restore confidence among their clients.

source : todayzaman

Islamic finance unscathed but need for tighter rules

The syariah finance industry, which abides by religious laws that prohibit the payment and collection of interest, is worth an estimated US$800 to US$950 billion (US$1 = RM3.20) and expanding in the Muslim world and in the West.

Moody’s Investors Service said earlier this month that the sector has a market potential of US$5 trillion.

However, the global economic turmoil which felled some mainstream banking institutions, and Dubai’s financial fallout late last year, has highlighted the need for the industry to shore up areas where it may be on shaky ground.

 

Dubai stunned financial markets last November when it said it might need to freeze debt payments by its largest conglomerate Dubai World. Last month it announced a debt restructuring plan with a US$9.5 billion funds injection.

“What happened in Dubai is affecting both the conventional market and the Islamic market because the players in the market totally forgot proper risk management,” says Badlisyah Abdul Ghani, chief executive of CIMB Islamic, a pioneer Islamic bank in Malaysia.

“A lack of framework regulations are the single biggest threat to Islamic finance growth today,” he said at a recent conference on syariah finance held in Kuala Lumpur.

In Islamic finance, the customer and the institution share the risk of any investment and also divide any profits between them.

“There’s nothing wrong with the Syariah structure, it’s the law of the land and the regulatory framework that needs to be sorted out to ensure an Islamic financial transaction can be carried out effectively,” Badlisyah said.

source : businesstimes.my

Plea to expedite interest-free Islamic banking

A joint delegation of Rajasthan Muslim Forum and the Indian Centre for Islamic Finance met Union Minister of State for Finance Namonarain Meena in New Delhi on Saturday to discuss with him the feasibility of interest-free Islamic banking in the country.

Experts in the delegation brought to Mr. Meena’s notice a recommendation of the Union Government’s Committee on Financial Sector Reforms, headed by Raghuram Rajan, for creation of a framework for interest-free banking. They said the new banking system would not only be viable for the coun-try but also beneficial for underprivileged sections of society.

The delegation’s members included Indian Centre for Islamic Finance general secretary H. Abdur Raqeeb and Jamat-e-Islami Hind Rajasthan president Mohammed Salim, who is also a member of the Rajasthan Muslim Forum.

The delegation pointed out that large sections of Muslim population in different States had kept themselves away from conventional banking because of their religious faith not allowing transactions involving interest. Their investments could benefit the national economy if interest-free banking was permitted in the country.

Mr. Salim said the noted agricultural scientist, M. S. Swaminathan, had recently observed that Islamic banking could be the solution to farmers’ suicide in Vidarbha. About 40 per cent customers of Islamic banking institutions in Malaysia and 20 per cent in Britain are non-Muslims.

Mr. Abdur Raqeeb submitted to the Union Minister the documents relating to methods and techniques adopted by modern and secular countries to create a level playing field for conventional and Islamic banking. “When London, Tokyo, Singapore and Hong Kong can become hubs of Islamic finance, why not Mumbai or Cochin?” he asked.

The delegation said in a statement that Mr. Meena assured of looking into the issue seriously and promised that he would hold detailed discussions with the officers of his department in this connection.

source : hindu

Indonesia eyes Islamic T-bills, retail sukuk in 2010

Indonesia may issue Islamic treasury bills and retail sukuk this year to diversify funding sources, develop the Islamic debt market and finance the state budget deficit, finance ministry officials said on Monday.

The ministry also said it expected to issue conventional bonds for retail investors in July or August, with maturities of up to five years.
Indonesia, the world’s most populous Muslim country, has been relatively slow to develop its Islamic markets, lagging Malaysia and Singapore. It stepped up its efforts last year by eliminating double taxation of such sharia products, as this had hampered growth of the industry.
The finance ministry currently issues conventional treasury bills, with maturities of up to 12 months — usually at least once a month via debt auctions — while Bank Indonesia (BI), the central bank, issues treasury bills called central bank certificates (SBIs) with a maximum maturity of six months.
“We are still in talks with BI including on the maturity” of the Islamic T-bills, Dahlan Siamat, the finance ministry director in charge of Islamic debt, told reporters.
“If it can be issued this year, that will be good,” said Rahmat Waluyanto, the ministry’s head of debt management unit, referring to Islamic T-bills.
BID TO CONTAIN HOT MONEY FLOWS
The finance ministry’s decision to consider issuing Islamic treasury bills follows moves by the central bank to reduce the frequency of its SBI auctions as it tries to contain hot money flows, shift money into longer-dated paper and spur bank lending.
The central bank is in the process of changing its auction schedule. It will hold its SBI auctions once a fortnight, instead of once a week, until late May, and then once a month starting in June.
Central bank officials have said they expect to rely less on SBIs for monetary operations and instead use more finance ministry debt securities.
Ministry officials also said they expected to issue Islamic debt, or sukuk, for retail investors around November.
The ministry last sold sukuk to retail investors in February, raising 8 trillion rupiah ($888.3 million) in a three-year issue that yielded 8.7 percent — well above the one-year bank deposit rate of about 6.5 percent.
The finance ministry has said it plans to raise 176.2 trillion rupiah from bond issues this year, including both conventional and Islamic debt.
The proceeds would be used to finance the budget deficit, which under the approved budget is forecast at 1.6 percent of GDP this year, although under the revised budget it is forecast at 2.1 percent of GDP. ($1=9005 Rupiah)
source : guardian

Islamic finance bodies have trillion-dollar potential – Moody’s

ISLAMIC financial bodies, which adhere to religious proscriptions against interest, have a market potential of at least US$5 trillion ($5.43 trillion), Moody’s Investors Service said.

But Moody’s added that such institutions needed to develop their own derivative instruments, avoiding conventional derivative practices, if they wanted to retain their popularity among Moslem investors.

It said Islamic financial institutions had total assets in 2009, despite a gloomy international economic environment, of $US950 billion ($1.03 trillion).

But it estimated that the sector’s potential was “worth at least at least $US5.0 trillion ($5.43 trillion) and the industry is continuing to expand globally.”

Islamic banking has been left relatively unscathed by the global financial crisis, largely because of rules forbidding engagement in the kind of risky business that sank mainstream institutions like Lehman Brothers.

Islamic Shariah law bars the payment and collection of interest, which is seen as a form of gambling.

Islamic finance also operates on the principle of risk-sharing between the issuing bank and the buyer of a financial product, making it a less risky alternative to some conventional banking instruments.

Moody’s Vice President and Senior Credit Officer Anwar Hassoune said that Islamic financial bodies now wanted to use derivative instruments to hedge against risk and to improve monitoring practices.

“However they are keen to do so in a Sharia-compliant manner, rather than imitating conventional derivative instruments, in order to avoid losing their special status as Sharia-compliant banks, which makes them very attractive to a large population of Muslims.

“For this reason a new innovation phase in the industry is critical.”

source : news.au