‘Govt opening first shariah-based Banks’

Afghanistan plans to issue licenses for three Islamic banks, the first to offer a range of services that comply with religious law in a country where 99 percent of the population is Muslim. Afghan United Bank, Ghazanfar Bank and Maiwand Bank are seeking permission to provide products that meet Shariah principles, said Aimal Hashoor, a central bank spokesman in Kabul. Now, seven local banks can offer Islamic services through dedicated tellers at branches, he said. The products are limited to Islamic loans, said Sayed Mahmood-ul-Hassan, chief executive officer of Afghan United Bank.

The government wants to expand Islamic finance to draw more assets into the financial system and help reduce the nation’s reliance on overseas aid for reconstruction following 30 years of war and insurgency, according to Hashoor. The country has received more than $32 billion in international aid since U.S.- led forces toppled the Taliban in 2001, he said.

“Afghanistan is a Muslim society and many people don’t want to use conventional banking,” Hashoor said in an interview on Aug. 15. “We want to bring all of the money that we have in businesses and with individuals into the economic cycle.”

The $23 billion economy has expanded an average 11.3 percent annually since 2004, according to the U.S. Department of State. Islamic finance would be popular with Afghans, who are “very religious” and often prefer cash transactions to interest-based banking, holding back the development of local businesses, according to Al Baraka Islamic Bank.

“Islamic banks can fill the vacuum as conventional banking is not fully developed in Afghanistan,” Kaleem Iqbal, a senior executive vice president at Al Baraka Islamic, a unit of Bahrain-based Al-Baraka Banking Group, said in an interview yesterday in Islamabad. “The government would be looking forward to participation by banks in its plans to sell sukuk.”

Sukuk Plan

Afghanistan’s government is limited to using short-term bills and international aid to finance development. The central bank has about 12 billion Afghanis ($261 million) of bills due in 12 months or less outstanding, Rahimullah Zaker, general director of the market operation’s department, said in an interview on Aug. 16.

A government sale of Islamic bonds is planned for the future once full Islamic banking has started and services expand, according to Hashoor. The nation may issue non-Islamic long-term notes next year, he said, without being more specific.

Global sales of sukuk fell 25 percent to $8.3 billion so far this year, according to data compiled by Bloomberg. Issuance totaled $20.2 billion last year, up from $14.1 billion in 2008, and reached a record $31 billion in 2007. The debt is based on asset returns rather than interest to meet Shariah guidelines.

Debt Returns

The difference between average yields on Islamic bonds and the London interbank offered rate narrowed four basis points, or 0.04 percentage point, to 381 yesterday, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index.

Shariah-compliant bonds returned 10 percent this year, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index, while debt in developing markets gained 13 percent, JPMorgan Chase & Co.’s EMBI Global Diversified Index shows.

Malaysia’s 3.928 percent Islamic note yields due June 2015 fell three basis points to 2.73 percent today, according to prices from Royal Bank of Scotland Group Plc.

Afghanistan, with a population of 29 million, is the poorest country in the Asia-Pacific region, with 42 percent of people living on less than $1.25 a day, according to a report on the Manila-based Asian Development Bank’s website.

‘Good Growth’

The government announced a five-year plan to build its finance industry and reduce reliance on aid in 2009. President Barack Obama told Afghan President Hamid Karzai on Aug. 13 that the U.S. is committed to helping Afghanistan become a “stable, secure and prosperous” nation.

The three likely license winners are already among seven lenders providing limited Islamic services such as deposit accounts and loans, said the central bank’s Hashoor.

“Once the banking regulations are in place, the banks can offer a wide range of advanced products such as project financing, mortgages and credit and debit cards,” he said. “The customers will also feel comfortable doing Islamic banking with lenders as they will know that these services are regulated under law.”

The parliament needs to approve Islamic banking laws before the central bank issues licenses to start Shariah-compliant services, Hashoor said. Afghan United plans to offer Islamic credit cards once the bank wins its license, Hassan said.

“We will have good growth of Islamic banking in the future as this is where Muslims prefer to invest their money,” Rama Raju, president of Maiwand Bank, the first lender to provide Islamic loans in Afghanistan, said in an Aug. 15 interview from Kabul. “We are looking forward to the sukuk auction.”

source : south asian media