Halal industry should work with Islamic finance

KUALA LUMPUR: Despite the halal industry’s rapid growth, it is missing out on opportunities to tap into Islamic finance, panel members said.

“There is a disconnect between the halal industry and Islamic financing, which is ironic since we’re working within the same religion, but are not talking to each other,” said Thomson Reuters head of Islamic finance (Asia) Rafiza Ghazali at a discussion on “Halal Economy” during the Islamic Financial Intelligence Summit.

She said in a study conducted by Reuters on 250 companies involved in halal production and with a combined market capitalisation of US$132bil, it found that only 50% of them passed the Aofi test, which meant that they are not syariah-complaint.

The Aofi test was a screening criteria used by Reuters to determine the syariah compliancy of stocks, she said.

“Why is it that they (companies in halal production) make sure their products can be consumed by Muslims, yet Muslims cannot invest in them?” Rafiza asked.

Fellow panelist, AmIslamic Funds Management Malaysia director Datin Maznah Mahbob, said: “There are so many opportunities for those companies to issue sukuk, short-term papers, and longer-term Islamic debt instruments of various tenures for fund managers to invest in.

“As a fund management firm, we invest in both sukuk and equities. If they structure their funding requirements in a syariah-compliant way, we can invest in them as they will be in my syariah-complaint universe.”

In a separate panel discussing the potential of Islamic funds, Aberdeen Islamic Asset Management CEO Abdul Jalil Rasheed cautioned against the popular belief that Islamic funds can outperform conventional funds at every turn.

“We don’t go out there saying it will outperform. I’ll be honest, we will guarantee a period of underperformance; that’s just how the market is. If you are outperforming consistently, you’re lying. Something’s wrong,” he said.

“No Islamic fund can claim they have a five to ten year track record. It will take some time to build critical mass and before we can tell clients that this fund can stand on its own merit against conventional funds.”

source : the star online

Kerala must tap Islamic funds for infrastructure development, say experts

VINSON KURIAN

Kerala could become a role model of tapping Islamic finance market to raise badly needed funds for infrastructure development, according to experts.

Mr H. Abdur Raqeeb, Convener, National Committee on Islamic Banking at the New Delhi-based Indian Centre for Islamic Finance (ICIF), made a strong pitch for these funds at the Infrastructure Conference-2011 that began here on Wednesday.

GOVT WELCOMES

Speaking to Business Line, the State Minister for Public Works, Mr V. K. Ibrahim Kunju, and the Secretary, PWD, Mr Manoj Joshi, said the State Government wholeheartedly welcomed Islamic funding agencies in the space of infrastructure development.

Infrastructure development is as Shariah-compliant a cause as they come, Mr Joshi said.

There is nothing that prevents these funds being channelised into the State’s developmental scheme of things, he added.

The PWD Minister concurred, but observed that the State’s own efforts to set up an Islamic financing institution were still in a ‘fluid stage.”

HIGH COURT ORDER

The Minister for Industries, Urban Development and IT, Mr P. K. Kunhalikkutty, too, underscored the importance of tapping the Islamic finance model at a time when traditional sources of funds are becoming either increasingly inaccessible or cost-prohibitive.

Meanwhile, Mr Raqeeb quoted a Kerala High Court observation that no specific prohibition was contained in any statute that made it impermissible to carry out Islamic banking in the country.

Simple regulatory changes could transform India into a regional hub for Shariah-compliant finance and clear the way for a much-needed wave of investment into its infrastructure, he added quoting international experts and consultants.

SHARED RISK

“When London, Tokyo, Hong Kong, Singapore and Paris have become Islamic banking hubs why can Kerala not become one and lead the country to become a developed economy in the near future?,” he wondered.

Islamic banking focuses on transparency, cooperative ventures, shared risk and ethical investing attracts a wide range of both Muslims and non-Muslims alike.

In Malaysian Islamic banks, more than 40 per cent of investors and 60 per cent of borrowers are non-Muslims, mostly Chinese.

One in five applicants for some of the Islamic products is a non-Muslim in the Islamic Bank of Britain.

ISLAMIC BONDS

Asset-backed Islamic bonds, known as ‘Sukuks,’ provide funds for long-term investment.

This tool is used in a number of developing and developed countries. India too should seek to make use of these resources, Mr Raqeeb said.

The fact is, Islamic finance can do wonders. Post 9/11, petro-dollars have been actively eyeing for a safe investment destination.

And this is the opportunity that India should avail of, given that it is not just a safe but vibrant investment destination.

HUGE MONEY

An estimated $1.5 billion in funds is sloshing around West Asia as of now. The region will have $8 trillion to invest by year 2020.

Ms Muliani Indrawati, Managing Director, World Bank, has confirmed that the World Bank Group has ‘formally recognised Islamic finance and has designated it a priority area in their financial sector programme.’

The World Bank has always closely cooperated with the Islamic financial services sector. This demonstrates its commitment to help strengthen the institutional development of the industry.

source : Business line : The Hindu

Deutsche Bank predicts Islamic finance boom

Analysts at Deutsche Bank, led by Ryan Ayache, have predicted in a report that global Islamic banking assets could reach $1.8 trillion by the end of 2016 – up 90% on the $939bn of assets in 2010.

The analysts argued that Islamic banks would benefit from the regulatory burden on banks in developed markets, such as Europe and the US, which will curtail bank lending. They also argued that there is growing awareness and acceptance of Islamic finance and sharia-compliant products.

Sharia-compliant bonds – known as sukuk – currently make up about 1% of global debt issuance, according to Dubai-based Ryan Ayache, who was the lead author on the Deutsche Bank report.

There has been an uptick in sharia-compliant bond issuance this year, according to Dealogic. The total value of Islamic debt issued globally in 2011 is close to breaking a post-2007 financial crisis high, with $17.3bn via 73 transactions having been priced for the year to November 14.

In 2009, just over $18bn worth of Islamic bonds were issued globally through 72 deals, while deals worth a total of $27.2bn via 100 transactions were priced in 2007.

There has been scepticism to sukuks in the past, as they are a new asset class, but the report argued that international standards, supervision and accounting methods are being brought to Islamic banks – meaning the level of harmonisation between Islamic and conventional banking regulation is eroding barriers to entry and enabling more participants into the field.

The report said: “The awareness and availability of Islamic banking is greater today than ever before.”

It added: “Companies such as GE have already tested the Sukuk market , and the existing ownership of global blue chips by certain sovereign wealth funds may create a viable pipeline for future issuances in the short and near term.”

source : efinancial news