A Detailed Look at the Fast-Growing Islamic Banking and Finance Sector

Press release
September 26, 2012
Hoboken, NJ
A Detailed Look at the Fast-Growing Islamic Banking and Finance Sector

The severity of the global financial crisis that followed the years 2008 and 2009 has been described as second only to the Great Depression. Yet, during those two years, the assets of the 500 top Islamic financial institutions grew — from $639 billion to $820 billion.

What sets apart the Islamic finance industry from the rest of the financial world? And how have its differences helped this sector thrive when the rest of the global financial market struggles to regain its balance?

Faleel Jamaldeen, author of Islamic Finance For Dummies, says: “I’m bullish on Islamic finance: I’m a firm believer in the market potential of this industry. I’m also a firm believer in the benefits of Westerners understanding the concepts that lie behind the Islamic financial products — knowing why a separate industry exists and why many conventional products don’t work for Muslims.”

“In the West, the general public and even many financial professionals know absolutely nothing about Islamic finance. Those who’ve at least heard of it may assume that they can’t understand or participate in it because they aren’t Muslim and don’t speak Arabic.) Western women may assume that they aren’t allowed to participate in the Islamic finance industry because of misconceptions about Islamic law. (Women can and do fully participate in Islamic finance — as professionals and as investors.)”

“Islamophobia is a prejudice against Islam or Muslims that has unfortunately become more commonplace and more intense in the West since the attacks on the United States on September 11, 2001. Some people simply don’t want anything to do with an industry that’s affiliated with Islam. Until now, searching for a book to help you navigate the subject of Islamic finance wasn’t very rewarding. That’s because Islamic finance has been the topic of textbooks but not many nonacademic titles.”

Jamaldeen goes on to say, “I wrote this book to bridge the gap between people who need and want to know about Islamic finance and an industry that needs and wants their participation. You’ll find that you don’t need to learn a new language, change your personal religious views, and that job prospects are strong for both men and women with conventional banking and finance skills who are open to learning about new products and a new way of conducting business.”

“I wrote this book assuming that you have a strong interest in the financial industry already. Maybe you’re a banker, a mutual fund manager, an investment consultant, or an insurance agent. Perhaps you have Muslim clients asking you to consider adding sharia-compliant products to your roster of offerings, or your boss mentioned in passing that Islamic finance has been growing like crazy and your company should find out how to tap into the market. Maybe you’re a college student focusing your studies in finance, and you’ve read that job prospects are good for people with specific knowledge about Islamic finance.”

Whatever the scenario, you’ll find clear and easy-to-understand information on how the Islamic finance industry works.

source : wiley.com

Azerbaijan develops Islamic financing

Azerbaijan may soon become a regional Islamic financing centre and play a significant role in boosting cooperation in Islamic banking with Persian Gulf and Central Asian countries.
Islamic financing is one of the fastest growing segments of the global financial services industry worldwide. At the same time, interest in Islamic finance as a source of investment is high in the country, reported Azerbaijan’s news agency, Trend.

Many countries’ interest in Islamic finance was associated with different factors, the foremost of which was the desire to attract liquid resources from the Middle East and Southeast Asia and a certain demand for financial products in accordance with syariah law by local Muslims.
Today, Azerbaijan actively introduced Islamic financing. The independent authority of the International Bank of Azerbaijan (IBA) on Islamic banking would start its work in March, which planned to present six Islamic banking products to the market during the first phase, it stated.

Islamic financial tools could become the channel through which their assets could be involved in the economy. — Bernama

Read more: http://www.theborneopost.com/2012/01/27/azerbaijan-develops-islamic-financing/#ixzz1kjOFawTK

source : .theborneopost.com

Azerbaijan identified as a regional hub for Islamic banking introduction on CIS area

Baku, Fineko/abc.az. The IV Baku International Banking Conference under the aegis of the CIS Financial & Banking Council (FBC) has ended in Baku today. The last session was devoted to Islamic banking.

Following the event results the FBC Coordinating Council’s chairman Andrey Kazakov took the initiative to choose Azerbaijan the regional center on Islamic banking introduction on the CIS area.

“We’ll also ask the International Bank of Azerbaijan to form and lead a the FBC working group to prepare introduction of Islamic banking in the CIS banks. Today, the CIS banks are lacking liquidity, while the Islamic financial institutions have excess liquidity, and development of Islamic banking can be a tool for tackling liquidity problems,” Kazakov said.

In turn, the head of the IBA Islamic banking group Behnam Gurbanzade has said that the IBA has every opportunity to become a regional center for development of Islamic banking.

“Last week we completed with our consultants an analysis of tax and banking legislation and defined six Islamic instruments, introduction of which does not require legislative changes. If our initiative is backed by the Central Bank, we’ll continue initiating adoption of laws for development of Islamic banking,” he said.

The IBA established its working group in 2009.

source: abc.az

Kazakhstan pushes Islamic finance after banking crisis

Seeking to diversify its financial industry after a banking crisis, oil-rich Kazakhstan is drawing on Arab and Malaysian investment in an effort to build an Islamic finance industry among its 13mn Muslims.

Its success may depend on the fate of pioneer investors and the commitment of its secular government to clear the way for a long-awaited sovereign issue of sukuk, or Islamic bonds, which could prompt other issuers to follow. “If we are able, Inshallah (God willing), to create a strong base of corporate clients, it will allow us to devote more attention to medium-sized and small retail business,” said Adlet Aliyev, chief dealer for Al Hilal Bank in Kazakhstan.

Al Hilal, owned by the government of Abu Dhabi, was the first bank to respond when Kazakhstan passed new laws last year to allow an Islamic finance industry. The bank opened its Kazakh offices in March 2010.

Though modern Islamic finance began three decades ago, its major principles, such as a prohibition on paying interest, would have been familiar to Muslim traders on the medieval Silk Road through Kazakhstan and Central Asia.

Sixteen million people live in Kazakhstan, about 80% of them Muslim. Vast oil and metals reserves have helped its economy, at nearly $110bn the largest in Central Asia, to expand by an average 9% a year in the last decade.

“They have an abundance of assets and they have deep pockets to invest,” said Razi Pahlavi Abdul Aziz, consultant with Amanie Business Solutions, a Kuala Lumpur-based firm which advises on Shariah or Islamic law.

Al Hilal employs 45 people in its pristine, glass-fronted head office on the upper slopes of Almaty, Kazakhstan’s largest city and financial centre. A handful more work in a branch in the capital, Astana, and a second branch is planned in Shymkent.

The bank aims to invest $250mn in Kazakhstan this year, rising to as much as $1bn over the next two years.

It intends at first to finance the corporate sector, Aliyev said, particularly large businesses. It is engaged in about 20 projects, offering finance via the commodity murabaha structure, which allows clients to buy an asset on deferred payment terms before selling to a third party, a method compliant with the requirement that all financial transactions involve an asset.

Mohamed Hussein ibn Usman Alsabekov, Kazakhstan’s deputy chief mufti, believes grass-roots demand for Islamic finance will grow as the population becomes more aware of the sector.

When he was appointed 23 years ago, Kazakhstan had 68 mosques. Today, there are approximately 2,500. Almaty’s blue-domed Central Mosque is big enough to hold only half of the 14,000 worshippers who attend Friday prayers each week, he says. “For a simple Muslim, there is no need for interest. Money should be for the benefit of all.”

Investors, though, are cautious. The financial crisis humbled the once-proud Kazakh banking sector; international creditors were forced to write off billions of dollars of debt in a restructuring process that followed local bank defaults.

“Islamic banking is looking for high returns and safety hubs – which is not Kazakhstan,” said Yekaterina Trofimova, director of financial institutions at credit rating agency Standard & Poor’s. “But Kazakhstan needs diversification in all aspects of banking and this adds a little more colour and diversity.”

Analysts say it is no coincidence that Kazakhstan passed laws to facilitate an Islamic finance industry during a crisis. As Western credit dried up, new money from Asia ensured that 2008 and 2009 were record years for foreign direct investment.

“On the government level, the idea must have been to look for all available avenues to diversify the country’s funding base,” said Milena Ivanova-Venturini, head of research for central Asia at investment bank Renaissance Capital. “Kazakhstan, being a majority Muslim country, can play this card and tap into the Islamic pool of funding.”

As global financial markets recover and more familiar financing avenues reopen, however, promoting Islamic finance could become harder. High-profile defaults and rising costs have soured the appeal of Islamic bonds for some conventional borrowers in the Gulf.

Respondents to a Reuters poll in July estimated global sukuk sales this year at $23-$25bn, barely changed from last year’s $23.3bn and substantially below previous estimates.

The issuance of a sovereign sukuk would therefore be an important step in Kazakhstan’s development of its Islamic finance industry. But the country’s cancellation of a $500mn-plus Eurobond issue this year, in favour of domestic borrowing, suggests the government may not be in a hurry.

source : almaty

Islamic Banking Seen as Safe Alternative in Kyrgystan

By Asyl Osmonalieva in Bishkek 

Supporters of Islamic banking say it offers a viable alternative to the conventional financial mechanisms used in Kyrgyzstan in these uncertain economic times. 
Opponents, however, say granting approval to practices borrowed from the Islamic world is a worrying sign as it suggests this Central Asian state is losing sight of the secular principles on which it is founded . 
After a three-year pilot project, the Kyrgyz parliament passed legislation on March 31 this year enabling any bank to apply the principles of Islamic finance if it so wishes. 
Instead of a model where the lender assumes financial risk in return for interest on loans, the idea is that banks and their clients form a partnership and share the profits. Interest rates are prohibited under Islamic law’s proscription of usury, and money cannot be lent to venture that go against religious principles, such as selling alcohol or encouraging gambling. 
“In this case, the bank is a partner that shares profits and losses with the client, so it will back promising projects because it has an interest in the success of the venture,” said Timur Jusupov, deputy chair of the board of EcoBank, which has been offering some of its loans according to Islamic legal tenets since 2006, when President Kurmanbek Bakiev approved the pilot project. 
The bank’s risk manager, Alexander Strelkin, says it will switch over to Islamic principles completely by the end of 2010. 
Nurbek Elebaev, who chairs the board of directors of Kyrgyzstan’s stock market, believes that EcoBank and any others that begin applying Islamic principles offer the country a new mechanism for attracting funding, at a time when it is suffering under the impact of the global financial crisis. 
Kyrgyzstan is experiencing a downturn in foreign investment, and Elebaev sees this as part of a wider phenomenon. 
“Countries where the Islamic banking model dominates have not been hit as hard by the crisis,” he said. 
Although supporters of Islamic finance say it will never supplant conventional banking, merely complement it, and that it is simply an alternative way of doing business, some in Kyrgyzstan are fundamentally opposed to it because of its religious connotations. 
Kyrgyzstan has a Muslim majority population, but its Soviet past and its constitutional principles make it a firmly secular state. 
Communist Party leader Ishak Masaliev led the opposition to the Islamic banking bill when it was debated in parliament. He expressed fears that “we will lose Kyrgyzstan’s secularism” as a result. 
The head of the human rights group Citizens Against Corruption, Tolekan Ismailova, agreed that this was a step in the wrong direction. 
“Through this move we are showing that that Kyrgyzstan’s development orientation is towards Muslim states,” she said. “One has to understand that Kyrgzstan is not a Muslim country; there are more than 80 ethnic groups living here. If we give precedence to one religious confession, we violate the rights of others and provoke a conflict of interests.” 
Others, however, say Islamic finance instruments should be allowed to compete in the marketplace, where ideology is of lesser importance and clients will look for the best deals. 
“People who need loans will be guided above all by a sober calculation about how good the loan terms are,” said Rustam Sarybaev, PR manager for the Union of Banks of Kyrgyzstan. “They won’t let their decision be clouded by stereotypes.” 
Strelkin noted that one-fifth of EcoBank’s clients are non-Muslims. 
Islamic banking instruments may fill gaps where it is currently hard to get a conventional loan in Kyrgyzstan, such as to fund a long-term project or a small farming business. 
“Interest-free credit based on Islamic principles will stimulate the growth of small and medium enterprises,” said Dinara Moldosheva, a member of parliament from the governing party Ak Jol. “Many people who want to set up their own business or develop an existing one find it impossible to pay the interest on a loan. I’m not saying the conventional banks are in effective, but one has to admit they have strict rules. Islamic principles are less harsh and more flexible.” 
Sarybaev said Kyrgyzstan’s banks “have no money [to lend] for the long term. Banks operating on Islamic principles can occupy this niche.” 
According to Elebaev, the likely obstacles will range from “resistance on the part of some banks operating exclusively according to the traditional model” to “bureaucracy and red tape”. 
He noted that Islamic banking had been slow to take off in Kazakstan and Russia, adding, “That may be related to the size of those countries. Kyrgyzstan is a small country and we might be able to do it more quickly and successfully.” 
Asyl Osmonalieva is an IWPR-trained contributor in Bishkek. 
source : iwpr

Tajikistan Offers Opportunities In Construction, Islamic Banking

Tajikistan, currently undergoing massive redevelopment, is offering investment opportunities for Malaysian companies, particularly in construction and Islamic banking. TM International Tajikistan’s general director Abdurazzok Abdulloev said the country was currently going through rapid development in terms of infrastructure, especially in the major cities.

“Most of our construction projects were stopped back in 2000 and started to pick up only in 2004, (so) we need a lot of expertise in that industry,” he told reporters at the “Seminar in Doing Business with Tajikistan” here Friday.

Abdurrazzok is among 21 trade delegates from Tajikistan who are in Malaysia for the 10-day incoming buying mission which started yesterday.

Tajikistan, a land-locked country, shares a common border with China, Pakistan, India and Afghanistan.

With a population of 7.5 million people, the country has recorded a gross domestic product (GDP) of US$15.5 billion as to date.

On Islamic banking, Abdurrazzok said banks in the country were exploring opportunities to set up Islamic banking window.

Malaysia is seen as a role model in Islamic banking due to its vast experience in managing and developing the industry for over 20 years, he said.

Currently, trade between Malaysia and Tajikistan is “quite small”, he added.

Tajikistan’s main partners for both imports and exports are Russia, China and Uzbekistan.

Total exports to Tajikistan stood at US$1.6 billion in 2008 which covered aluminium, electricity, cotton, gold, fruits, vegetable oil and textile.

The country imported petroleum products, aluminum oxide, machinery and equipment, and foodstuff.

source : afk

Al Hilal Bank is to open the first Islamic bank in Kazakhstan in the first quarter of 2010.

The Abu Dhabi government-owned Al Hilal Bank is to open the first Islamic bank in Kazakhstan in the first quarter of 2010. The local Islamic Bank was registered in January 2010 and currently is in the final stage of obtaining a banking license to develop as a full-fledged commercial bank operating through Astana and Almaty branches.

The establishment of JSC Al Hilal Islamic Bank, the Kazakhstan subsidiary, was initiated under the UAE-Kazakhstan intergovernmental agreement on cooperation between the two countries. The introduction of legislative amendments and changes to Banking Law, Civil Code and Tax Code aimed at accommodating the existing rules for Islamic banking principles has supported the quick foundation of the Bank. The prudential norms for Islamic banks introduced by Agency of the Republic of Kazakhstan on regulation and supervision of financial market and financial organizations have created the ground for equal development of Islamic and conventional banking in the country. It is assumed that the establishment of Islamic banks and popularization of Islamic finance principles will open up new investment and financing opportunities for domestic enterprises and promote establishing new business relations with Islamic investors.

The primary objective of Al Hilal Islamic Bank is the contribution to the development and prosperity of the Kazakhstan economy through providing access to innovative Islamic banking solutions to the business and public. The Bank’s business will focus on corporate and retail banking. Corporate banking will cater to the needs of customers through financing products, cash management, trade finance as well as consulting solutions. The Bank welcomes the cooperation with customers in agriculture, oil and gas, mining and manufacturing, trade and FMCG, transport and communication segments of the economy. Initially retail banking services will be limited to cash management and deposit products for VIP retail customers. More services and products will be added later on with the popularization of the Islamic banking practices and principles in the country. All banking products and services to be offered by Al Hilal Islamic Bank will be fully Shari’a compliant and duly monitored by in-house Shari’a scholars and approved by the Islamic Finance Principles Board of Al Hilal Bank

source : engdigest

Keen on developing Islamic finance in Kazakhstan

During a recent visit to Astana, foreign Islamic bankers announced that Kazakhstan is strongly interested in developing Islamic finance. The central Asian nation is emerging strongly as the most proactive and advanced Islamic finance market, Gazeta.kz reported. President Nazarbayev is keen to develop diversified economic relations with both traditional partners such as Russia but also with the West and the Middle East Muslim nations. Kazakhstan is a member of the OIC (Organization of the Islamic Conference) and the IDB.

A delegation from Malaysia’s International Islamic Financial Centre (MIFC) visiting Kazakhstan at the end of January was encouraged by the developments in the Islamic finance in the CIS country. The visit was part of the MIFC’s objective of consolidating Malaysia as the international hub for Islamic finance and its efforts to foster bilateral ties and cross-border cooperation in Islamic finance. The MIFC visit in January also coincided with the Islamic Finance Forum which was addressed by key MIFC initiative stakeholders.

source : new europe

ANALYSIS: Kazakhstan’s Islamic finance market starts to grow

Eight months after Kazakhstan’s law on Islamic finance and banking was adopted, a handful of local and international Islamic institutions have already set up in the country. Looking ahead, the issuance of Islamic bonds by Kazakhstan-based companies is expected to drive the market for Sharia finance.

Within Kazakhstan, Fattah Finance, the country’s first brokerage specialising in Islamic finance, started work in March, a month after the law was adopted. The firm has put together a team of around 15 professionals, with experience in the stock market, and Islamic finance and banking. Although the firm still works with traditional instruments, its main purpose is Islamic finance. Kazakhstan also has its first consultancy focussed on Islamic finance, Kausar Consulting.

Meanwhile, from the United Arab Emirates, Al Hilal Bank is already present in Kazakhstan, and is planning to open two branches – in Almaty and Astana – by the end of 2009. It is expected to focus on the industry, agriculture, real estate and tourism sectors. In May, Qatar Islamic Bank and Bahrain’s Ithmaar Bank also announced their intention to enter Kazakhstan, though concrete plans haven’t yet been announced.

Financial hub

The new law is part of Kazakhstan’s efforts to develop its financial infrastructure and establish Almaty as a regional financial centre.

Chingiz Kanapyanov, deputy chairman of the Agency of the Republic of Kazakhstan on Regulation of Activities of the Regional Finance Centre of Almaty (RFCA), which pushed for the law’s adoption, stresses that Islamic finance will exist alongside traditional finance in Kazakhstan. “We are not switching the system completely, but would like to create another opportunity for both Kazakh and global players to invest in this country,” he tells bne.

As the first country of the Commonwealth of Independent States (CIS) to introduce legislation on Islamic finance, Kazakhstan hopes to open up new investment opportunities for domestic actors and build new links with the Islamic world. According to Kanapyanov, interest from investors in the Middle East and Malaysia has been very strong.

Astana’s policy of maintaining friendly relations with other nations encompasses the Islamic world. These efforts have been stepped up recently. Kazakhstan is organising investment conferences in both Bahrain and Abu Dhabi later this year, and on October 31 national carrier Air Astana will launch weekly flights to the Malaysian capital Kuala Lumpur. “We would like to see more investors operating in the Sharia-compliant sectors, and to see more bridges being built between Kazakhstan and the Islamic countries. This will be very beneficial for our country,” Kanapyanov says. “At the same time, banks such as Al Hilal that choose to come here from abroad will gain access to Kazakhstan and Central Asia. Despite the international turmoil, Central Asia is still one of the fastest growing economies, and there are definitely opportunities here.”

Research carried out by Fattah found that institutional investors, pension funds, insurance companies and individuals in Kazakhstan would be interested in buying sukuks. “The pension funds are increasing their activities, and would like to start buying sukuks to diversify their investment portfolios,” says Fattah chairman Aidos Demeshev. “Individual people are also interested. It’s not just Muslims; other people are attracted because Islamic financial products are connected to something real, and all risks and profits are shared.”

Demeshev stresses that sukuks must be issued in Kazakhstan if the new law is to have a real effect on the economy. Under the law, only wholly owned state companies – those within the Samruk-Kazyna and KazAgro groups – and Islamic banks can issue sukuks. As yet, none have been issued in Kazakhstan, although some are understood to be in the pipeline. “We want and we are ready to work with other actors in the market to start this process,” says Demeshev. “Our company will grow at the same speed as the sukuk market in Kazakhstan. We would like to work with other foreign partners and we are open for cooperation for developing our market.”

Until domestic sukuks are issued, Kazakhstan-based institutions and individuals will have to invest in foreign Islamic financial instruments. “We can invest in sukuks on world capital markets. However, we want to invest domestic capital into sukuk bonds on the domestic market,” says Demeshev. “It would be very good if we could attract investors from both world and domestic market to projects in Kazakhstan. Investors from the Middle East and Islamic countries are likely to become more interested in Kazakhstani projects.”

Early stage

Islamic finance is still at a very early stage in Kazakhstan, and market participants acknowledge that it will take time for the market to grow. In the longer term, new legislation is expected to be adopted, allowing a wider range of Islamic financial products to be used, and more institutions to be set up. “Islamic finance is still in its infancy in Kazakhstan, and we need to develop this market,” says Demeshev.

It does, however, benefit from strong support from President Nursultan Nazarbayev, who was a driving force behind the law’s adoption, as well as other top government officials and the RFCA.

Now that the first steps have been taken, Kazakhstan has started working with the Islamic Development Bank to draft a roadmap on Islamic finance and economic development. This will form a central part of the IDB’s strategy in Kazakhstan, and is expected to be announced in early 2010.

 Source : skilledroadintelligent

Azerbaijan to sign agreements worth $200m with Islamic Development Bank

Azerbaijan is preparing a set of agreements to be signed at the 35th annual meeting of the governors of the Board of the Islamic Development Bank.

The agreements on two projects are estimated to be worth $200 million, according to a government source.

“We are also working on a project with the Saudi Development Fund, which may be signed during the annual IDB meeting as well,” the source said.

The annual meeting of the Islamic Development Bank will take place on 23-24 June 2010 in the Gulustan Palace in Baku.
A specialist mission of the bank is to visit Baku this week to work on preparations for the meeting.

The chairmanship of the IDB Board of Governors will be held by Azerbaijan for the first time in 2010.
Since Azerbaijan entered the IDB Group in 1992, the bank has given the country financial support of $280 million.

source : AZ news