Emirates airline eyes Islamic finance as European banks back out

Dubai’s Emirates, the rapidly expanding Gulf Arab carrier, is looking at the more resilient Islamic finance market to fund aircraft deliveries as international banks back out of plane deals because of the euro zone debt crisis.

European lenders, especially French banks, which have been major financiers for Emirates’ aircraft deals with Airbus and Boeing, have become risk-averse because of the crisis, the airline’s president Tim Clark told Reuters.

“We were kind of planning for finance from European banks…but it’s just a bit difficult now,” said Clark.

“We still have the Islamic finance market to go with and other funding options are always open for us,” he said, adding that issuing an Islamic bond or sukuk was “not out of the question”.
Clark declined to comment on specific financing deals, but said liquidity in the international loan market was lower and French banks were shying away from new deals. “This won’t change for the next six to nine months,” he said.

Societe Generale, France’s second-biggest listed bank, on Tuesday scrapped its 2011 dividend to help bolster capital as it reported a 31 percent drop in quarterly profit, hit by charges including Greek debt writedowns. Its chief executive said the bank would reduce its aerospace financing “very significantly”.

Emirates is active in corporate funding markets because of its busy schedule of plane purchases; it received 10 new aircraft this year and a further 13 are scheduled for delivery before the end of March next year. Emirates chairman Sheikh Ahmed bin Saeed al-Maktoum has said there is a good chance of the airline placing yet more orders at next week’s Dubai Airshow.

However, Clark played down that idea. “We will book if we have a requirement and get good deals. Otherwise we won’t,” he said.
Resilient
The sukuk market has been relatively resilient during this year’s instability in global financial markets, which has made it more difficult for even highly rated companies around the world to issue conventional bonds.

That is partly because Islamic investors in the Gulf remain cash-rich, partly due to the limited supply of sukuk, and partly since sukuk investors tend to hold the bonds until maturity, reducing the chance of big swings in secondary market prices triggered by shorter-term speculators bailing out of positions.

Goldman Sachs registered a $2 billion Islamic bond program last month, a fresh case of a conventional borrower looking at sharia-complaint funding sources as other markets dry up.

Traditionally, Islamic finance has been more expensive than conventional money. But the gap between the two, especially in the fixed income sector, has narrowed during the global financial turmoil of the past year and may, for now, have disappeared completely.

Dubai shopping mall developer Majid Al Futtaim decided against issuing a conventional bond because of pricing concerns earlier this year. It has now mandated banks to set up a separate sukuk program.

Emirates has used sharia-compliant financing facilities before so the company is aware of how Islamic finance works, according to Qudeer Latif, head of Islamic finance at law firm Clifford Chance in Dubai.

However, funding planes on order using sukuk could be tricky because Islamic finance, in addition to forbidding payment of interest, prohibits pure monetary speculation and requires deals to involve concrete assets. It would be harder to win a seal of approval from Islamic finance scholars for a sukuk that was based on assets which the airline did not yet own.

“It’s much easier to use existing planes to issue a corporate sukuk,” Latif said.

“For new aircraft, it’s not impossible but it’s much more complicated as the cash would have to go from investors through a special purpose vehicle to the manufacturer, and then a lease- back arrangement put in place with Emirates.”

Currently, two aircraft-based sukuks have been issued globally, and they were backed by existing aircraft: a $500 million issue from GE Capital in November 2009, and a $100 million deal for Nomura in July 2010.

Clark acknowledged that his airline, whose conventional $1 billion bond issue in June was more than five times oversubscribed, would be in new territory with a sukuk.

“This will be a new territory for Islamic finance. They (Islamic banks) are a bit hesitant, but they definitely have the capacity,” he said.
Emirates has continued to grow exponentially despite Dubai’s debt crisis two years ago, which hit several other government-related entities and forced the restructuring of billions of dollars in debt.

The Gulf carrier has over 190 aircraft worth more than $66 billion to be delivered over the next few years, including 73 Airbus A380 superjumbos and 41 Boeing 777-300 aircraft.

Emirates already operates in 67 countries and has 114 destinations; it has launched five new destinations this year.

The expansion of the carrier, as well as the growth of Etihad of Abu Dhabi and Qatar Airways, have alarmed older European airlines and fuelled mutual accusations of protectionism. Clark last year heaped further pressure on the European carriers by voicing plans to expand his fleet to include 120 Airbus A380s.

Source : al arabiya english

International links to boost Turkey’s Islamic banks?

Standard & Poor’s Ratings Service (S&P) claims Turkey’s Islamic banks could continue recent strong growth if they can cultivate stronger ties with their international owners and create a sustainable brand image.

Turkey’s Islamic banking sector has grown strongly over the past five years, with total sector assets accounting for about five per cent of total system assets as of year-end 2010 compared with 2.8 per cent five years earlier. Other developments in this sector over the past 18 months have included; A law conferring tax neutrality on Sukuk products;A $100 million debut Sukuk by Kuveyt Türk (not rated); the launch of several Shari’ah-compliant funds; and The creation of a domestic index of Shari’ah-compliant banks and companies by the Istanbul Stock Exchange.

However, the sector remains small in a domestic context and, S&P believes, suffers a lack of public awareness of its products. At present, there are only four players, namely Bank Asya (not rated), Albaraka Turk (BB/Negative/B), Türkiye Finans (not rated), and Kuveyt Türk–in descending order of asset size as of year-end 2010.

Additional drawbacks, in S&P’s view, include a scarcity of Shari’ah-compliant domestic investable asset classes, as well as no near-term likelihood of sovereign Sukuk issuance. Moreover there are few options for Islamic banks to access liquidity at the central bank. Specifically, there is no Shari’ah-compliant mechanism replicating the repurchase agreements routinely available to conventional banks, as is increasingly the case in some Gulf countries.

“In our opinion, the Turkish Islamic banking industry has reached a stage at which it will be increasingly difficult to rely on its own momentum to sustain growth,” said Standard & Poor’s credit analyst Paul-Henri Pruvost.”We believe that a global Islamic banking template would give Islamic banks in their respective domestic markets a chance of greater success. This would, for instance, require a basic set of commonly agreed standardized products to smooth out operational differences, central bank liquidity mechanisms, and reporting and regulatory requirements.”

One route to such a global template could lie in stronger ties between domestic players and their larger, foreign parents. Already three of Turkey’s four Islamic banks have large and well-respected Islamic banks as majority shareholders. Kuwait Finance House (A-/Negative/A-2) owns 62.0 per cent of Kuveyt Türk, Al Baraka Banking Group (BBB-/Negative/A-3) owns 56.6 per cent of Albaraka Türk, and National Commercial Bank (A+/Stable/A-1) owns 64.7 per cent of Türkiye Finans.

“Such relationships, in our view, are beneficial, and may help to spread common practices through which the Turkish Islamic banking sector may reach a new level of maturity,” said Pruvost.

source : cpi financial

Centre for Islamic finance planned at Durham University

DURHAM University will build on its role as a leading UK centre for teaching Islamic finance and business with a new doctoral training centre.

The Durham Centre for Islamic Economics and Finance is a collaboration between the University’s Durham Business School and the School of Government and International Affairs.

Durham has been a centre for research in Islamic finance for over 25 years, with a significant history of PhD study which will enter a new era with the launch of the centre in the autumn. The new centre will build on this success and the international popularity of the Durham Islamic Finance Summer School, which began yesterday.

Professor Rob Dixon, dean of Durham Business School, said: “Due to such exciting and dynamic developments in the Islamic financial and banking sector, it is important that financiers and bankers who are working in the field, or who wish to enter the Islamic financial market, are aware of the principles, operations, techniques and mechanism of Islamic finance and financial products as well as the dynamics of Islamic financial and capital markets.”

Dr Mehmet Asutay, the director of the summer school and a senior member of the new centre, said: “The centre will provide exclusive facilities for research students who have chosen to specialise in Islamic finance, which will enhance Durham University’s long-standing efforts to contribute to the development of academic and intellectual discourse and the practice of Islamic finance.

“It will also support the international reputation and recognition of Durham University.”

source : nebusiess.co.uk

Islamic finance boosted by Dockland’s UEL launch of degree courses

London’s first centre for Islamic banking and finance has been launchged by the Royal Docks-based UEL Business School,
Uni chiefs hope their postgraduate degrees at the new Islamic banking and finance Centre will make them a central player in one of the fastest growing financial sectors in the marketplace and a hub for international researchers in the booming field.

Speaking at the launch last week, UEL Vice Chancellor Professor Patrick McGhee said many months of hard work has produced “a genuinely exciting project”

Dr Omar Masood, Director of the centre, said: “Our aim is to be the UK’s leading international centre of excellence for human capital and business development in Islamic finance.”

Events administrator Mohsin Ramzin predicted many banks will create new divisions to trade with Islamic customers. He added:“We are hoping to market and exploit the new custom.”

source : london24.com

IFIBAF signs collaboration agreement with Dubai Dar Al Sharia

ubai based Dar Al Sharia which is the leading provider of Shariah services in the region has signed a collaboration agreement with the Frankfurt based Institute for Islamic Banking and Finance (IFIBAF).
The relationship between these two organizations originates from a highly success Islamic Finance Trade Mission to Europe conducted by Dubai Exports, an agency of the Dubai Department of Economic Development. The Islamic Finance Trade Mission sought to increase the awareness of Islamic financial service providers and institutions from the UAE in the European markets. (press Release)
source : opalesque

Islamic bank takes first step in selling gold from ATMs

Turkish lender Kuveyt Türk has started selling “gold-on-the-go” from automatic teller machines, or ATMs, fulfilling a promise it made in January.

Speaking at a press conference Tuesday, İrfan Yılmaz, the deputy general manager of the lender, noted that Turkey ranks among the top gold importers.

“A huge portion of this gold is not being exported. It stays within the country,” Yılmaz said. “According to data from the Istanbul Gold Exchange, 2,500 tons of gold were imported in the past 15 years. This amounts to over $100 billion.”

A portion of this amount is exported, while nearly 1,500 tons of gold stays in the country, according to Yılmaz. “This makes $70 billion,” he said.

Noting that gold has a key place in Turkish people’s saving practices, Yılmaz said Kuveyt Türk’s rise in gold banking started with this assessment.

According to data from Kuveyt Türk, the Turkish banking system has around 42 tons of gold. Kuveyt Türk accounts for 20 percent of this amount. The lender’s gold transactions have reached an annual volume of $1 billion.

That compares with its less than 1 percent share of overall Turkish banking assets.

“Gold savings in Turkey, which stood at around 200 million to 250 million Turkish Liras in 2007, rose to 1.2 billion liras last year. The gold savings in banks is over $2 billion,” ” Yılmaz said. “According to estimates, more than 10 percent of national savings is in gold. We are working to attract some of this into the banking sector.”

Gram-gold sales from ATMs, a first in the world, will not bring a huge economic advantage to Kuveyt Türk, according to Yılmaz. Still, he expects “serious demand and transaction volume.”

Customers will be able to buy 1-gram and 2.5-gram gold pieces from ATMs. The service is currently only available at Kuveyt Türk’s headquarters branch. But it is expected to spread to 180 branches in the next year.

Kuveyt Türk is 62 percent owned by the Kuwait Finance House and 18 percent owned by Turkey’s General Directorate of Foundations.

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Interest-free banking in the world and in Turkey

To participate in the profits and losses based on my review of the historical background of interest-free banking, interest-free banking needs in the modern sense of the 20th  Century, industrialization began to occur in Islamic countries and movements in the 1970s with a sudden increase in oil prices is seen to occur.  Individual sense of people dispositions traders in the hands of profit-loss partnership based assessment but industrialization with the major investment projects for financing the personal savings together to bring interest to a bank was required.

 BC’s history of interest-free banking  Who ruled in Babylonia between the years 2123-2081 ranges.  100-107 famous Hammurabi parts of the loan (borrowing), while showing how to edit their work, especially as interest-free investment as the first example in history has emerged.  The emergence and spread of Islam along with borrowings, such as partnerships and leasing also developed the basic concepts of current interest-free banking and found a broader spectrum of applications.

 The most important example of interest-free banking in Turkey is a member of the Islamic Development Bank.  Turkey Islamic Development Bank in 1984, the permanent members of the Board has obtained the right to possession.  Thus, Turkey is under fifty states gathered in the Islamic world’s largest financial institutions has been very active in a position to play a role.

 Among practitioners today Citibank, Barclays Bank, Commerzbank, including classics such as banks’ interest-free banks, South Africa, stretching from Kazakhstan to Pakistan from the United States and a number of geographical reach to 60 countries are active.

 Growth of import-substitution policies until the 1980s, Turkey followed after that date field goal to open the world began to pursue the strategy of growth through exports.  Opening to the outside world that the existing strategy in the field of financial innovation has enabled our country to be won.  28/07/1981 in Turkey at the 2499 Capital Market Law was adopted in 1983 established the Istanbul Stock Exchange and the Stock Exchange together with the establishment of all capital market instruments are introduced one by one.  Likewise, the Central Bank was established within the money market Interbank market, foreign currency exchange with leasing, factoring companies, such as capital market intermediaries, many new institutions were included in the financial system.  The foreign exchange crisis experienced in that period, foreign capital needs and clogged the wheels of the economy in order to be returned to the organization of foreign banks in Turkey and 13 foreign banks were allowed to open branches in Turkey has. 

That’s international expansion during the world 1970s since successfully implemented an interest-free banking practice Bulent nation of the Prime Minister of Turkey in the period on the agenda was moved and Prime Minister Turgut ÖZAL’in prepare and President Kenan Evren’s approved 12/16/1983 day and 83/7506 dated decree savings interest-free basis, provided this opportunity for our citizens who want to evaluate.  Published in the Official Gazette on December 19, 1999 Banking Law No. 4491 on the Amendment of the Banking Act 4389 and amended some articles of the Law of Private Financial Institutions Act were included in the Bank.  Private Financial Institutions by implementing targeted, in Turkey, which have low private savings, be encouraged, especially by religious conviction “bag of six” in the discarded, the economy outside of real estate, currencies, gold areas such as floating-savings to the economy to gain has been.  During that period he PIAR’ın Banking Studies, according to the conventional banks in Turkey because of their faith deposit is 15% of people who do not invest.  ÖFK’larının second goal in the establishment of the Gulf countries like Saudi Arabia and Kuwait provided the source is foreign to our country.

 Private Financial Institutions Decree No. 83/7506 on the Establishment and attached with the Treasury and Foreign Trade after the publication of the Central Bank Communiqué, since 1985 Special Finance Corporation was established in Turkey 6.  Participation of private financial institutions in 2006 was awarded the status of the bank.  Participation bank in Turkey as of today has been operating four units.

 Participation banks are established pursuant to the Council of Ministers Decision, in accordance with the Law on Banks and operates more than 24 years is a period of six bags of money to be earned in the economy are vitally important functions.  In a sense, Venture Capital (Venture Capital) organization in the nature of the participation banks, they collect discarded (bag of six) funds directly Turkish industrialists and businessmen of the needed raw materials, semi finished and finished goods and investment goods supplied to use by the country’s economy contributed substantially .

Google translated

Source :  kuveyt turk

France eyes top spot in Islamic finance industry

By Dr Mohamad Nedal Alchaar/Manama

Islamic finance is a trillion dollar industry and has become part of the global financial system. The industry represents around 1.6bn Muslims worldwide as well as non-Muslim investors seeking to diversify their portfolio.

Institutional and private investors look to tap into a market that may reach a staggering $5tn, according to forecasts by rating agency Moody’s. France has skilfully anchored into this dynamic terrain but the question really is — What does France need to do to tap completely into this market and become the capital markets’ centre for Islamic financing in the western world?

Before we look at France and Islamic finance, let us take a step back and explore the history and meaning of this approach to managing funds.

Islamic finance is guided by Shariah or Islamic laws primarily derived from the Qur’an. One of its fundamental tenets is that money has no traded intrinsic value and is merely a medium of exchange. This framework not only applies to Islamic banks but also to business and life in general. The prohibition of riba (usury), gharar (uncertainty) and maysir (speculation) are integral to Shariah. However, merely making money with money without any visible and tangible underlying investment is frowned upon. Therefore, the product structures in Islamic finance all have an underlying asset, such as a commodity, share in an enterprise, etc., and is based on risk and reward sharing among all parties involved.

The drive for compliance to Shariah led to the establishment of financial systems that did not operate on interest but on a profit-and-loss-sharing scheme that financed trade and other enterprises at that time. This marked the emergence of a fundamentally different financial concept that has evolved into Islamic finance.

France has long been positioned as one of the vanguards of financial innovation and this has paved the way for changing the regulatory environment. For French organisations, this industry potentially represents a major source of liquidity and finance. The industry offers investors a means of achieving differentiation through diversification, helping them gain a foothold in new markets.

In 2007, Christine Lagarde, minister of economy, asked the Parliament and the Treasury to assess and develop France’s infrastructure to attract Islamic Finance. That year, Paris EuroPLACE, an organisation that promotes the French capital’s financial district formed an Islamic finance committee to make propositions addressing the legal, fiscal, and regulatory hindrances to the industry.

Two years later, a sukuk (a form of Islamic financial securitisation similar to bond) working group was created with lawyers, tax specialists, Shariah advisers and many French banks to develop a sukuk structure under French law.

France’s main objectives this year are to issue a sukuk in Paris under French law, translate the AAOIFI Shariah standards to French and issue its first licence for an Islamic financial institution that is compliant under both national and European law.

Creating a regulatory environment friendly to the issuance of a licence would allow France to provide Shariah-compliant investment and commercial banking products denominated in foreign currencies to investors throughout Europe.

These aspirations are not far from reality considering France has unparalleled access to a broad investor base and strong political will shared by all players across the French financial community. The quality and liquidity of the French asset management market are key advantages to ensuring success of sukuk issuance.

In addition, major French banks have expanded their Islamic finance offerings internationally in response to a growing demand. This demand coupled with a local market of over 5mn Muslims and access to a high net worth Muslim investors globally, provides a healthy environment for the growth of Islamic Finance in France.

A number of reforms have been adopted to advance Islamic finance in France. In mid-2007, the French Financial Market Authority (AMF) issued a recommendation for Shariah compliant funds and a year later, it published a statement approving the listing of sukuk in France. The Euronext Paris soon followed, creating its own sukuk-listing segment. This would not only guarantee the reliability and security of Euronext’s market but it would also support issuers with experienced listing teams.

In early 2009, France introduced tax status adjustments for Islamic finance contracts on murabaha (type of money market instrument) and Sukuk transactions.

Recently, Paris Europlace signed an agreement with AAOIFI paving the way for greater co-operation to drive the development of Islamic finance in France.

This year, Qatar Islamic Bank signed a Memorandum of Understanding (MoU) with Banque Populaire Caisse d’Epargne, France’s second largest banking group, in order to gain access to the French retail banking and small medium-size business markets. This MoU would promote co-operation between the two banks in France, and try to build a lasting partnership.

An independent report projected that France could potentially attract 10% of the trillion-dollar industry. France is the fountainhead of innovation and achievement in the global financial community. The historical and political links of France with the Middle East give France the opportunity to hold a unique position in the Islamic finance industry. The future for Islamic finance in France is therefore indeed encouraging.

*** Dr Mohamad Nedal Alchaar is the secretary-general of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), the international organisation that develops and issues standards on accounting, auditing, governance, ethics and Shariah for the global Islamic finance industry

source : gulf times

United Kingdom: a leader in Islamic finance

KARACHI: More than any other country, the United Kingdom has been by far the largest Shariah-compliant banking hub for Muslims. The United Kingdom Islamic banking division was larger than that of Pakistan, according to a report published a while back. It is the first Shariah-compliant retail banking division in the West which was authorised by the Financial Services Authority in 2004.

There are about 2.5 million Muslims constituting 3.3 per cent of the total population of UK. Approximately 50 per cent of those are currently living in London. Islamic financial products in the form of current accounts and mortgage are available to Muslims and non-Muslims living in the country.

London has become a major financial centre with big international financial institutions, particularly from Saudi Arabia and other Gulf states offering attractive Islamic products. London is considered by many institutions – Islamic and non-Islamic – as a world centre for Islamic finance, both on the retail and wholesale sides.

The Financial Services Authority functions under a single piece of legislation – the Financial Services and Market Act 2000 – that applies to all spheres of its operations. Deposits of customers are the main issue for the Authority. Under Islamic banking laws, the customer and the bank share the risk of any investment on agreed terms and equally divide the profits and losses between them. With a saving account, Islamic banks offer full repayment of the investment by informing the customer as to how much should be repayable to comply with the risk-sharing formula.

In the United Kingdom, 17 leading banks including Barclays, Royal Bank of Scotland and Lloyd Banking Group have set up special branches or subsidiary firms for Muslim customers. The 12 billion pounds in assets of UK are said to excel those of Muslim states such as Bangladesh and Egypt. There are 55 colleges and professional institutions offering education in Islamic Finance in UK, more than anywhere else in the world.

First Islamic bank of UK

The Islamic Bank of Britain is the first Shariah-compliant bank approved by the United Kingdom in 2004. The bank has set up six branches in London, Birmingham, Manchester and Leicester. This bank operates according to Islamic principles where both Muslims and non-Muslims are permissible to hold accounts. It currently offers a full range of retail and business banking services.

This bank has had a major impact on the Islamic financial market. In 2006, its customers totalled 20,814. This had increased by 120 per cent from the preceding year. According to recent figures, the bank had over 50,000 accounts and about 42,000 customers.

Recently, the Islamic Bank of Britain has raised 20 million British pounds. The net proceeds will be used to provide the bank with sufficient regulatory capital to manage and grow its business. Its shares are being placed with Qatar International Islamic Bank, an existing shareholder.

Seeing the great potential of Islamic banking in United Kingdom, many banks such as SAAB and HSBC have started offering Islamic banking services to their customers. The banks working under Islamic laws were not driven by the Muslim population in UK, but by the high net-worth Muslim investors from the Gulf Cooperation Council (GCC) countries, Malaysia, Brunei, Singapore, Indonesia, South Africa and Turkey.

Islamic home finance market

United Kingdom is the most developed Islamic mortgage market. The government has abolished double stamp duty for Islamic mortgage contracts. The Islamic home finance market is one of the largest components of the UK financial sector. In the retail sector, the Islamic mortgage market is now worth an estimated $2 billion per annum.

In the United Kingdom, Islamic mortgages have been structured under two different contracts. Murahaba is a form of credit that enables the customer to make purchases without taking interest on loan. In this context, the bank buys the goods for the customer and sells them to the customer on a deferred loan adding an agreed profit margin. The customer then pays the sale price for the goods in instalments, effectively obtaining credit without paying any interest.

The other is the Ijara which is a leasing agreement in which the bank buys and then leases an asset to its clients for a particular rental over a specified period of time. The bank may have the right to adjust the rental charge in accordance with the changes in the cost of finance.

At the Annual World Islamic Bank Conference 2009 in Bahrain, UK’s Islamic finance leaders shared their views on the future of Islamic finance at a dedicated UK roundtable discussion. The potential for growth of Islamic banking in both the retail and wholesale sectors is there. The professional and advisory services sector in UK is highly developed and can cater to global Islamic banking and finance centres and address the challenges of the future.

The research finding shows that there are ample opportunities for development and growth of Islamic financial system because the Muslim community is very eager to take financial products. The Financial Services Authority is willing to play its strategic part in supporting these developments within its regulatory powers.

source : The Express Tribune