‘Islamic Finance in India can attract investments from Middle East’

Malegaon: Taking advantage of the situation arising out of the economic crisis in Eurozone and countries like United States, India should adopt the Islamic Finance System to pump-in investments from the Middle East. This interest-free and more inclusive system will in turn speed-up the financial inclusion of the Indian Muslims, an expert in Islamic Finance said in Malegaon Sunday.

“The Global Economic Crisis in the West is forcing investors to search for secure places of investment. Creating a situation which is suitable for such investors especially those from the Middle East can pump in huge investment in the country. Introduce the interest-free alternate financial system here and see how the funds start flowing from the oil-rich countries to India”, Dr. Shariq Nisar said while speaking to ummid.com.

Dr Shariq Nisar, Director of Research and Operations of India’s premier shariah advisory firm TASIS and one of the senior most professionals of Islamic Finance in India, was in Malegaon on Sunday to address a seminar on “Prospects of Islamic Finance in India”.

“China and the Middle East are the two areas in the world where surplus funds more than their requirements are generated. China will never like to invest in India for the obvious reasons. We do not have such problems with the Arab World. We can attract the investors from there by introducing the Islamic Finance in our country”, he said while pointing at the requirements in the country of reliable and committed investors in stock market, and banking and insurance sectors.

“And why not, the system is running successfully in more than 75 countries. It has also earned these countries rich dividends. Then why are we reluctant in taking a decision?”, he asked while listing the countries like United States, United Kingdom, France and others besides the Muslim countries where Islamic Banking System is successfully running.

“Almost all the top multinational banks including Standard Chartered Bank, HSBC, DBS, Barclay and others either have their full-fledged Islamic banks or have special windows in their branches – some located in the areas where Muslim population is negligible”, he said adding, “Singapore has in fact taken the lead to introduce the system in the Asian sub continent by opening The Islamic Bank of Asia”.

Linking the Islamic Finance with the empowerment of the Indian Muslims, he said, “The much sought after Muslim empowerment and their financial inclusion can also be achieved by bringing in the system here. For, a vast majority of the community keeps away from the existing banks merely because they are based on interest.”

“The Islamic finance will not only provide them an opportunity of getting financial assistance, it will also streamline the amount of funds lying with the Muslims that otherwise don’t flow in the existing system”, he said while giving the example of Kerala where efforts are on to utilize in a suitable way an estimated 14000 crore rupees belonging to the Non Resident Indians (NRIs) mostly of the Gulf.

Interestingly, at the time when Dr Shariq Nisar was discussing with ummid.com in Malegaon about the investment opportunities in India from the Middle East, thousands of kms away Chinese Premier Wen Jiabao on an official visit to Saudi Arabia was signing agreements related to trade and investments with Saudi crown prince Nayef bin Abdulaziz Al Saud.

source : ummid.com


The Kochi-based Alternative Investments and Credits Ltd. (AICL), an Islamic finance company, started its operation in Kannur on Dec. 21. AICL officials said that it was the only Reserve Bank of India-approved non-banking finance company operating on Islamic finance principles. AICL’s operation in Kannur was formally inaugurated by H. Abdur Raqeeb, General Secretary, Indian Centre for Islamic Finance, New Delhi. AICL director T. Arifali presided over the function. Earlier, Kannur University Vice Chancellor P.K. Michael Tharakan inaugurated a seminar on ‘Understanding Islamic finance’.

source : Radiance weeekly

State Bank to develop liquidity framework for Islamic Banking Institutions

* Governor says most challenging aspect of this mechanism is the transformation of sovereign debt into Shariah-complaint debt

The central bank is currently at an advanced level of development of a comprehensive liquidity management solution for Islamic Banking Institutions (IBIs) following extensive efforts made both by the industry and the State Bank of Pakistan (SBP), the Governor, SBP, Yaseen Anwar has disclosed.

Delivering his keynote address at a two-day international conference, Oman Islamic Economic Forum, in Muscat, he said that this comprehensive liquidity management solution would include i) development of Islamic interbank money market, ii) development of Islamic Interbank Offered Rate (IIBOR) for use as a benchmark for pricing of Islamic finance products, iii) transformation of a sizeable portion of conventional sovereign debt in the books of central bank into Shariah-compliant debt, iv) allowing IBIs to place surplus liquidity with the central bank to be remunerated based on the central bank’s earnings on Shariah-complaint assets and investment portfolio, and v) lender of last resort facility for IBIs.

The most challenging and time consuming aspect of this mechanism is the transformation of sovereign debt into Shariah-complaint debt as it involves identification of the assets to be used for transformation, their valuation and documentation etc, he said. ‘However, I am confident that with the help and grace of God, we should be able to finalise this mechanism in the near future. This would be a major milestone and would give a big boost to the already buoyant Islamic finance industry in Pakistan,’ he added.

SBP Governor emphasised that innovation remains the corner stone of Islamic banking. ‘IBIs need to increase their product mix in order to meet the needs of their ever increasing client base. Research and development which has been long ignored in our part of the world should be the hallmark of IBIs,’ he said, adding that we need to change our perceptions and invest in research as a core ingredient of our strategic objectives.

Anwar said that there is huge potential for development of Shariah based agriculture financing in Pakistan being an agro-based economy. ‘The central bank is working with the industry to develop Shariah-compliant agriculture finance products to be offered by IBIs after necessary customisation. We have recently circulated a model Shariah-compliant agriculture finance product based on ‘Salam’ to facilitate IBIs’ entry in the country’s agri-finance markets, which so far have remained grossly un-served or under served,’ he added.

He said that the Islamic economic system is not just about prohibition of interest, it also promotes values such as accountability, transparency and social responsibility. ‘We in Pakistan adopted an evolutionary approach for establishing Islamic finance in the country in 2001 whereby both conventional and Islamic banks were allowed to operate in parallel. This enabled the masses to chose between the two systems that best serves their banking and financial services needs and is also in conformity with their faith,’ he said, adding that the approach has worked well since then and the industry starting from almost scratch in 2001, has gradually improved its share to more than 7.5 percent of the country’s banking system.

‘We have now 5 full-fledged Islamic banks and 13 conventional banks having stand-alone Islamic banking branches. Given the strong growth momentum, which is over 30 percent annually for the last 6 years, we are hopeful of more full-fledged Islamic banks in the country in the near future,’ he said and added that the State Bank of Pakistan has been at the forefront of all the major initiatives for development of the industry.

Anwar said: ‘we are one of the few regulators who have introduced a comprehensive legal, regulatory, and Shariah compliance framework for the Islamic Banking Industry. The framework allows three types of institutional models for offering Islamic banking services; (i) Full-fledged Islamic banks (2) Islamic banking subsidiaries of conventional banks and (3) Stand alone Islamic banking branches of conventional banks.’ Moreover, to encourage and facilitate conversion of conventional branches into Islamic banking branches, a detailed criterion has also been issued, he said, adding that presently the conventional banks’ Islamic banking portfolio constitutes about 40 percent of the industry.

He said that in order to enhance the breadth and depth of the industry, the framework also allowed establishment of full-fledged Islamic Microfinance banks, Islamic microfinance services by full-fledged Islamic banks and Islamic microfinance Divisions in conventional microfinance banks. Considering the growing awareness and acceptability of Islamic microfinance coupled with its inherent controls to ensure end use of the funds provided by Microfinance Institutions (MFIs), the outlook for growth and development of Islamic microfinance in Pakistan is highly positive and ‘we may see establishment and operations of new Islamic microfinance banks in very near future.’

Anwar said that a comprehensive and mutli-tiered Shariah-compliance framework is another very important feature of our Islamic banking framework, which comprises: (a) centralised Shariah Board at the central bank, which is the apex Shariah Body in the country for Islamic banking institutions, (b) the Shariah Advisor at bank’s level to be appointed in accordance with the State Bank of Pakistan’s Fit and Proper criteria with the responsibility to ensure that the bank’s operations are in conformity with Shariah principles, (c) mandatory internal Shariah audit; and (d) periodic Shariah inspections by the Central Bank along with routine annual inspection of IBIs.

He said that SBP is one of the very few central banks that have initiated Shariah inspections. ‘Before the formal launch of the Shariah inspection, a comprehensive Shariah inspection manual was developed by engaging a reputed Shariah consulting and auditing firm and comprehensive training was imparted to the Shariah inspectors,’ he said, adding that the central bank has also notified the essentials of major Islamic finance products and instruments along with their model agreements. ‘This arrangement not only allows necessary flexibility to IBIs to develop their own products but also helps in achieving much needed standardization and Shariah harmonization,’ he said, adding that to further strengthen the Shariah harmonization drive, we are in the process of adopting the AAOFI Shariah standards.

SBP Governor congratulated the Central Bank of Oman for initiating Islamic banking and wished them every success in their efforts to develop a vibrant Islamic banking industry.

source : daily times pakistan

SBP launches Islamic financing for farmers

KARACHI: The State Bank of Pakistan (SBP) has announced that it has developed a model Islamic product based on the concept of “Salam” to meet production finance (working capital) needs of the farming community.
In a circular issued on Tuesday, the SBP said the model product, developed in consultation with all stakeholders, would facilitate Islamic banking institutions (IBIs) in improving access to agricultural Islamic financing for the farming community.
The product covers Shariah-related aspects as well as business cycle and financing requirements for farm and crop production activities.
SBP said the product based on ‘‘Salam’’ ie sale of agriculture produce against full payment in advance but deferred delivery on a specified future date, would give flexibility to the farmers to use the funds to meet input requirements.
IBIs may adopt the product in the present form or with some adjustments to suit their organisational and operational needs and market characteristics, subject to compliance with central bank regulations and approval from their Shariah advisers, the SBP added.
Farmers may enter into single or multiple transactions based on their specific funding needs. Under single transaction, total funds needed by the farmer will be credited to his account in lump sum whereas under multiple transactions funds will be disbursed in tranches.

This news was published in The Express Tribune, October 19th, 2011.

Islamic Agri Finance can uplift rural areas

LAHORE – In the wake of the current financial crisis coupled with the global food shortage the need for improving village economy through enhanced output has become a challenge for the planners and other stakeholders. The importance of livestock and allied sectors cannot be compromised for the Agricultural growth. Islamic Agricultural and Rural Finance can bring the genuine green revolution to an economy. As Islamic Finance has made a lot of progressive research in Agricultural finance bringing a number of pragmatic and useful choices which if implemented can bring revolutionary development to the economy.
This intention was declared by Muhammad Zubair Mughal Chief Executive Offier, AlHuda Centre of Islamic Banking and Economics(CIBE), while explaining the objectives of a specialized training workshop on Islamic Agricultural and Rural Finance being organized by AlHuda-CIBE on 28th & 29th November 2011 in Islamabad.
The workshop will be attended by officials from banks and financial institutions, agricultural research development and planning institutions having interest in Islamic Finance.
He further emphasized the role of Islamic finance in Agriculture and Rural sector, that it can not only bring new avenues for business for Islamic financial institutions by using innovative products but also the farmers and agro based businesses can benefit from shariah compliant financing to develop their economy and thereby eliminate the poverty and agricultural funding limitations. Especially the farmers with smaller units of land face difficulty, which can be solved by the planners through this mechanism.

source : nation pakistan

Sri Lanka, Malaysia partners to promote Islamic banking and bonds

Sri Lanka’s Wealth Lanka Management (Pvt) Ltd, an investment house, and Al Tayseer Advisory Services Sdn. Bhd a Malaysia based consultancy has linked up to provide Islamic banking and bond market instruments, officials said

The firm advices on Islamic banking and corporate finance and advisory services for specialist industries like steel, cement and cotton.
“We find Sri Lanka as an emerging market for Islamic finance with immense future growth potential,” Al Tayseer Advisors Services, chief executive and partner Fahd Hashim, told reporters in Colombo.

“Sri Lanka is the second fastest growing economy in Asia right now and growth is linked to public sector investment with imports of cement steel.”

Al Tayseer can help with setting up plants or acquiring them to supply commodities to Sri Lanka, Hashim said.

The firm was also working in Pakistan. Hashim said it was already advising a Pakistan based cement maker that is exporting to Sri Lanka. In addition to corporate finance the consultancy also advised in materials and energy efficiency and use of carbon credits.

Mangala Boyagoda, head of Wealth Lanka Management, a senior fixed income specialist in Sri Lanka said the new partnership could provide Shariah based bond market products to help create an interbank market in Islamic finance.

“You cannot develop Shariah banking without an interbank market,” Boyagoda said. “We are looking at the possibility of raising a Shariah government bond.”

Though several banks have Islamic finance units in the country, they have constraints in Treasury management due to lack of compliant products.

The partnership will also advice on setting up Islamic banking units or outsource such units for banks, finance companies and leasing firms, Hashim said.

source : lbo – Sri lanka

Kerala must tap Islamic funds for infrastructure development, say experts


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.


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.”


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.


“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.


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.


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

The first ever Islamic Finance Country Report in Sri Lanka was launched by KPMG Ford, Rhodes

Sri Lanka’s first ever Islamic Finance Country Report in Sri Lanka was launched by KPMG Ford, Rhodes, Thornton and Co. in collaboration with the Research Intelligence Unit.

The publication titled ‘Islamic Finance Country Report – Window of opportunity in Sri Lanka’ provides insight into the demographics of the Islamic finance market and an in-depth analysis of the trends in the industry together with the future position and a series of interviews with key professionals in the field, the Research Intelligence Unit said in a statement.

Islamic Finance was first introduced to Sri Lanka as early as 1997.

However the landmark evolution was the amendment made to the Banking Act No. 30 of 1988 in the year 2005 in order to permit licensed commercial banks and licensed specialised banks to offer selected financial instruments such as Murabaha and Mushakraka.

Islamic Finance has garnered an increased interest in the last few years and has the potential to develop the capital markets of Sri Lanka and assist with the development of infrastructure along with encouraging foreign investment in Sri Lanka.

At present there is a State Bank and two licensed Commercial Banks that operate Islamic finance windows with many other potential players on the verge of venturing into the market.

Sri Lanka has witnessed an important milestone in that the Central Bank of Sri Lanka has permitted the operation of a fully fledged Islamic Finance Bank and recently an Islamic Fund was launched facilitating investment in listed securities and this Report will no doubt assist the entrance of new players and investors into the market both foreign and local alike.

Amana Bank Limited Chairman Osman Kassim, Chief Guest at the event, during his address, commented on the development of the Islamic Finance industry in Sri Lanka and also mentioned that the country’s strategic geographic location provides a window of opportunity for Sri Lanka to service the Islamic Finance needs in the SAARC region.

Also at the release, Chief Executive Officer of the Research Intelligence Unit Roshan Madawela, spoke on how the publication provided information on both the demand and supply side of the industry.

He went on to comment on how the methodology used provided insight into product profiles, customer profiles, market penetration levels, the labour market dynamics and growth potential of the industry.

Commenting at the event, Partner and Head of Advisory of the Firm Reyaz Mihular said, “KPMG Ford, Rhodes, Thornton and Co. has continuously endeavoured to eliminate the barriers faced by the Islamic Finance industry and this publication provides an overview of these challenges and opportunities.”

source : Lanka business today

Pakistan Eyes Bigger Islamic Finance Share

ISLAMABAD – Seeking to double its share of the growing Islamic banking, Pakistan is turning to rural areas to drive growth of the booming industry.

“Islamic banking, primarily being a faith-driven industry, has a significant potential in Pakistan as the concept directly appeals to the religiously sensitive segment of the society,” Saleem Ullah, director of the Islamic banking department at the State Bank, told Reuters on Sunday, August 14.

“The share of the industry in the banking system has risen to over 7 percent from just 0.5 percent in 2002.”

The south Asian Muslim country, home to 180 million Muslims, plans to double its share to 12 percent by 2015.

To help achieve this, Pakistan has ordered Islamic lenders to open 20 percent of all new branches in rural areas, where clients traditionally shun conventional banks due to concerns over interest which is forbidden under Islam.

“Historically, the poor and oppressed in a society are more inclined to follow the norms of their religion than the affluent,” said Muddassir Siddiqui, an Islamic scholar and partner at law firm SNR Denton in Dubai.

Islamic banking currently accounts for 497 billion rupees ($5.74 billion), or 7.3% of Pakistan’s overall banking system.

Pakistan has six Islamic banks, Meezan Bank, Bank-al-Islami, Global Islamic Bank, Al-Barka Bank, Dawood Islamic Bank and Global Emirates Islamic Bank.

They have around 500,000 customers in consumer financing and deposits sectors and hold 5 percent share in the overall banking sector in the country.

Meezan is the first full-fledged Islamic bank in Pakistan and was issued license by the State Bank of Pakistan in 1997.

The Asian country also has twelve conventional banks with Islamic operations, creating a network of 800 branches in Pakistan.

Another 150 branches are expected to open in Pakistan by the end of the year.


The anticipated boom in the Islamic banking industry is already drawing interest from both conventional banks in Pakistan and foreign institutions.

“The new regulatory requirements are a good first step by the government to reaching those in rural areas, where there is little trust for banks and people prefer to keep money under their pillows,” said Zahid Mansoor, treasurer at DIB Pakistan, a unit of Dubai Islamic Bank.

Mansoor said Dubai Islamic Bank, which has subsidiaries in Pakistan with a record of 59 branches throughout the country, plans to have 80 branches by the end of the year.

“If you create awareness in the minds of these people, there is significant potential to take Islamic finance beyond a niche market and make it the main choice for banking.”

Bahrain’s Al Baraka Bank is also seeking to launch more branches in Pakistan.

“We currently have 100 branches in Pakistan and consider it to be a growth area for us,” said Adnan Ahmed Yousif, chief executive of Bahrain’s Al Baraka Bank.

“At our bank, we are looking to get to 200 branches over time.

“The country definitely has a lot of potential within Islamic finance.”

The Standard Chartered Saadiq, the Islamic arm of UK-based Standard Chartered, also launched operations in the country.

Islamic banking, which began almost three decades ago, has made substantial growth and attracted the attention of investors and bankers across the world.

With estimated 300 Islamic banks and financial institutions worldwide, the industry expands by 15-20 percent a year and entered recently new markets from Australia to South Africa.

Western financial institutions, including Citigroup, Deutsche Bank, HSBC and UBS, are increasingly offering Islamic products.

Islamic banking operates by sharing profit or loss between the bank and its clients, instead of interest, which is forbidden.

Islam forbids Muslims from receiving or paying interest on loans.

source : onislam net

India may get its 1st foreign Islamic Bank in Bank Asya

NEW DELHI: India may soon get its first foreign Islamic bank with the Reserve Bank of India (RBI) seeking government approval to allow Turkey’s Bank Asya to offer Shariah-compliant lending in the country. Shariah, or the Islamic law, bans interest on financing. Bank Asya is keen to start its Indian operations through a representative office in Mumbai. “So far the bank has only sought permission to open a representative office,” a finance ministry official said. “We are considering their application .”

Bank Asya had in 2009 received clearance from Turkey’s banking regulator to open a representative office in India. Its proposal has been pending with RBI for over a year. “After the global economic crisis, RBI has been stringent with allowing foreign banks in the country,” the finance ministry official said. “As a part of its liberalised policy for foreign banks, it has now granted permission to Bank Asya.” Global financial centers, such as Singapore , Hong Kong, Geneva, Zurich and London, have made changes in their regulations to accommodate Islamic finance industry that is now worth about $1 trillion.
RBI has requested the government to consider the Turkish bank’s application within 45 days. Launched in 1996, Bank Asya aims to develop interest-free banking products, according to its charter. It has 179 branches in Turkey. The current statutory and regulatory framework in India does not allow banks to undertake Islamic banking activities. But the Committee on Financial Sector Reforms, constituted by the Planning Commission, had in a report in 2008 recommended delivery of interest-free finance on a larger scale, including through the banking system. Last year during a visit to Indonesia, the country with the world’s largest Muslim population, Prime Minister Manmohan Singh had said that he would ask RBI to look into the demand for establishing Islamic banking in India.

source : the economic times