Staying ahead of the competition in Islamic financing

Indonesia eyes Islamic T-bills, retail sukuk in 2010

Indonesia may issue Islamic treasury bills and retail sukuk this year to diversify funding sources, develop the Islamic debt market and finance the state budget deficit, finance ministry officials said on Monday.

The ministry also said it expected to issue conventional bonds for retail investors in July or August, with maturities of up to five years.
Indonesia, the world’s most populous Muslim country, has been relatively slow to develop its Islamic markets, lagging Malaysia and Singapore. It stepped up its efforts last year by eliminating double taxation of such sharia products, as this had hampered growth of the industry.
The finance ministry currently issues conventional treasury bills, with maturities of up to 12 months — usually at least once a month via debt auctions — while Bank Indonesia (BI), the central bank, issues treasury bills called central bank certificates (SBIs) with a maximum maturity of six months.
“We are still in talks with BI including on the maturity” of the Islamic T-bills, Dahlan Siamat, the finance ministry director in charge of Islamic debt, told reporters.
“If it can be issued this year, that will be good,” said Rahmat Waluyanto, the ministry’s head of debt management unit, referring to Islamic T-bills.
BID TO CONTAIN HOT MONEY FLOWS
The finance ministry’s decision to consider issuing Islamic treasury bills follows moves by the central bank to reduce the frequency of its SBI auctions as it tries to contain hot money flows, shift money into longer-dated paper and spur bank lending.
The central bank is in the process of changing its auction schedule. It will hold its SBI auctions once a fortnight, instead of once a week, until late May, and then once a month starting in June.
Central bank officials have said they expect to rely less on SBIs for monetary operations and instead use more finance ministry debt securities.
Ministry officials also said they expected to issue Islamic debt, or sukuk, for retail investors around November.
The ministry last sold sukuk to retail investors in February, raising 8 trillion rupiah ($888.3 million) in a three-year issue that yielded 8.7 percent — well above the one-year bank deposit rate of about 6.5 percent.
The finance ministry has said it plans to raise 176.2 trillion rupiah from bond issues this year, including both conventional and Islamic debt.
The proceeds would be used to finance the budget deficit, which under the approved budget is forecast at 1.6 percent of GDP this year, although under the revised budget it is forecast at 2.1 percent of GDP. ($1=9005 Rupiah)
source : guardian

Islamic finance bodies have trillion-dollar potential – Moody’s

ISLAMIC financial bodies, which adhere to religious proscriptions against interest, have a market potential of at least US$5 trillion ($5.43 trillion), Moody’s Investors Service said.

But Moody’s added that such institutions needed to develop their own derivative instruments, avoiding conventional derivative practices, if they wanted to retain their popularity among Moslem investors.

It said Islamic financial institutions had total assets in 2009, despite a gloomy international economic environment, of $US950 billion ($1.03 trillion).

But it estimated that the sector’s potential was “worth at least at least $US5.0 trillion ($5.43 trillion) and the industry is continuing to expand globally.”

Islamic banking has been left relatively unscathed by the global financial crisis, largely because of rules forbidding engagement in the kind of risky business that sank mainstream institutions like Lehman Brothers.

Islamic Shariah law bars the payment and collection of interest, which is seen as a form of gambling.

Islamic finance also operates on the principle of risk-sharing between the issuing bank and the buyer of a financial product, making it a less risky alternative to some conventional banking instruments.

Moody’s Vice President and Senior Credit Officer Anwar Hassoune said that Islamic financial bodies now wanted to use derivative instruments to hedge against risk and to improve monitoring practices.

“However they are keen to do so in a Sharia-compliant manner, rather than imitating conventional derivative instruments, in order to avoid losing their special status as Sharia-compliant banks, which makes them very attractive to a large population of Muslims.

“For this reason a new innovation phase in the industry is critical.”

source : news.au

Islamic Finance Offers Stability As a Financial System

As the world reels from the knock-on effects of the US subprime crisis, many are questioning the validity of the current financial regime and asking what should replace this flawed system. Leading Islamic Finance experts Iqbal, Mirakhor and Krichene make a strong case for adopting principles of Islamic Finance.

Sydney, Australia – infoZine – The validity of the current financial regime has been in question since the 2007 global financial crisis exposed its vulnerabilities that stem from high leveraging, a complex system of transactions and instruments, and a disconnect between the real and financial sector.

Published by John Wiley & Sons (Asia) Pte Ltd, The Stability of Islamic Finance: Creating a Resilient Financial Environment for a Secure Future develops an analytical case for the inherent stability of an Islamic financial system, a system that is based on equity financing and risk sharing. The authors, who have written numerous books and articles on Islamic finance between them, bring a wealth of knowledge and experience to the discussion of the Islamic finance industry and its place in broader efforts to reduce the volatility of global financial markets.

Focusing on the historical, analytics and empirical discussion of the comparative stability of the two systems, this book first considers episodes of turbulence and instability in a historical context recalling the occurrence of such events from mid-19th century to the present. It then offers various theoretical explanations along with solutions and alternative financial systems that avoid instability provided by various scholars dating back to mid-19th century to present. Discussing the architecture of an Islamic financial system, it shows that the Islamic financial system shares at its core many characteristics of a stable financial system proposed by Western scholars throughout history to avoid the inherent instability of the present dominant system.

Scholarly, insightful, yet highly-readable, this book makes a convincing case for the world to shed its reliance on debt, interest and leveraging, and revamp the global financial system to rely more heavily on equity and risk sharing, the foundation of an Islamic financial system.

Prof. Hossein Askari received all his university education, including a Ph.D. in economics, at MIT. He has taught at MIT, Tufts University, the University of Texas at Austin and is now the Iran Professor of International Business and International Affairs at the George Washington University. He served for two and a half years on the Executive Board of the IMF and was Special Advisor to the Minister of Finance of Saudi Arabia. In the mid-1980s he was the director of a multinational team that developed the first energy plan and energy planning models for Saudi Arabia. He has written extensively on economic development in the Middle East, international trade and finance, agricultural economics, oil economics, economic sanctions, and on Islamic economics and finance.

Dr. Zamir Iqbal works as Lead Investment Officer in the Treasury of the World Bank in Washington, D.C. He earned his Ph.D. in International Finance from the George Washington University, where he also serves as adjunct faculty of International Finance. He has extensive experience with capital markets, structured products, risk management, financial sector development, and financial modeling. His research interests include Islamic finance, financial engineering, structured finance and risk management. He is co-author of several books on Islamic banking and finance.

Dr. Noureddine Krichene received his Ph.D. in economics, University of California, Los Angeles, 1980; joined the International Monetary Fund (IMF) in 1986; and held the position of advisor at the Islamic Development Bank.

Dr. Abbas Mirakhor received his Ph.D. in Economics from Kansas State University in 1969. After teaching at various universities in the USA and in Iran he joined the staff of the Research Department of the IMF in 1984. He became an Executive Director of the IMF from 1990 until his retirement in 2008. He is the author of a number of articles and books on Islamic economics and finance. He is now the first holder of the INCEIF Chair in Islamic Finance.

source : infozin

Muslim clerics launch Islamic investment advisory board, pitch for Islamic banking

New Delhi: India’s eminent Islamic clerics today pitched for introduction of Islamic banking and financial system in the country while opening to the public the Islamic Investment & Finance Board, an advisory committee headed by clerics to assist both corporations and markets as well as common people regarding Shariat-compliant investment and finance.

“Islamic Finance and Ethical investments are gradually evolving into one of the most important asset classes in the financial services industry in the world today. This is seen as an alternate to the failure of conventional financial system to achieve the higher objective of bringing economic justice. Another driving force for this phenomenon is the sheer size of the Indian Muslim population who are looking for alternate interest free financial system,” said Mufti Mohd. Yahya Qasmi, Member, Islamic Investment & Finance Board (IIFB), at the national conference titled “A Search for an Alternate Financial System” at India Islamic Cultural Centre in the National Capital today.

Building on the strong fundamentals and importance of the alternative investment & finance, Islamic Investment & Finance Board was evolved under the leadership of Maulana Mohammad Wali Rahmani, Sajjada Nasheen, Khanqah Munger and Secretary of All India Muslim Personal Law Board, said Mufti Qasmi while introducing the IIFB and opening the conference.

The primary responsibility of the board is to ensure that all the Islamic Financial products made are Shariah compliant as an alternate means. The work of IIFB will be supervisory to guide and advise the financial corporation regarding Islamic investment and finance including Islamic Banking. The board upon going through the Shariah validity of financial products presented by financial corporation would certify the financial products after a thorough examination according to the Shariah compliant criteria. The IIFB Board shall have continuous dialogue with economist, bankers and other scholars to assess the feasibility of new proposals and assisting in project development and execution of new financial products in compliance with Shariah Principles. IIFB also makes sure that the work of an organization is Compatible with Shariah rules according to the accredited and agreed legal opinions (Fatwa), Mufti Yahya said.

The IIFB comprises prominent Ulama such as Maulana Khalid Saifullah Rahmani, General Secretary of Islamic Fiqh Academy- India, Maulana Fuzail ur Rahman Hilal Usmani Panjab, Maulana Fuzlur Raheem Mujeddi Jaipur, Mufti Shoibullah Khan- Bangalore, Mufti Ahmad Nadir Al-Qasmi, Mufti Ajaz Arshad Qasmi, Mufti Riyaz Ahmad Qasmi Munger, Mufti Anwarul Haque Qasmi, Mufti Mohd Yahya Qasmi and Market Expert Imtiaz Merchant.

Addressing the gathering Maulana Khalid Saifullah Rahmani said interest is prohibited not only in Islam but also in Christianity and Hinduism. Islamic banking system which will be free from interest will have little risk for the common people. He said that to fix benefit and dividend and to not accept the risk of loss is unnatural.

H Abdur Raqeeb, Convener, National Committee on Islamic Banking and General Secretary, Indian Centre for Islamic Finance demanded the government to allow Islamic Banking system in India as many many European countries and US have done. He said he has met RBI Deputy Governor and Union Finance Minister Pranab Mukherjee. Both have given positive response. For introduction of Islamic banking in India, the present Indian banking law will have to be amended. So he urged the gathering to meet their local MPs and convince them about Islamic financial system.

Talking to TwoCircles.net on the sidelines of the program, stock market professional Tauqeer Anjum from Chennai-based stock broker ITI Financial Services Ltd. said in the last few years there has been rise in number of people who are coming to enquire about Shariat-compliant stocks. His company though does not have any such index, however provides the Muslim investors with information about Shariat-compliant shares and products where they can invest. Excerpt.

Stock market professional Tauqeer Anjum

Do you get Muslim customers/investors who want to know from you about Shariat-compliant products/shares in which they want to invest?

Yes, such people come though in limited number and they want to invest but they have no option or alternative to work, they do not have full information either.

Do you see rise in number of people who are coming to enquire about Shariat-compliant shares?

Yes, for the last five years I have found rise in the number of such people. Earlier I was with MK stock broker and now with ITI Financial Services Ltd for some years. A lot of people come to get information about shares which are not based on interest and are completely Shariat compliant. They show interest in equity shares.

Do you have any list of Shariat-compliant products and shares?

We do not have any such index, but we have information about Shariat-related shares and share this information with the investors who want.

Can you name some companies/products in which Muslims can invest without fear of getting involved in interest?

Sun Pharma, Reliance Industries, Reliance Capital, Dabur these are some stocks/companies in which we can invest.

Such programs are necessary. We in the share market seek to get information about Shariat-compliant finance. We got information about this program. And I am here to attend it.

source : two circle