Weekly Industry Updates

The GCC Islamic Finance industry is expected to maintain its rapid growth over the coming years despite mixed results across sectors in 2014, according to Standard & Poor’s Ratings Services (S&P). read more

USA TODAY : Shariah financing growing popular in the West read more

Malaysia a trailblazer in global Islamic finance read more

Islamic development finance to target infrastructure, SMEs read more

Islamic Finance Industry Players Welcome Investment Account Platform read more

Malaysia bank giants eye merger to create biggest lender read more

Sukuk market hits new heights but risks falling short on social front. Islamic finance risks falling behind the conventional capital markets in its support of social development and the real economy including SME financing. read more

Tiny Liechtenstein plans push into Islamic finance read more

GCC urged to follow unified Islamic finance regulations

The Gulf Co-operation Council (GCC) should have a unified rule under one regulator for Islamic investment products for ensuring lower cost of funds, according to Islamic Wealth Management (IWM) Report 2012.
“The GCC countries could take a leadership role by establishing standards for the registration of Islamic investment products with one regulator,” the Bank Sarasin report said.
The report was launched by Bank Sarasin managing director and head of Islamic Finance Fares Mourad and Monzer Kahf, a leading Islamic finance scholar.
Such unified rule would allow asset managers to market the product to clients across the region, it said.
Currently any offering needs to comply with different regulations in Bahrain, Kuwait, Saudi Arabia, Oman, Qatar and the UAE, resulting in a lengthy and expensive registration process, the report said. “Reducing expenses and increasing the availability would increase competition, benefiting local investors and further the GCC’s development as a centre of excellence for Islamic finance.”
Although unified rules could be done either a state, region or Arab league level, it would be better to have a centralised agency that could interpret the legislations regarding Shariah investments, Mourad said.
Asked whether there was a need for a separate entity for the regulation and supervision of Islamic investments and products, he said “I really would like to have this” but it was for the regulators in the respective jurisdictions to decide.
Kahf said the Islamic Financial Services Board could take the lead in the centralised agency as it consisted of central bankers in the Muslim countries. “Once you have such an agency, there is no need for separate Shariah boards as lawyers specialised in the field could suffix its role,” he added.
The report also took note of the constant criticism of certain Islamic finance structures such as the ‘Tawarruq’, which involves purchasing a commodity with deferred payment and selling it to a third party for cash, hence replicating the effect of a loan.
“Regulations need to be adjusted to allow financial institutions to engineer products that fit the spirit of Islam while meeting legal and regulatory requirement,” it said.
In this regard, the report cited an example of recent co-operation between the halal industry (mostly foodstuffs) and Islamic finance – two sectors with similar goals that have had little contacts.
With issues related to the environment and social practices as well as corporate governance getting more attention, it said there has been more reporting on corporate social responsibility, which is important to Islamic finance.
“There is still much room for improvement with higher standards and a more strategic approach required at the state, company and private level. The Muslim countries face the greatest challenges,” the report said.

source : gulf times

Islamic Banking in GCC – Resilience in the Financial Crisis

The global financial crisis has prompted calls to return to basics and emphasise sound fundamentals. While most of the formerly fashionable financial innovations – such as credit-default swaps, mortgage-backed bonds and single-tranche collateralised debt obligations – took a beating, one segment exhibited remarkable resilience: Islamic banking.

Modern Islamic financial services have been around for more than three decades, but they gained widespread attention only recently, as rising prosperity in the GCC and South-east Asia fuelled demand for financial instruments that avoided inclusion of interest payments, which are forbidden by Islamic law.

Islamic banks, as well as traditional banks that offer Islamic services, have been a part of RAK’s financial scene from the outset. Major regional players such as Abu Dhabi Islamic Bank, Dubai Bank, Dubai Islamic Bank (DIB) and Noor Islamic Bank have active branches in RAK, and the home-grown National Bank of RAK received a licence from the UAE Central Bank to offer sharia-compliant services in 2007. DIB has been especially active, opening a fourth branch in RAK in late 2009 and becoming the official escrow agent for real estate deals via an agreement with RAK Investment Authority.

While the financial sector as a whole recorded historic drops in activity and profit over the last two years, a WTO report on trade levels predicted aggregate asset growth of Islamic banks to reach an impressive 15-20% in 2009 – down from the optimistic 20-30% predicted in 2008, but far from disappointing. Yet despite their strong showing, some analysts warn that Islamic banking, like so many of the financial vehicles that enjoyed soaring popularity over the past decade, is attracting investors with false impressions of lower risk.

Islamic banking is commonly seen to have two advantages over conventional banking. The first is a perception that Islamic banks are bound to a higher moral standard: they will not take on irresponsible amounts of risk or pay outsize bonuses to their top bankers. The second is that earnings come from identifiable assets, not opaque combinations of derivatives and securities. Because Islamic banks cannot make money through interest, they rely on ties to tangible assets such as real estate and equity, charging “rent” instead of interest.

Until recently, this was seen as a strength of the sector. However, the relative volatility of the real estate and equity markets, especially in the UAE, has created challenges for Islamic banks. The near-default of Dubai World’s Nakheel sukuk was only the most high-profile in a series of events that called into question the supposed safety of Islamic financial products.

An assessment of Islamic financial services may lead the investor to question their viability. The changes needed to make funds sharia-compliant – who buys what, who rents what – lead to a proliferation of transactions, each with its own cost. The frequent reliance on real estate as an underlying asset subjects Islamic financial products to the unpredictable swings of the real estate market. And, in the absence of any overriding regulatory body, the exact definition of sharia-compliant is difficult to pin down. Perhaps most importantly, a standard course of action in the case of a default has not been established.

Yet despite these risks, public and private investors are still creating high demand for Islamic financial services. RAK’s government unveiled a $2bn sukuk programme in 2008, with a preliminary issue of Dh1bn ($272m) in May 2008 and a heavily subscribed Dh1.47bn ($400m) issue in the summer of 2009. The strong investor response indicates the RAK government’s credibility among international investors is solid. And while historically sukuk issues have attracted the most attention within the GCC region, over half the stakeholders in the 2009 issue are from outside the region: 34% of investors are in Asia and 19% in Europe.

While many of the most well established Islamic banks are based in the UAE, continued demand shows that there is still space for new players in the market. Greater competition should stimulate efficiency and growth in 2010 and beyond, marking the rise of Islamic banking as no fleeting fashion. For the sake of investors, it is to be hoped that Islamic banking regulation rises along with it.
source : GAN

Shares of most Islamic banks in GCC markets record spectacular rise


Ms Najat Al Soweidi, Chairman of the Arab Investment Company mentioned that according to latest AIC Research, share prices of most GCC-listed Islamic banks rose spectacularly over the last three months, particularly during the last six weeks. In this regard, Al Soweidi mentioned that AIC Total Return Index for GCC-listed Islamic banks (accessible on the Thomson Reuters service) shot from 455.8 points on the March 10, 2009 to 787.58 points on the May 10, ie a rise of about 73 percent over just the last sixty days. From a month-on-month perspective, which is over the thirty days from April 10 to May 10, the Index rose by about 33 percent.

AIC Chairman explained that all Islamic banks listed on the GCC exchanges, excluding two, recorded rises in share prices from of Feb 10 to May 10. Among the top advancers during that period were the Gulf Finance House shares which rose by 81 percent, the Al Jazira Bank shares by 73 percent, the Ithmaar Bank shares by 68 percent, the shares of Dubai Islamic Bank by 50 percent, and Sharjah Islamic Bank shares by 43 percent, while shares of Kuwait International Bank and Al-Rajhi Bank rose by 41 percent and 29 percent respectively. Worth noting is that the rise in share price of the remaining advancers among the GCC-listed Islamic banks averaged 10 percent.

Al Soweidi commented that these upward movements clearly reflect the start of stability and recovery in the GCC markets in the wake of the global subprime crisis, whose reverberations prompted GCC governmental and monetary authorities to launch remedial measures and adopt staunch monetary policies to reactivate their markets. Al Soweidi also noted that the rise in share prices of most GCC-listed Islamic banks surpassed the average rise in these markets, and attributed this to the fact that activities of Sharia Compliant financial institutions are based on exchange of actual assets, not on paper transactions, which makes them the first beneficiaries of improvement in market conditions.

Al Soweidi added “on these premises, AIC has established Al-Khaleejee Fund of GCC-listed Islamic banks in mid-February this year, but postponed its launch until recently to secure the highest possible profit for potential subscribers”.

On his part, Dr Farid Lian, AIC Senior Vice-President for Research and Business Development commented that the structuring and establishment of Al-Khaleejee Fund was preceded by extensive research, which spanned over a year and looked into the financial position of GCC-listed Islamic banks, leading to the development of an AIC proprietary index tracking the movements of these shares. Dr Lian added that the timing of Al-Khaleejee launch has been preceded by a thorough performance monitoring of the underlying shares, and reflects AIC relevant committees’ high expectation of solid profits for the Fund subscribers.