Source :ETF strategy
September 26, 2012
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
Most of the South Asia countries including Pakistan, Sri Lanka, Bangladesh and Maldives engaged with Islamic finance, still Indian Financial industry is struggling to open the door for Islamic finance industry though few attempts were done by some small groups. The following content is about Untapped Islamic banking market in India.
Islamic banking may be in for some windfall gains if a reported move by Indian authorities to introduce some form of interest-free banking, aimed at bringing the country’s unbanked Muslim populations into mainstream banking, bears fruit.
If the initiative is taken to its logical conclusion, the Indian banking sector too stands to gain significantly as it will add huge numbers of new customers, while opening up a channel for substantial fund flow from regions such as the Gulf.
The Indian banking sector, which grabbed international news headlines last week, although for the wrong reasons — a nation-wide strike by employees of public sector banks and figuring in the controversy centering on Iran sanctions-related breaches by some international banking majors — however, provided some clues to the outside world about the kind of clout it enjoys in terms of customer base and business volumes.
The ministry’s director for Shariah financing, Dahlan Siamat, said the government issued its first Islamic bond, known as sukuk, in 2008, and as of Thursday it had issued a total of Rp 120 trillion.
“The achievement has been supported by excessive demand for sukuk in the domestic market,” Dahlan said in Surabaya on Thursday.
“The potential for state sukuk in the country is developing rapidly, given that 80 percent of Indonesians are Muslims and there remains large potential for them to become investors.”
Indonesia has been selling conventional and Islamic bonds during the past year to help plug its growing budget deficit. The country’s budget shortfall is forecast to reach 2.23 percent of the gross domestic product this year, according to a revised 2012 state budget.
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source : Gulf daily news
MANAMA: The International Islamic Financial Market (IIFM) and the International Swaps and Derivatives Association (ISDA) have launched the ISDA/IIFM Mubadalatul Arbaah (Profit Rate Swap) product standard to be used for Islamic hedging purposes.
The launch of the Tahawwut Master Agreement as the template for Sharia-compliant risk management was officially announced by Central Bank of Bahrain (CBB) in March 2010.
“Islamic Financial Institutions (IFIs) have largely shown resilience in the current difficult financial environment and some are even going through an expansion phase,” IIFM chairman and CBB executive director of banking supervision Khalid Hamad said.
“However, due to the inter-linkages with the global financial system, the balance sheet of IFIs are exposed to fluctuation in foreign currency rates and also cash flow mismatches due to fixed and floating reference rates.
“IIFM recognises the importance of this critical segment at an early stage and undertook the challenge of developing global Islamic hedging standards in collaboration with ISDA.
“I am confident that such joint efforts will continue in the future for the benefit of the industry,” he said.
“ISDA is pleased to continue its partnership with the IIFM as part of its own on-going efforts and commitment to building safe and efficient OTC hedging markets, across both global and Islamic financial markets” said ISDA chief executive Robert G Pickel.
“The ISDA/IIFM Tahawwut Master Agreement was a major milestone in the development of risk management in Islamic finance and the development of the ISDA/IIFM confirmation templates for Islamic Profit Rate Swaps is a natural step in the evolution and development of the market,” he said.
THE FINANCE BILL 2012 was published yesterday by Minister for Finance Michael Noonan and among the Mortgage Interest Relief measures and tax changes for businesses, the Bill also clarified the following (more unusual) elements of Irish taxation:
The Finance Bill 2012 clarifies the range of bread products, including bagels and blaas, which will not be liable for VAT and will instead remain designated at a zero rate of tax.
The zero-rated breads include loaves, rolls, batch bread, bagels, baps, blaas, burger buns, finger rolls, wraps, naan breads and pitta bread.
Other flour- or egg-based bakery products are subject to VAT of 13.5 per cent.
The Department of Finance said that the breads listed above are being designated zero-rated for tax in an effort to reflect the kinds of bread currently available on the market while taking into account the development of bread for health and ethnic reasons.
The Finance Bill had some good news for professional cricket players: they are being added to the list of professional sportspersons entitled to tax relief on certain income.
The move also means that the cricketers will be eligible for a higher rate of relief on pension contributions.
Other sportspersons covered by this are: athletes, boxers, cyclists, golfers, motor racing drivers, footballers, rugby players, swimmers, jockeys, and tennis, squash and badminton players.
They must be resident in the state for the relevant tax assessment period to qualify and the deduction only applies to direct sports earnings (less expenses) and not for indirect income earned through promotional appearances or sponsorship.
3. Islamic Finance
The Finance Bill also includes enhancements to the tax regime for Islamic finance.
This area of finance in Ireland, which although faith-based is not limited to Muslims, was introduced in the Finance Act 2010, and refers to financial transactions which are consistent with the principles of Islamic or Sharia law.
Under Islamic finance, the payment and receipt of interest is forbidden. Speculation is also prohibited, while investment in unethical businesses, products or services is also banned. According to the Revenue Commissioners, under Islamic finance, transactions are typically backed by or based on an identifiable and tangible underlying asset.
The transactions also involve sharing risk between the investor and the investee, and products under Islamic finance operate along the same lines as conventional financial products by using familiar legal structures in an alternative way to achieve the financing objectives.
The Finance Bill published yesterday proposes technical changes to certain Islamic financial transactions in the same way as conventional financial transactions by allowing such a company to have other income in addition to income from leasing and/or income from specified financial transactions.
source : the journal.ie
IRELAND plans to become the first European nation to sell sovereign sukuk — Islam-approved financial certificates — as its equal tax treatment for Islamic-finance products attracts investors.
The Government has agreements with more than 60 countries to avoid double taxation on Islamic transactions, Micheál Smith, the south-east Asia director of IDA Ireland, said.
Islamic finance assets around the world may rise about 16% to €1,240 billion this year, Raj Mohamad, managing director at Five Pillars, a consulting firm based in Singapore, told Bloomberg Television yesterday.
While plans to sell sukuk by Britain, France and Luxembourg have stalled, Mr Smith said Ireland will push ahead with a sale.
“Ireland will be going back to the bond market and a sukuk is an option when conditions are right. We also hope to form more working groups with Muslim countries such as Malaysia to build up a critical mass of expertise as the objective is for Dublin to become a centre of excellence for Islamic finance.”
Ireland introduced tax legislation for products that comply with Islam’s ban on interest in 2010, Mr Smith, who is based in Singapore, said.
The Central Bank has a Shariah team overseeing its Islamic funds, which total about €390m under management.
The Irish Stock Exchange listed its first sukuk in 2005 and Ireland is a popular choice for sales because the nation offers a “relatively inexpensive” and timely listing process, he said.
The Government last sold bonds in September 2010, the year it had a deficit that was the highest as a percentage of gross domestic product in the developed world. The Department of Finance estimates the ratio dropped to 10.1% of GDP in 2011 from 31% the previous year.
CIMB Group Holdings, the world’s biggest sukuk arranger, said this week that it got approval to set up the first Shariah-compliant equity funds from Malaysia in Ireland.
Ireland’s bid to become an Islamic finance hub received a boost in October when Goldman Sachs Group got approval from the nation’s central bank to list its $2bn (€1.55bn) sukuk programme. The planned sale has attracted criticism among Islamic scholars, with some saying the proceeds may not be used according to Shariah law.
CIMB-Principal Islamic Asset Management, based in Kuala Lumpur, chose Ireland for its Islamic equity funds because there’s no double taxation and no withholding tax on interest payments, Jim McCaughan, chief executive of US-based venture partner Principal Global Investors, said on Monday.
An initial investment of $20m (€15.5m) will be put into three funds that will open for subscription next month, he said.
“We expect interest from Europe, Malaysia and more importantly the Persian Gulf and other Muslim countries,” Mr McCaughan said. “People are getting wealthier and want to diversify their funds.”
Global sales of sukuk, which pay asset returns instead of interest, total €4.7bn this year, compared with €500m in the same period in 2011, according to data compiled by Bloomberg. Offerings reached a record $36.3bn last year, surpassing the $31bn raised in 2007.
The difference between the average yield for sukuk and the London interbank offered rate, or Libor, narrowed two basis points to 299 basis points yesterday, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index.
The average yield has climbed nine basis points, or 0.09% point, this year to 4.08%.
Shariah-compliant bonds have dropped 0.1% in 2012, according to the HSBC/Nasdaq index, while debt in developing markets declined 0.2%, JPMorgan Chase & Co’s EMBI Global Composite Index shows.
The Bloomberg Malaysian Sukuk Ex-MYR Index of foreign currency Islamic debt sold by companies in Malaysia rose 0.5% this year to 104.919 yesterday. The gauge increased 5.9% in 2011.
Britain cancelled what would have been the first sukuk sale by a Western government last February, saying the debt didn’t offer value for money. Luxembourg ruled out a plan to sell Islamic bonds in 2011 because the government saw no need to raise additional funding. France has legislation in place to facilitate a sale and has yet to proceed with an issue.
Ireland has a Muslim population of 30,000, according to a Department of Finance document covering the nation’s Islamic industry issued in March 2010. Roman Catholics make up 87% of Ireland’s population.
The Islamic Cultural Centre for Ireland and the Immigrant Council of Ireland have all called for more Shariah-compliant initiatives, the report said.
“There’s been no objection to Islamic products being sold in Ireland,” said Mr Smith, who is also a director in charge of the 10-member Association of Southeast Asian Nations at the IDA.
The European debt crisis provides an opportunity for Islamic finance to grow given it is rooted in ethics and religion, according to Nik Norzrul Thani, the chairman of Malaysian law firm Zaid Ibrahim & Co.
“What Ireland is doing is a step in the right direction,” Nik Norzrul said in an interview in Kuala Lumpur.
“Ireland’s ambition to be a Shariah-compliant hub is a recognition that Islamic finance isn’t only for Muslims.”
source : Irish Examinar