Most significant event in Islamic finance

It has been an eventful year for Islamic finance. You can expect more challenges and changes in 2009 as the financial sector weather the storm ahead, engineered by a credit crunch and global economic anxiety. Before we march ahead into 2009, let us take stock. WHAT IS THE MOST SIGNIFICANT EVENT IN ISLAMIC FINANCE IN 2008? That's the question that THE MALAYSIAN RESERVE, a business/finance daily published out of Kuala Lumpur, is asking its readers. What event/deal/launch/programme created the most impact on the sector? Drop us a note at habhajan.singh@gmail.com.


PS: You can browse thru this blog site (and others) to catch some events of significance.

ISRA: Seminar to highlight secondary sukuk trading

By Habhajan Singh
Giving a boost to secondary sukuk trading is one of key issues to be discussed at the two-day International Shariah Scholars Dialogue (ISSD) 2008 beginning tomorrow.
The session, organised by the International Shariah Research Academy for Islamic Finance (Isra), will see the presence of four globally renowned Shariah scholars, including Sheikh Prof Dr Mohamed Ali Elgari who is currently Professor of Islamic Economics at King Abdul Aziz University, Saudi Arabia.
Associate Prof Dr Shamsiah Mohamad (pix) from University Malaysia's Academy of Islamic Studies will present a paper on Shariah issues and solutions when it comes to secondary sukuk trading.
The paper, focusing on Shariah issues pertaining to secondary sukuk trading such as bay al-dayn, which represent mix-asset and selling the sukuk at discount, will propose possible solutions.
Shariah scholars Sheikh Nizam M S Yaquby from Bahrain and International Islamic University Malaysia (IIUM) deputy rector Prof Datuk Dr Sano Koutoub Moustapha will act as discussants for the session.
The spectacular growth of sukuk issuance has not seen a corresponding rise in secondary trading, partly due to the fact that most investors have had a buy-and-hold mentality. On top of that, comment by industry players in past media reports also indicated that another reason is the differing structures of the various sukuk that come to the market, with some being assetbased, others based on profitsharing agreement.
The Malaysian sukuk market has expanded significantly with an average annual growth rate of 22% since 2001, according to data from the central bank. In 2007, the sukuk market saw an exceptional growth of more than 70% with new issues during the year reaching a record high to about US$47 billion (RM162.52 billion) and the outstanding global sukuk market surpassing the US$100 billion mark.
Up until August 2008, BNM governor Tan Sri Dr Zeti Akhtar Aziz said the sukuk market has held its ground with a total global issuance now exceeding US$14 billion, and is expected to exceed US$200 billion in 2010.
Isra associate researcher Zaharudin Muhammad will present a paper on "Adaptation of the concept of insurable interest in takaful practices".
Assistant Prof Dr Said Bouheraoua from IIUM's Ahmad Ibrahim Kulliyah of Laws will present another paper entitled "Dhawabit (parameters) for the application of the principles of maslahah and dharurah in Islamic finance".
Among discussants for the two sessions are Associate Prof Dr Younes Soualhi from IIUM's Kulliyah of Islamic Revealed Knowledge and Human Sciences, Sheikh Dr Abdul Sattar Abu Ghuddah from Syria and International Institute of Islamic Finance's (IIIF) Dr Mohd Daud Bakar.
BNM deputy govenor Datuk Mohd Razif Abd Kadir will present the keynote address while Isra executive director Dr Mohamed Akram Laldin will chair the sessions.

Dr Younes & I on talkshow

On Dec 16, Dr Younes Soualhi from International Islamic University Malaysia (IIUM) and I were panelists on a live talkshow on Bernama TV on Islamic finance. Dr Younes is the deputy dean at the IIUM Institute of Islamic Banking and Finance. We had a good number of callers. The one-hour show was anchored by the programme executive producer Anne Edwards.

Maybank Islamic launches financing facility

Maybank Islamic has launched its new Islamic term financing facility specifically designed for corporate and business customers.
The Musharakah Mutanaqisah Term Financing-i (MMTF-i) is a Shariah-compliant financing facility for asset acquisitions and refinancing landed properties, plant and machinery, vessels as well as commercial vehicles.
The contract for MMTF-i is based on the Islamic principle of musharakah mutanaqisah or the diminishing partnership concept. Customers using this facility will enter into a musharakah mutanaqisah co-ownership agreement with Maybank Islamic to jointly acquire and co-own the asset.
The bank will lease its share of the asset to the customer and the customer, as an owner-tenant, will make payments which consist of a monthly rental payment and the acquisition payment intended to gradually acquire the bank's share of the jointly-owned asset.
The ownership of the property will progressively move towards the customer and the financing ends when the customer owns 100% of the property. Maybank Islamic acting CEO Ibrahim Hassain (in pix above, receiving a KLIFF award from Minister of Finance II Tan Sri Nor Mohamed Yakcop) said the new facility complements the bank's existing Term Financing-i, and it functions as an alternative for customers to manage their asset acquisitions and refinancing.
"The musharakah mutanaqisah concept is internationally accepted and is available to both local and foreign customers.
"The introduction of this latest facility given today's challenging business environment is our commitment to offer value services to customers and to assist in sustaining the growth momentum for business," he said in a statement yesterday.
MMTF-i is offered at a very competitive financing rate and is available under fixed and floating rates. Customers are also eligible for a 20% remission from stamp duty.
"Given these benefits, MMTF-i therefore offers significant advantages to our business customers. We are targeting for MMTF-I to contribute to our 10% to 15% growth target within Maybank Islamic's overall financing portfolio for the next financial year.
"To date, Maybank Islamic has more than RM8.2 billion in outstanding financing to the business sector," added Ibrahim. MMTF-i is Maybank Islamic's seventh latest mainstream banking product introduced since it commenced operations on Jan 1, 2008.
Ibrahim said Maybank Islamic will continue to bring a comprehensive range of ringgit and foreign denominated banking products to meet the ever growing needs of Malaysia's individual and business customers. (The Malaysian Reserve, Dec 17, 2008, p9. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays edited by Habhajan Singh)

ACCA: ‘Need to ensure level playing field for Shariah banking’

By Habhajan Singh
While it is not possible for United Kingdom (UK) regulation to distinguish Islamic finance from other forms of banking on a non-secular basis, there is a need to ensure a level playing field as far as possible. This was one of the pointers highlighted by Association of Chartered Certified Accountants (ACCA) president Richard Aitken-Davies during a recent breakfast meeting he hosted in London with some players from the Islamic finance sector.
He also noted that Islamic banks are not a panacea as they are increasingly beginning to feel the effects of the slowdown, due to the interconnection with the global financial system.
The discussion also touched on the role Islamic finance could play in helping in the current credit crisis. It revolved round a recent ACCA paper — "Islamic Finance: An Ethical Alternative to Conventional Finance?" — which explores the basic tenets of Islamic finance, the role of the UK in leading its development and whether it is a serious alternative to conventional finance.
"Once seen as a marginal industry by some, Islamic finance is now recognised as a vital and thriving market. "It has been widely acclaimed as the fastest growing sector within the world of finance and positions itself as an alternative model," Aitken-Davies wrote on his blog.
"Some suggest much of the current problems might have been avoided in an Islamic system (for example, because short selling and derivatives are generally prohibited).
"Advocates of this view point to the fact that funds adhering to Islamic (Shariah) investment principles have so far avoided the worst effects of the credit crisis," he added.
In November 2007, UK's Financial Services Authority (FSA), UK's single financial regulator, produced a paper entitled "Islamic Finance in the UK: Regulation and Challenges", setting out FSA's role in the development of the UK as the major European financial centre for Islamic financial products and services.
In the paper, it noted that UK's tax and legislative framework is becoming favourably inclined to Islamic financing, establishing a level playing field for a variety of Islamic products such as mortgages, bonds and insurance.
It also said it believes that these could lead to the availability of new retail products, the expansion of wealth and asset management services and the development of sukuk and other wholesale markets.
"Although we cannot promote Islamic finance (or any other particular kind of finance), we can give a clear regulatory framework which is flexible enough to adapt to changes in the market.
"We are keen to see the industry expand, although we recognise this will bring new regulatory challenges," the paper noted.
Since ACCA student, and members live in countries with a thriving Islamic finance market in the Middle East, Malaysia and Pakistan, he said it was keen to play its part in increasing the understanding and development of this sector. During the discussion, he also noted the the need to raise awareness of the principles of Islamic finance, with particular emphasis on the embedded principles of ethics and social responsibility.
"Further development of Islamic finance will require a wider range of products to stimulate competition and provide the best service to the public," he said.
(The Malaysian Reserve, Dec 15, 2008, p32, by Habhajan Singh. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays)

Al Rajhi to join MEPS service network

Al Rajhi Bank Malaysia will be the first foreign Islamic Bank to join the Malaysian Electronic Payment System Sdn Bhd or MEPS service network.
"As a trade-off, Al Rajhi Bank will give MEPS, a link to Saudi Arabia," said its director of retail banking, Sabry Ghouse, to reporters at a official signing ceremony between the bank and Lembaga Zakat Selangor (LZS) in Kuala Lumpur last Friday. The ceremony marked the appointment of Al Rajhi Bank as the LZS zakah payment agent for zakah Al Mal.
Ghouse noted that Al Rajhi is bringing value to the table whereby it will make available Saudi Switch, another system payment network,for Malaysia. "We will make a proper announcement on this next week," he said. It was reported last month that MEPS, an interbank payment network service provider, was talking to three foreign Islamic banks in Malaysia to join it.
Besides Al-Rajhi Bank, MEPS was hoping to clinch a deal with Kuwait Finance House and the Asian Finance Bank by the second quarter of next year. "Within the next two days we will have the final word from MEPS on our participation. Everthing is more or less all right. We have formally agreed," said Ghouse.
According to Ghouse, the MEPS service network will make it easier for Lembaga Tabung Haji as well as Malaysians in Mekah and Madinah for the Haj and Umrah activities, as they do not have to take along a lot of money. There are currently 1,800 Automated Teller Machines (ATMs) in Saudi Arabia. — Bernama

Takaful Malaysia looking for Indonesian partners

By ALFEAN HARDY
SYARIKAT Takaful Malaysia Bhd (Takaful Malaysia) is injecting up to RM21 million into its Indonesian operations, both to meet Indonesian regulatory needs as well as to make its operations there attractive enough for possible partnerships with Indonesian banks, its group managing director Datuk Mohamed Hassan Md Kamil said.
Speaking at a press conference in Kuala Lumpur yesterday, Hassan (picture) said Takaful Malaysia could see the injection of capital into its PT Asuransi Takaful Keluarga (Takaful Keluarga) sub-subsidiary once it gets the green light from the relevant authorities.
Takaful Keluarga, as of June 2008, is the 56%-owned Islamic family insurance arm of Takaful Malaysia's 56%-owned PT Syarikat Takaful Indonesia (Takaful Indonesia) operations. Takaful Indonesia is also the parent company for the company's Indonesian Islamic general insurance business, PT Asuransi Takaful Umum. "The Indonesian regulators have a risk-based capital requirement in place.
The injection is to partly meet this riskbased framework and partly to expand on the infrastructure capabilities of the company there in IT and distribution capabilities,' he added.
Hassan said Takaful Malaysia felt the injection of capital would also make its Indonesian operations an attractive prospect for a local partner, which he sees is essential to make in-roads in a very large country that was almost equal in size to the US lengthwise.
"We currently have between 33 and 34 branches in Indonesia, which isn't enough to have a meaningful presence. We feel that having a strategic partner with a ready distribution network is the ideal option to expand our business in Indonesia.
"We would prefer a bank, a Shariah bank, which has branches all over the country. In today's environment, the bancassurance model is probably the most effective and costefficient method to expand your business," he added. Hassan said potential partners had already been identified but no talks had yet begun.
"We've decided to inject the capital first to strengthen the infrastructure of the company and then continue to source for the strategic partner, perhaps towards the middle of next year," he added.
Takaful Malaysia had late last year been given the green light by Bank Negara to negotiate a proposed strategic alliance and possible stake sale to Dubai-based Islamic Arab Insurance Co PJSC (Salama) and Abu Dhabi-Kuwait-Malaysia Strategic Investment Corp. The talks with Salama officially ended on Tuesday (Dec 9), which Hassan acknowledged was a decision made by Takaful Malaysia's 65.22% parent, BIMB Holdings Bhd, but that negotiations with Abu Dhabi-Kuwait were still on-going.
Asked if a potential Indonesian strategic partner could be offered stakes in Takaful Malaysia, he said it was possible. "The partner has to have value-added to the company. The potential thing we're looking for is the distribution capabilities, cross-selling opportunities and the like. Market speculation and other earlier reports had said Takaful Malaysia had sought out Middle Eastern partners in order to penetrate the West Asian market.
Asked if this was the case, Hassan said the Middle East had become quite saturated. "Especially now with the price of oil falling below US$50 per barrel, I believe purchasing power had been quite affected. There are also many other takaful operators operating out of the Middle East," he said.
"Our strength, I believe, is to focus in Asia. At the near future, we want to strengthen our company in Indonesia. Depending on how long this financial crisis will stretch, we may differ plans to expand overseas until late next year or early 2010," he added.
(The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays edited by its associate editor, Habhajan Singh)

RHB Islamic phases out ‘disputed’ BBA financing

By HABHAJAN SINGH
RHB Islamic Bank Bhd has completely phased out Al-Bai Bithaman Ajil (BBA) in favour of the musharakah mutanaqisah concept for its home financing products. This probably makes it one of the first local Islamic subsidiaries of local banks to move away completely from BBA which has been under increasing scrutiny over the years.
The move by RHB Islamic, one of the 17 Islamic banks including Al Rajhi Banking & Investment Corporation (Malaysia) Bhd and Maybank Islamic Bhd licensed by Bank Negara Malaysia (BNM), signals a shift in the local Islamic home financing front away from BBA.
"RHB Islamic has taken a stance of phasing out products and services based on BBA or bai al-inah with effect Oct 1. This is based on (its) Shariah committee's advice to adopt globally accepted Shariah principles," RHB Islamic Head of Shariah Division Ahmad Suhaimi Yahya told The Malaysian Reserve.
He added that the move is in tandem with the bank’s strategy to position itself as the banker of choice for local and international customers looking for Shariah-compliant financial products and services. This is in reference to the fact that BBA, with underlying concepts of bai dayn (debt trading) and bai inah (sale with imediate repurchase), are shunned in jurisdictions like the Middle East and Pakistan. BBA, which may involve the two concepts, is a deferred sale contract for a sale price that includes the profit, with a repayment period agreed beforehand.
For so many years, local Islamic banks have made BBA the linchpin when carving out Islamic financing, which now stands around RM143.4 billion.
The Islamic banking assets, according to latest statistics from the central bank, have expanded by 23% to RM234.9 billion compared to a year ago. The Islamic banking industry now accounts for 16.7% of total assets in the industry. It is understood that other banks are also in the midst of preparing to put on the shelf more home financing offerings that are not based on BBA contracts.
The recent major trigger for the move away from BBA was the July 18 written judgment by High Court judge Justice Datuk Abdul Wahab Patail in Arab-Malaysian Finance Bhd vs Taman Ihsan Jaya, first reported by The Malaysian Reserve on Sept 8.
The judgment, a collective ruling on 12 cases now pending an appeal, sent shockwaves in the local Islamic banking fraternity as they began deciphering its impact.
For starters, the judge had ruled that the application of the BBA contracts in those cases were contrary to the Islamic Banking Act 1983 (IBA). The judge ruled that since some BBA contracts were structurally faulty, defaulters need not pay more than the original financing amount that they received, depriving banks of the profit they would have otherwise booked from the transaction.
Bankers fear that this judgement could mean that current BBA financing clients would only need to pay the facility amount and would escape from paying the profit portion.
Following the High Court ruling, BNM sent a circular dated Sept 8 to heads of Islamic financial institutions to "strongly advise" them to review their heavy reliance on the BBA concept in their transactions.
The circular noted the industry's seeming over dependence on BBA, adding that BBA is a Shariah concept introduced more than 20 years ago to facililtate growth and development of Islamic finance.
At its end, RHB Islamic is offering Equity Home Financing-i to its customers based on diminishing musharakah or musharakah mutanaqisah as an alternative to the earlier BBA home financing.
(The Malaysian Reserve, Dec 09, 2008, p1, By Habhajan Singh. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays)

US Treasury hosted Islamic Finance 101

By Habhajan Singh
There was mixed reactions when the US Treasury Department hosted an Islamic finance primer for staff of US banking regulatory agencies and other government bodies recently. While some were supportive of the move, noting that the US is behind the curve with other countries like the United Kingdom already talking about floating Islamic bonds, others have derided the move.
One critic, the Coalition to Stop Sharia, hosted a press conference on the same day to reiterate its concerns, according to a news report. In its statement, the US Treasury Department said the forum was designed to help inform the policy community about Islamic financial services, which are an increasingly important part of the global financial industry. It said it will work with Harvard University’s Islamic Finance Project to host speakers from the academia and industry to share information on the development of Islamic finance, both in the US and globally.
"The primary audience of this seminar comprises staff from the US banking regulatory agencies, Congress, Department of Treasury and other parts of the Executive Branch. "For some in attendance, this may be their first and only opportunity to learn formally about Islamic finance," it said. It said it had expected about 100 people to attend, with the presentations short and focused, directed toward policymakers rather than academics.
Entitled "Islamic Finance 101", the one-day seminar began with a welcome note by US Treasury's assistant secretary Neel Kashkari. Prior to joining the Treasury Department in July 2006, Kashkari was a vice president at Goldman Sachs & Co in San Francisco. The seminar began with an introduction by Samuel Hayes who holds the Jacob Schiff Chair in Investment Banking Emeritus at the Harvard Business School. According to his profile, Hayes was a principal contributor to the Harvard Islamic Investment Study and co-author of "Islamic Law and Finance: Religion, Risk and Return".
Among the speakers at the forum were Mahmoud El-Gamal, Professor of Economics and Statistics at Rice University and Sarah Bell, a senior bank examiner at the Federal Reserve Bank of New York. Harvard's Islamic Finance Project is the continuation of the Harvard Islamic Finance Information Programme (HIFIP), which was established by the Centre for Middle Eastern Studies in 1995.
The project is now part of the Islamic Legal Studies Programme at Harvard Law School. It aims to study the field of Islamic finance from the legal and Shariah points of view by analysing contemporary scholarship, inducing collaboration among scholars within and outside the Muslim world, and increasing the interaction between theory and practice in Islamic finance, according to its website.
In February, Harvard Law School and the London School of Economics (LSE) had conducted a workshop in London to deliberate on a controversial pronoucement by prominent contemporary Islamic jurist Muhammad Taqi Usmani on sukuk.
(The Malaysian Reserve, Dec 01, 2008, p31, by Habhajan Singh. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays)

KFH Research bags Islamic finance award

KFH Research Ltd, a wholly owned subsidiary of Kuwait Finance House (KFH), won the recognition as the "New Provider for Islamic Finance Research" from an Islamic finance conference organisers. It received the award from Dow Jones Islamic Market Indexes (DHM), International Institute of Islamic Finance (IIIF) and the Kuala Lumpur Islamic Finance Forum (KLIFF) 2008. Second Finance Minister Tan Sri Nor Mohamed Yakcop presented the award in conjunction with the 5th KLIFF. The team's research coverage includes economics and financial analysis in the GCC, Asia and US/Europe, currency strategies, GCC sectoral coverage and research advisory in Islamic finance, KFH Research said in a statement. KFH Research is led by Baljeet Kaur Grewal (picture) who is its managing director and vice chairman.

MOODY'S: IFIs show ‘impressive resilience’ to crisis

By Habhajan Singh
Islamic financial institutions (IFIs) in the Gulf Cooperation Council (GCC) countries showed "impressive resilience" to the crisis to date due to the core principles of Islamic banking which prohibits both speculation and interest rates, according to Moody's Investors Service.
Another contributing factor to IFIs in the Middle East displaying strong resilience amid the current global financial debacle is their strong growth and typically conservative approach, the international rating agency added in a "special comnment" report released last week.
The resilience of Islamic banks has become a hot topic in the financial market with a number of conventional banks reeling from the effects of the credit crisis. Jurisdictions like Hong Kong continue to show interest in making inroads into Islamic finance.
In a recent speech, Hong Kong Monetary Authority (HKMA) deputy chief executive Eddie Yue said that the Islamic finance industry is in many ways fortunate to be at an early stage of development during this turmoil. Nonetheless, Moody's notes that IFIs do not operate in isolation from their local, regional and international environments.
"They have therefore been facing three series of cyclical challenges, reflecting their current structural strengths and weaknesses," it said. Firstly, they are finding it more difficult to manage their short-term liquidity. Secondly, their investment portfolios, which are concentrated on illiquid and cyclical asset classes, have been impaired, and finally, their access to long-term funding has been postponed, forcing them to reduce the maturity profile of their assets, the report said.
However, Moody's expects that such constraints will prove only temporary and that Islamic banks have the capacity to weather the storm.
In the report entitled "Gulf Islamic Banks Resilient Amid Global Credit Woes", Moody's said global Islamic banking assets grew around 27% in 2007 and a growth of 20%-30% is expected this year as well.
"Although 2009 will likely be a tough year for Islamic banks, they benefit from a number of buffers: their credit portfolios have been essentially domestic, with limited pressure on asset quality so far; they have strong retail platforms, with high customer loyalty and deposit stability; and their high capitalisation and ample core liquidity often provide a relatively high amount of confidence to counterparts," says Anouar Hassoune, Moody's vicepresident and senior credit officer and author of the report.
As a result, Moody's expects IFIs in the Gulf region to be able to continue growing, albeit at a slower pace, before resuming a more rapid growth, most probably within 18 months. Paradoxically, it said the IFIs' reputation has benefited from the current crisis, reflecting their conservative approach to business, a close proximity to their domestic and regional franchise, their balanced and ordered appetite for growth, and focus on the basics of banking as opposed to innovation.
"All these factors, which used to be perceived as weaknesses before the credit crisis began, are now being used as shields against the potential damages of imported stress. "As a result, in the shortterm, in times of crisis, clients may find it more comfortable doing business with an Islamic bank," said Hassoune.
(By Habhajan Singh. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays)

Kazakhstan job for Msian legal firm

By Habhajan Singh
Zaid Ibrahim & Co has been appointed to ensure Kazakhstan's proposed Islamic banking laws are in line with prevailing international standards.
The law firm, which has an active Islamic finance practice and is expanding its regional footprint in conventional legal work, is understood to have secured the job through an international Islamic agency. The appointment demonstrates the strength of Malaysia's largest law firm.
When contacted, Zaid Ibrahim chairman Datuk Dr Nik Norzrul Thani Nik Hassan Thani confirmed that the firm had bagged the job, but declined to provide further details. "It is an interesting job. It demonstrates our ability to export our Islamic finance expertise to these countries," he told The Malaysian Reserve.
Kazakhstan, a former state under the Soviet Union empire, is looking to enter Islamic banking and finance, with ambitions to position the country as a regional hub for the sector. Several Islamic finance officials and consultants from Kazakhstan held discussions with their local counterparts in Kuala Lumpur recently.
"At least three Islamic banks are waiting in the wings to spring into action," a consultant told The Malaysian Reserve. Another consultant said that there are a number of jobs in Islamic finance up for grabs in Kazakhstan.
"Once the Islamic regulations are in place, the pace should pick up for local and foreign players," he said.
Zaid Ibrahim had recently set-up an Islamic finance advisory outfit under ZI Shariah Advisory Sdn Bhd and has since been active in crossborder Islamic deals. It is the first Malaysian legal firm with an associate company to be granted approval by the Securities Commission to act as a Shariah advisor for sukuk issuances and unit trusts. ZI Shariah provides advisory services in line with Shariah principles, international Shariah standards and resolutions made by the Shariah advisory councils on Malaysian regulatory authorities.
Over the last few years, Zaid Ibrahim said it has structured some of the most innovative financing transactions in the region. In Brunei, it was appointed as advisor for the country's first issuance of Islamic bonds based on the Shariah principles of sukuk ijarah, while in Indonesia it advised on an Islamic financing structure based on the Shariah principle of murabahah.
It has also worked on a US$100 million (RM364 million) sukuk ijarah Islamic financing facility in Brunei, an Islamic financing product bond on the principle of murabahah in the UK, a US$35 million murabahah Islamic trade finance facility in South Africa and a US$10 million bai al-dayn Islamic facility in Canada.
Locally, it has worked on the RM5.57 billion MTN issued under the istina principle to finance all costs associated with the initial operations of a power plant and a RM5.1 billion al-bai' bithaman ajil Islamic debt securities for a highway-related client. It has also advised a number of financial institutions on standardising their Islamic banking documentation. (The Malaysian Reserve, Nov 24, 2008, p1, by Habhajan Singh. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays)

KLIFF: ‘Standardisation will help industry’

Sheikh Nizam Yaquby, a Shariah scholar in high demand by Islamic FIs at the moment, was down in Kuala Lumpur at the recent Kuala Lumpur Islamic Finance Forum (KLIFF) 2008.
As can be seen in the photograph in the Islamic finance section of THE MALAYSIAN RESERVE, Sheikh Nizam (third from left) took part in the one of the discussion sessions.
Other panelists were (from left) Labuan Offshore Financial Service Authority (Lofsa) DG Datuk Azizan Abd Rahman, Fajr Capital MD Rafe Haneef, Global Securities House UK MD Richard Thomas, Securities Commission executive director Datuk Kris Azman Abdullah and Maybank Islamic Bank Bhd Acting CEO Ibrahim Hassan.
In a Reuters report post-conference, it said efforts to standardise the reading of the Shariah will not stifle the Islamic finance sector, a leading Shariah scholar said last Tuesday, dismissing concerns that the industry risks being smothered by too much regulation.
A lack of standardisation in Islamic finance contracts is one of the bigge st complaints among bankers in the US$1 trillion (RM3.62 trillion) industry, but there are also worries that a growing effort to harmonise the sector across the globe could create a one-size-fits all approach in structuring deals, the report said.
"In Islamic law we encourage debate, research, scholarship and it is an ongoing process which cannot be stopped by anybody," Sheikh Nizam Yaquby, a highly regarded scholar told reporters on the sidelines of the Kuala Lumpur Islamic Finance Forum (KLIFF) 2008, held in Kuala Lumpur last week. "However, for the purpose of standardisation, it is important to have certain prudential rules and basic contracts especially repetitive ones to be accepted among a group."

SC gives nod to 2 foreign fund managers

By Habhajan Singh
Two Islamic fund managers, one from India and another from Kuwait, are the latest global players to receive approval to operate in Malaysia. The Securities Commission (SC), which regulates the investment side of Islamic finance, yesterday announced the approval given to India's Reliance Asset Management and Kuwait's Global Investment House.
They joined three other international Islamic fund managers already licensed by the SC — Kuwait Finance House (Malaysia), DBS Asset Management and CIMB Principal Islamic Asset Management.
Deputy Prime Minister Datuk Seri Mohd Najib Razak made the announcement when opening the Fifth Kuala Lumpur Islamic Finance Forum (KLIFF) 2008 in Kuala Lumpur yesterday.
"In addition, leading firms based in Malaysia, such as Prudential, are using Malaysia as their regional centre for Islamic fund management activities, reaffirming their confidence in Malaysia as an international Islamic financial centre," he told some 400 delegates attending the twoday conference, one of the largest Islamic finance-related activities in the country.
In the Budget 2008, the government had announced that Islamic fund managers were allowed to have 100% foreign ownership as part of on-going liberalisation measures in the capital market. Commenting on the granting of licences, Islamic bankers noted that this is an attempt to position Malaysia as a hub for the flow of investment from cash-flushed Middle East countries to other Asian nations.
"Malaysia can be their lauchpad into places like China and India.
"Malaysia has a longstanding business relationship with these nations. On top that, we are a known hub for Islamic finance," said Wan Asmadi Wan Ahmad who oversees the Islamic invesment business at Aseambankers Bhd. Islamic financing director at Barclays Capital Markets Malaysia Sdn Bhd Azmi Tahir said that the country would stand to benefit if the new asset managers use Malaysia as their gateway to regional countries.
"The move will diversify portfolio players and bring about new sources of inflows and investment," commented Baljeet Kaur Grewal (pictured above), managing director and vice chairman of KFH Research Ltd, the Kuala Lumpur-based global research arm of Kuwait Finance House.
In a separate statement, the SC said it is reviewing applications by other international financial institutions keen to make Malaysia their regional and global centre for Islamic fund management activities. The regulator has also been actively involved in establishing the framework and engaging with international fund managers and leading financial institutions to establish their Islamic fund management operations here.
"We are confident that these efforts will see positive growth in Shariah-compliant funds being managed in Malaysia, in tandem with the overall initiative to make Malaysia a global centre for Islamic fund management," said SC chairman Datuk Seri Zarinah Anwar .
In granting the approval, the SC said it had considered, among other things, the scope of operations that will be established by the two Islamic fund management companies (IFMCs) in Malaysia, their fund management and banking experience, brand value, expertise in various markets, geographical presence as well as compliance and risk management capabilities. Reliance Capital Asset Management is India's largest asset management company in terms of assets under management.
It also manages funds launched by Reliance Mutual Fund, the largest mutual fund house in India. Kuwait-based Global Investment House is a leading asset management and investment banking company with a wide distribution network encompassing 16 countries across the Gulf Cooperation Council (GCC), the Middle East and North Africa (MENA) region and other emerging markets. (The Malaysian Reserve, Nov 19, 2008, p1. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays)

Time to re-position Islamic banking & finance, says Najib

Deputy Prime Minister Datuk Seri Mohd Najib Razak yesterday outlined general work plans to position and re-position Islamic banking and the finance industry to enable it to fully exploit the potential market of one billion Muslims worldwide.
Currently, although the Islamic finance industry is the fastest growing segment among the international financial services, it is still too small when compared to the size of the potential market, he said.
"A key impediment to the growth of Islamic finance is the lack of awareness among the public on Islamic alternative modes of banking, insurance and investments.
"The industry must continuously engage and educate the general public in order to address the problem," Mohd Najib added. Islamic finance, he added also needs further research and study with discourses carried out at all levels and this should involve regulators, practitioners as well as academicians. "Investment in human capital must be further improved. The lack of knowledge in relation to Islamic finance is strongly related to the shortage of qualified experts. "Thus it has affected the innovation of new products and services in the country," he said in his keynote address at the Kuala Lumpur Islamic Finance Forum 2008. "There is also an urgent need to create greater awareness of Islamic finance among market participants through research, education and training," Mohd Najib highlighted. He said despite the divergence of Shariah rulings, its should not be an impediment, as long as they are backed by sound arguments and recognised legal methodologies.
"Any particular area of divergence that is of serious concern should be revisited and reviewed in order to come up with better and more acceptable solutions," said Mohd Najib, who is also the Finance Minister. He also said that the legal and regulatory framework should be resilient and facilitative. "Dispute resolution mechanisms should also be more accommodative in relation to the application of these Islamic legal rules and methods in order to avoid embarrassment to Islamic banking cases as a result of incoherent and anomalous legal judgements," he stated.
Mohd Najib said other related regulations and supervision procedures should also be equally and adequately addressed so as to bring the Islamic banks and financial institutions on par with the international standards. To meet these challenges, he said new supervisory and regulatory procedures must be developed while modifications must be made to the existing structures and procedures.
"However, since the banking sector is highly regulated, any kind of modification must be made with extreme care as the failure of an Islamic bank could undermine depositor and investor confidence. Thus leading the Islamic financial system into a crisis of the whole financial system, just like what we are witnessing currently in the conventional market," he warned.
On the outlook, he said the Islamic banking industry is estimated to grow at a rate of at least 20% between now and 2012, with more than US$600 billion (RM2.16 trillion) held or managed by Islamic institutions and the figure is expected to grow to US$1 trillion over the next couple of years.
According to Mohd Najib, growth has also been seen in the other major components of the Islamic financial system such as Islamic mutual funds, which are estimated to be about US$300 billion, while the global takaful or Shariah compliant insurance contributions are estimated to be about US$5 billion and are estimated to triple by the end of the decade. — Bernama

Ibrahim: ‘Islamic banks may consolidate in five years’

The Islamic financial institutions in Malaysia are likely to consolidate in the next five years, Maybank Islamic acting CEO Ibrahim Hassan said yesterday. He said the Islamic players were generally small in terms of capital and asset size and that they need to consolidate to be on par with conventional players. "I think there will be some consolidation in the Islamic finance industry (locally)," Ibrahim said at the fifth Kuala Lumpur Islamic Finance Forum. "Players are small in terms of capital and asset size as well as the fact that they need to consolidate in challenging counterparts of the conventional side," he told a session on Evaluating Issues and Challenges of Islamic Finance At The Time of Global Credit Crisis. — Bernama

RAM: Sukuk mart set for growth

By Alfean Hardy
RAM Rating Services Bhd is forecasting double digit growth in sukuk issuance within the next nine months, driven mostly by infrastructure projects and a local banking sector that is expected to survive relatively unscathed from the global financial crisis, its managing director/chief executive officer Wong Fook-Wah said.
At the launch of Malaysia's first market-driven handbook, The Malaysian Sukuk Market Handbook, in Kuala Lumpur yesterday, RAM chairman Tan Sri Siti Norma Yaakob acknowledged that sukuk growth had slowed down.
"Growth has been slowed in the past six months by the unfavourable credit market conditions. Still, once market conditions return to normal, we expect it to be business as usual, with sukuk issuance to resume its impressive growth, fuelled by huge investment and financing needs, notably in countries in the Gulf and Asia," she added.
As of end-2007, total sukuk originated from Malaysia hit the RM213 billion mark or 68.9% of the global outstanding sukuk. Of the RM27 billion in conventional and Islamic bonds issued by third quarter of this year, sukuks accounted for about RM8 billion of that figure, according to RAM data.
Speaking to reporters following the launch of the handbook, Wong said demand in the local market and emerging markets like the Gulf states and Korea are expected to spur the Malaysian sukuk market within the next six months to nine months when market conditions and the international situation returns to normal.
"We expect double digit growth again for the sukuk market then. It's very clear cut that Malaysia and the other Asian countries will suffer less from the current crisis that's affecting the US and Europe. We believe the Gulf states and Asia will come back after this blip and will continue to grow because of the greater infrastructure needs and the growing affluence (of its people)," he added.
Wong said this year, the Malaysian sukuk market will be affected by the current global situation. "We are not expecting sukuk issuance or for that matter the total amount of financing this year to be very large, about RM30 billion all-in, both conventional and Islamic," he said. (The Malaysian Reserve, Nov 18, 2008. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays)

Takaful Ikhlas: 4 parties keen on stake

By Habhajan Singh
Three international insurers and an international bank are interested in acquiring a stake in Takaful Ikhlas Sdn Bhd, a home-grown takaful operator owned by a local reinsurer. However, it is understood that its parent, MNRB Holdings Bhd, has yet to make a decision on the unofficial proposals, more so as Takaful Ikhlas returned a strong showing last year. For the financial year ended March 31, 2008 (FY08), the
MNRB Holdings, which began operations in July 2003, collected a premium of RM428 million, or an 11% share of the local takaful market. This is almost double the RM221 million posted in FY07.
When contacted, Takaful Ikhlas CEO Syed Moheeb Kamarulzaman confirmed that a number of foreign financial institutions have approached the takaful operator over buying a stake. If keen, the parties would have to seek Bank Negara Malaysia's (BNM) permission as required by regulations.
"A foreign partner must be in a position to help Takaful Ikhlas to expand overseas. It's not just for them to enter the local market. "It's the group's intention to expand abroad, partly to assist the nation's aspiration to build Malaysia into an international hub for Islamic finance," he said. Even without a foreign partner locally, Takaful Ikhlas has begun the process of moving abroad, via its parent.
On April 9, MNRB Holdings, which also whollyowns Malaysian Reinsurance Bhd, announced to the local stock exchange that it was taking a 9.99% stake in Britain-based British Islamic Insurance Holdings Ltd (BIIH) for up to £8.96 million (about RM48.05 million).
BIIH operates Principle Insurance, at which Syed Moheeb sits as a non-executive director. BIIH, formed in 2006, had capital in excess of £60 million at the time of its launch from Gulf- and Asia-based institutional and private investors, with almost half (45.7%) of the funds originating from Saudi Arabia, according to its website.
In a recent interview with a local newspaper, MNRB Holdings president and group CEO Anuar Mohd Hassan said the company is eyeing the Egyptian and Indonesian takaful markets via Takaful Ikhlas. On the local front, there are now eight takaful operators, several of which are joint ventures with foreign shareholding that conduct both domestic and international takaful business.
CIMB Aviva Takaful Bhd, which is the fifth entrant into Malaysia's takaful industry, is 51%-owned by CIMB Group and 49%-owned by Aviva plc.
MAA Takaful Bhd is the result of a strategic joint venture between MAA Holdings Bhd and Solidarity Company BSC (C) of Bahrain. BNM has also granted licences to three reinsurance players to undertake retakaful business in the country.
Several existing takaful operators have set up international currency business units (ICBUs) and one new international takaful company has been licensed as an international takaful operator to conduct foreign currency takaful business. (By Habhajan Singh. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays)

Unicorn M'sia picks Khalid as CEO

Unicorn International Islamic Bank Malaysia has appointed Khalid Mahmood Bhaimia (picture) as its chief executive officer, pending approval from Bank Negara Malaysia (BNM), Islamic Finance News reported without quoting its sources. It said that Khalid has resigned from his previous position as managing director with Hong Leong Islamic Bank Bhd (HLIB) effective Nov 6.
It added that his move to Unicorn sees him teaming up once again with Datuk Vaseehar Hassan Abdul Razack, chairman of the bank. Vaseehar was chairman of RHB Islamic Bank during Khalid’s tenure there as CEO.
A check with HLIB by The Malaysian Reserve confirmed that Khalid has left the bank. On July 27, The Malaysian Reserve reported that Unicorn Malaysia was in search of a CEO, and had a number of other management-level openings.
Unicorn Malaysia, a whollyowned subsidiary of Bahrainbased Unicorn Investment Bank, is the first Islamic bank licensed under the Malaysian International Islamic Financial Centre (MIFC) initiative. It received permission to set up its operations from Bank Negara Malaysia early this year.
In a recent interview, Vaseehaar, said Unicorn Malaysia already had several deals in the pipeline, including a couple of mandates already signed that its teams are working on. (By Habhajan Singh. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays)

ISRA: Perfect timing

By Habhajan Singh
The International Shariah Research Academy for Islamic Finance (Isra), which is backed by the central bank, has already been tapped by a number of parties to conduct research in the fields of maqasid-driven investment, Shariah governance and retakaful, its executive director Dr Mohamad Akram Laldin said.
This is good news for the academy which was officially launched on Nov 11, in a ceremony attended by some 400 industry practitioneers and academicians from the field of Islamic finance.
"For me, the timing of this event could not have been any better, as the world is now engulfed with the consequential effects of the recent financial debacle," said Mohamad Akram in his welcoming speech at the event.
He added that this has prompted many parties from the financial stage to look more closely at the potential of Islamic finance as the conduit and leverage for a more stable, robust and vibrant financial system, which should lead to the primary goal of ensuring prosperity for all.
He expects the growth of the industry to accelerate even further, due to the intensified demand for Shariah-compliant financial products and services, as the world searches for financial instruments characterised by justice, fairness and equity.
ISRA is a specialised research academy established by Bank Negara Malaysia (BNM) on March 26, as part of initiatives to enhance the spectrum of Islamic finance knowledge, with concentration on applied research that is geared towards solving the pressing issues faced by the global Islamic finance industry, particularly Shariah matters.
"Bank Negara Malaysia's pivotal role in elevating and adding to the mass of Islamic finance's body of knowledge is testament to Malaysia’s unrelenting quest to be the global Islamic financial hub and a model for other countries wishing to embrace Islamic finance," said Mohamad Akram.
Minister in the Prime Minister's Department Datuk Seri Ahmad Zahid Hamidi represented Prime Minister Datuk Seri Abdullah Ahmad Badawi at the launch, which was also attended by BNM governor Tan Sri Dr Zeti Akhtar Aziz.
As part of the launch, Isra organised a one-day seminar. Presenters included IIUM Institute of Islamic Banking and Finance deputy dean Dr Younes Soualhi who presented a paper on Shariah inspection in surplus distribution and Indonesian Shariah scholar Dr Muhammad Syafii Antonio who also sits on the BNM's Shariah Advisory Council.
Also presenting were IIUM Institute of Islamic Banking and Finance Associate Professor Dr Abdul Rahim Abdul Rahman, CIMB Islamic Bank Bhd director of global markets Shamsun Hussain and Standard Chartered Bank Malaysia Bhd Shariah advisor Dr Nurdianawati Irwani Abdullah. (By Habhajan Singh. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays)

No home run yet for Islamic finance

By Habhajan Singh
Islamic finance is far from hitting a home run with global investors eventhough the conventional financial system is undergoing some tough times. Some may forward the argument that Shariah-based business and finance is one alternative to conventional banking that is steeped in interst-based transactions.
Not so fast. There is much work to be done before Shariah-based banking and finance activities gain a wider acceptance, especially in the Western world, and before it can take root even within countries with a large afinity population. Two recent articles in two international business magazines show how oiling the wheels of Islamic finance is still a "work in progress". One is full of praises, while the other links Islamic finance to fuelling international terrorism.
According to an article in Business Week dated Nov 13, this "might be a good time for investors to pick up a copy of the Quran." It noted that stocks and other investments that adhere to Shariah law, though hardly unscathed, have fared better than the broader market. This is thanks largely to rules that forbid investing in collateralised debt obligations and other toxic assets that have caused the carnage in conventional financial circles, it added. However, it also noted that this did not mean Islamic finance would not suffer in an economic downturn.
"Because they must hold collateral, Islamic financial institutions tend to have more real estate assets than Western banks do. So far, Shariahcompliant banks — mostly in the Gulf region — haven't suffered because housing prices there have held up relatively well," it said. But if those markets were to dive, there could be trouble, the magazine qouted Mohamed Damak, a credit analyst at Standard & Poor's, as saying.
However, there are plenty of detractors ready to pounch on Islamic finance. An item on Fox News posted on its website on Nov 13, highlighted fear mongering in Islamic finance. According to the article entitled "Interest in Shariah finance opens dangerous doors, critics say", "Shariah-compliant banking, sometimes called Islamic banking, is growing in popularity in the Western and Islamic worlds. But critics say American interest in the system at a time of economic crisis is opening the door to increased Islamic influence in the American banking system. Worse yet, some fear the banks may be helping to finance international terrorism."
The article went on to quote Frank Gaffney, fou nde r a nd president of the Center for Security Policy in Washington, as saying that "allowing Shariah-compliant finance in the US is green-lighting a seditious system that supports jihad. "Shariah (Islamic law as dictated by the Quran) governs all aspects of life, from the personal practice of the faith, to how you relate to your family, how you relate to your business partners (and) to your community... all the way up to how the world is run, and it is all one seamless programme." "You can't say 'I'll take the personal pietistic practice... and skip the beheading and the flogging and the stoning and the global theocracy,'" Gaffney said.
In that same article, Nicholas Kaiser, fund manager at Amana Mutual Funds Trust in Bellingham, disagreed with Gaffney's assertion that Islamic funds are a threat to the American way of life. "We simply take people's money, invest it and give it back to them when they want it. We don't try and convert the country. We don't have any religious position. We aren't evangelical. We aren't zealots. We're money managers," Kaiser said. "I happen to be Episcopalian." On the local front, the challenge is slightly different.
While there may be some level of scepticism, by and large the take up for Islamic finance products come from both Muslims and non-Muslims. There is good reason why banks, both local and foreign, are making inroads into Islamic finance. For some five years, the sector has seen a revenue growth of close to 20% per annum, a respectable growth that no banker would want to miss out on.
There is also the determined push by Bank Negara Malaysia, the nation's central bank, and other regulatory bodies to turn the country into an international hub for Islamic finance. However, in the wider world of finance, Malaysia is still a small player.
The success here may set an example, but it will not end the debate on Islamic finance. Hence, there is much work to be done by regulators and promoters who want to see Islamic finance thrive beyond the current stage. (By Habhajan Singh. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays)

ISRA: Initiative to promote consistent application of Islamic financial contracts

Bank Negara Malaysia (BNM) has embarked on an initiative to promote a more consistent application of Islamic financial contracts and greater standardisation of Islamic financial practices known as the "Shariah Parameters" project.
"It is expected to be issued in the first quarter of 2009," BNM governor Tan Sri Dr Zeti Akhtar Aziz she said at the launch of the International Shariah Research Academy in Kuala Lumpur yesterday. The initiative aims to determine the essential features of Islamic financial products derived from underlying shariah contracts such as the murabahah, istisna', mudarabah, musharakah, ijarah and wadi'ah.
These features will serve as a guide for the application of the shariah contracts for the Islamic financial products. These products which can be applied when designing new products or for the enhancement of existing products.
The Shariah Parameters, once promulgated, would be a standardised point of reference for the practices adopted by Islamic financial institutions, Islamic finance professionals and practitioners in entering Islamic financial contracts. — Bernama

OCBC eyes Brunei, Jakarta and S’pore for Shariah growth

OCBC, Singapore's number three bank, will expand its Islamic business in Brunei, Indonesia and in Singapore itself, which it sees as the fastest growing Asian Shariah finance markets, its Malaysian unit said yesterday.
The bank will use Malaysia as a springboard to tap demand for Islamic products in these countries, OCBC Bank (Malaysia) Bhd chief executive Jeffrey Chew said. Demand in Brunei and Singapore would be driven by the Islamic treasury business while Indonesia's large Muslim population provided a large consumer market, he added.
"We are of the opinion that Brunei and Jakarta will probably also move quite quickly in the next couple of years," Chew told reporters at the launch of OCBC Malaysia's Islamic subsidiary in Kuala Lumpur yesterday. "We believe that Islamic banking on the wholesale side for Singapore will also take off over time as well," Chew said.
The Islamic banking market has expanded beyond the traditional centres of the Middle East and Malaysia as lenders seek new sources of growth and a larger share of the Gulf oil earnings. Indonesia has passed a banking law to encourage foreigners to set up Shariah banks and the Indonesian government plans to sell its first global Islamic bond in an effort to spur the growth of its nascent Shariah market.
Singapore has also jumped into the race to lure in Islamic investments, with a 5% concessionary tax rate on income derived from Shariah-compliant fund management, lending and insurance.
The tiny oil-rich sultanate of Brunei has been issuing Islamic bonds to capitalise on the rising demand for Shariah assets. OCBC Malaysia said its Islamic subsidiary, OCBC Al-Amin, would open five branches by 2009, three of which would be in the area around the capital of Kuala Lumpur.
The Islamic subsidiary will start operations on Dec 1 and is licensed to offer the full range of Shariah-compliant universal banking services including Islamic hire-purchase and Shariah-compliant corporate finance activities. OCBC Bank's Islamic assets stood at RM3.7 billion as at Dec 31, 2007. — Reuters

ISRA ties up with research outfits

[This article appeared on the day ISRA was officially launched at Kuala Lumpur on Nov 11, 2008]
By Habhajan Singh CENTRAL bank-backed International Shariah Research Academy for Islamic Finance (ISRA) has begun forging key alliances with a number of global Islamic finance research outfits, including United Kingdom's Islamic Finance Council and Islamic Research and Training Institute (IRTI).
The locally set-up academy, led by its executive director Dr Mohamad Akram Laldin, have also been actively pursuing strategic tie-ups with local Islamic finance related institutions and corporations. On its discussion with IRTI, ISRA officials says it is to forge a collaboration to co-organize the International Shariah Scholars Dialogue in December 2008.
IRTI was established in 1981 under the auspices of Islamic Development Bank (IDB) to undertake research and provide training and information services in the member countries of the IDB and Muslim communities in non-Muslim countries to help them to bring their economic, financial and banking services into conformity with Shariah. The inaugural Shariah Scholars Dialogue was held in June 2005 when the central bank initiative brought together prominent scholars to engage in a dialogue.
"This is one of the central bank's commitment to continuously provide an enabling platform for the Shariah community. ISRA has been entrusted the task of managing it. "Instead of coming out with its own fatwas, ISRA will lean towards coming out with research work that will assist the Islamic finance fraternity, which is still tiny compared to their conventional counterparts," said an Islamic finance scholar. This fits in well with an earlier interview that Mohamad Akram gave to The Malaysian Reserve that ISRA will not become a standard-setting body.
Instead, the research outfit funded and backed by an endowment from the country's central bank will conduct research concerning issues in the fast-growing field of Islamic finance and support existing local and international standard-setting bodies. "If we have too many standard setting bodies, it may create confusion," he said in one of his first interviews following the announcement of ISRA's setting up in March.
Towards end-October, ISRA representatives met representatives from UK Trade & Investment (UKTI) in London on a possible collaboration with Islamic Finance Council of UK for the IFC Scholar Professional Development Programme. It has also held discussions with Prof Datuk Dr Sano Kautoub, deputy chairman of Majma Fiqh on possible cooperation with the Fiqh Academy of the Organisation of The Islamic Conference (OIC).
The Jeddah-based Islamic Fiqh Academy, created by the Third Islamic Summit Conference held in Makkah in 1981, comprises selected experts from among the best scholars and thinkers available in the Islamic world and Muslim minorities in non-Muslim countries, in various fields of knowledge, including Islamic fiqh, science, medicine, economy and culture.
On March 26, in a forward looking step to fortify the country's lead position in Islamic finance, the central bank announced the establishment of the ISRA to spearhead research in Shariah issues. Its establishment marked yet another proactive measure from the central bank in the sector.
In the BNM statement then, BNM said the ISRA will be part of the International Centre for Education in Islamic Finance (INCEIF), which would enable it to leverage on the university's existing infrastructure and facilities as well as tap into the knowledge, expertise and resources of the academic faculty and post graduate students. (By Habhajan Singh, The Malaysian Reserve, Nov 11, 2008, Page 4. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur)

Msia: New appointments at Islamic banks

By Habhajan Singh
Three Islamic banks last week announced the appointments of their heads, after getting the clearance from Bank Negara Malaysia (BNM) which regulates the sector.
On Nov 3, Musa Abdul Malek was named as CEO of HSBC Amanah Malaysia Bhd while Ismail Ibrahim was named the CEO of Public Islamic Bank Bhd (PIBB). On Nov 5, Azrulnizam Abdul Aziz was appointed as the CEO and executive director of Standard Chartered Saadiq Bhd.
The last major appointment in the local Islamic finance scene was on Aug 20, when Datuk Mohamed Azahari Kamil took the position of CEO of Asian Finance Bhd (AFB), becoming the first Malaysian to helm a foreign Islamic bank in Malaysia.
Musa, HSBC Amanah Malaysia's deputy CEO, who has been acting CEO since the departure of Yakub Bobat, becomes the second Malaysian to head a foreign Islamic bank in Malaysia.
The latest series of announcements began on Nov 3, when Public Bank Bhd announced the setting-up of PIBB, its wholly-owned subsidiary to carry out Islamic banking business with effect from Nov 1. Henceforth, Public Bank's Islamic banking business via the window concept was transferred to PIBB. It added that the subsidiary will continue to share its parent bank's infrastructure, IT platform and branch network including the use of Public Bank's ATMs, 242 branches and 26 hire purchase centres. Public Bank, led by local banker Tan Sri Dr Teh Hong Piow, began its interest-free banking services in 1993 with the implementation of a dual banking system where the interest-free banking system operates side-by-side the conventional banking system. Its Islamic banking business has registered an average annual growth rate of 25% over the last five years, contributing significantly to Public Bank's profitability, it said. As at Sept 30, 2008, its Islamic banking assets stood at RM14.6 billion, or 7.7%, of the total assets of the group. Islamic financing stood at RM12.4 billion, or 10.5%, of the total loans and advances of the group while customers' deposits stood at RM11.9 billion, or 7.6%, of the total customers' deposits of the group.
Meanwhile, on the same day, HSBC Amanah Malaysia, a wholly owned subsidiary of HSBC Bank Malaysia Bhd, said Musa will be responsible for the development of the subsidiary, the first Islamic subsidiary of a locally incorporated foreign bank to commence operations in August 2008. Musa replaces Yakub Bobat following his recent departure to an Islamic bank in the Middle East.
On Nov 5, Standard Chartered Bank Malaysia Bhd announced the appointment of Azrulnizam Abdul Aziz as chief executive officer and executive director of Standard Chartered Saadiq Bhd, its wholly-owned Islamic banking subsidiary. He had earlier headed the bank's Islamic banking division. Standard Chartered Bank Malaysia CEO and managing director Julian Wynter described the 38-year-old banker as a force behind the rejuvenation of the division.
He said the establishment of Standard Chartered Saadiq is part of the bank's business strategy to become a leading Islamic financial services provider not only in Malaysia but also the region. Standard Chartered Malaysia was among the first banks in the country to offer Islamic banking products as an alternative banking option in its network of 37 branches. (By Habhajan Singh, The Malaysian Reserve, Nov 11, 2008. The Malaysian Reserve is a Kuala Lumpur based daily newspaper, with a sectoral page on Islamic finance)

Zakat collection jumps 20% to RM807m

The zakat (tithe) collected nationwide last year had increased by 20.35% to RM807.1 million compared to RM670.6 million in 2006, said Minister in the Prime Minister's Department Datuk Seri Ahmad Zahid Hamidi.
He said zakat collection was only done by the state governments, in line with the Federal Constitution that the management of Islamic matters was within the jurisdiction of state governments.
Several methods like salary deductions, counters and kiosks had also been put up to make it easier for Muslims to make zakat payment.
"Banks had also introduced several facilities for zakat payment via the counter, Internet, ATM, phone-banking and short messaging service (SMS)," he said in reply to a question by Ahmad Maslan (BN-Pontian) in Dewan Rakyat last week.
Zahid said the facilities would be improved over time based on the development of information communication technology (ICT) and the financial standing of the State Islamic Religious Councils. Various efforts had also been done to increase zakat collection including from corporations, other than giving incentives to cooperatives that pay zakat. — Bernama

Bahrain’s Albaraka mulls Indonesian expansion

By Habhajan Singh
Bahrain-based Albaraka Banking Group (ABG) is planning to expand into Indonesia, the nation with the world's largest Muslim population. This was one of the issues discussed at the two-day sixth annual strategic meeting in the Bahraini capital of Manama, which ended Nov 6, according to a statement.
In June, when the group inaugurated its Indonesia representative office in Jakarta, ABG announced plans to expand its investments and operations in Islamic markets in the South-East Asian region, particularly the Indonesian market.
Its president and chief executive Adnan Ahmed Yousif said that the group had accomplished a st rategic achievement during the last few months when it commissioned its new information technology (IT) system, which will link the group with all the affiliate units and integrate all their information databases.
On Nov 4, AlBaraka Islamic Bank announced that it has selected the Misys Equation and Misys Trade Innovation for implementation across its 20 branches in Pakistan. The new contract builds on a number of previous contracts with ABG and Misys across Africa and the Middle East.
In a separate statement released from London, AlBaraka Islamic Bank's country head for Pakistan Shafqaat Ahmed said the new system would help in its growth strategy, which involved conversion of its Pakistan operations into an Islamic Bank registered in Pakistan, resulting in a significant enhancment os its branch network and customer outreach.
On the strategic meeting, Adnan said some "highly important topics" were discussed including plans for expanding the group's office in Indonesia and Albaraka Bank Syria (under formation), the new identity of the group and affiliated units, development of the IT systems in the group and affiliated units, development of risk policies and procedures in the group and affiliated units and the progress made to date on the implementation of the requirements of Basel II.
Adnan said the ultimate goal is to make ABG a leading and strong regional and international banking group. ABG, a Bahrain joint stock company listed on Bahrain and Dubai stock exchanges, offers retail, corporate and investment banking and treasury services strictly in accordance with the principles of Shariah.
Its authorised capital of ABG is US$1.5 billion (RM5.31 billion) while total equity amounts to about US$1.59 billion. The group has a wide geographical presence in the form of subsidiary banking units and representative offices in twelve countries, which in turn provide their services through more than 250 branches.
These banking units are Jordan Islamic Bank, Jordan; Al Baraka Islamic Bank, Bahrain; Al Baraka Islamic Bank, Pakistan; Banque Al Baraka D'Algerie, Algeria; Al Baraka Bank Sudan, Sudan; Al Baraka Bank, South Africa; Al Baraka Bank Lebanon, Lebanon; Bank Et-tamweel Al Tunisi Al Saudi, Tunisia; the Egyptian Saudi Finance Bank, Egypt; Al Baraka Turk Participation Bank, Turkey and Al Baraka Bank Syria (under formation) in addition to a representative office in Indonesia. (By Habhajan Singh, The Malaysian Reserve, Nov 11, 2008, Page 31)

Azrulnizam heads Standard Chartered Saadiq Msia

Standard Chartered Bank Malaysia Bhd announced on the appointment of Azrulnizam Abdul Aziz as Chief Executive Officer and Executive Director of Standard Chartered Saadiq Bhd, its wholly-owned Islamic banking subsidiary.
"We are delighted to appoint Azrulnizam who has been our Head of Islamic Banking division prior to the establishment of Standard Chartered Saadiq Berhad," said Julian Wynter, CEO and Managing Director, Standard Chartered Bank Malaysia Bhd, in a statement released on Nov 5.
He added that Azrulnizam is the force behind the rejuvenation of the division and has worked tirelessly towards its incorporation as a wholly owned subsidiary of the bank.
He said the establishment of Standard Chartered Saadiq is part of its business strategy to become a leading Islamic financial services provider not only in Malaysia but also the region.
Wynter said that Standard Chartered Saadiq, as a global brand for Standard Chartered's range of Islamic banking products and services, made its debut in Malaysia in 2007, adding that Standard Chartered Malaysia was among the first banks in Malaysia to offer Islamic banking products as an alternative banking option in its network of 37 branches.
Azrulnizam, 38, holds a Bachelor of Business Administration-Marketing from Wichita State University, Kansas and a Master of Business Administration-International Business from University of Hartford, Connecticut, USA.
The statement asid he is responsible for the strategic development and management of Standard Chartered Saadiq in Malaysia. His key role will be to efficiently develop Shariah-compliant financial products, while working closely with the regulators and other Islamic institutions to deliver Standard Chartered’s brand promise as the right partner to its customers.
Prior to joining Standard Chartered, Azrulnizam was the Vice President, Mortgage Sales and Islamic Home Financing of another international bank. He brings with him over 9 years of extensive knowledge and experience in Islamic banking and finance.

Musa replaces Yakub at HSBC Amanah Msia

HSBC Amanah Malaysia Bhd, a wholly owned subsidiary of HSBC Bank Malaysia Bhd, announced today the appointment of Musa Abdul Malek (right) as its new chief executive officer to replace Yakub Bobat.
Musa will be responsible for the development of HSBC Amanah Malaysia, the first Islamic subsidiary of a locally incorporated foreign bank to commence operations in August 2008, it said in a statement.
He will oversee all aspects of HSBC Amanah's business in Malaysia, including retail and commercial banking, wealth management, capital market and the promotion of international currency business unit (ICBU) business.
Musa will also take on the responsibility of developing and making Malaysia the Islamic hub for the HSBC Group in the Asia Pacific region, it added.
Musa, who was earlier the deputy CEO, has was appointed as its acting CEO since Yakyub's recent departure to an Islamic bank in the Middle East.
HSBC Amanah Malaysia obtained its subsidiary status from Bank Negara Malaysia (BNM) during Yakub's stint.
A Business Administration graduate from Ohio University, U.S.A, Musa joined HSBC 29 years ago. During the span of his career he has been in various capacities covering business areas such as branch management, credit management, corporate relationship management, business development, debt origination of debt capital market in Hong Kong and product development and management.

GIFC08: Costs weigh on Hong Kong’s bid to be Islamic finance hub

By Habhajan Singh
There is concern in Hong Kong on the cost of retaining a Shariah scholar and also the cost of regular compliance, an international Islamic finance conference was told.
This was listed as one of the challenges facing the advance of Islamic finance in Hong Kong, a jurisdcition that has made known its intention to become an international hub for the fast-growing sector.
Amirali Nasir, a Hong Kong based lawyer, said another jurisprudence challenge facing the sector in Hong Kong is the perception that Shariah is a single code, which is interpreted and accepted consistently by all Muslims.
"Delegates are confused when they hear about the various schools of law and the varying interpretations applied," he told the Second Global Islamic Finance Conference (GIFC) 2008 in Kuala Lumpur last week.
The two-day conference, organised by GlobalPro Consulting Sdn Bhd in affiliation with the Institute of Bankers Malaysia (IBBM), was opened by Minister in the Prime Minister's Department Datuk Seri Dr Ahmad Zahid Hamidi. The Malaysian Reserve was the event's media partner.
Amirali also highlighted that there is a strong belief that many corporations go out "Shariah scholar shopping". This is refers to Islamic financial institutions looking for Shariah scholars whom they deem would interpret the Shariah favourably to their aims and objectives, though many corporations in the past have found that this may not be the case, as there are certain underlying Shariah principles which are sacrosant.
Amirali also said Hong Kong lacks legal advisors and auditors familiar with Islamic finance. "There is concern that legal advisors who are advising are simply mimicking conventional documentations with adjustments for restrictions," he said.
In a presentation on derivatives, Bursa Malaysia Bhd's Norfadelizan Abd Rahman noted that as long as the principles of Islamic commercial law are well observed, the possibility of allowing derivatives is highly anticipated. For the time being, it is noted that modern jurists have come out with various derivatives instruments and the decisions on their "Islamicity" varies from one jurisdiction to another.
"However, it must be stressed that more and more efforts are needed in advancing some other financial products that are needed for the smooth running of modern Islamic banking and finance, especially in the area of financing engineering, where financial derivatives can be used to manage risk," said Norfadelizan, who heads product development at Bursa Malaysia's Islamic capital market department.
Derivatives are instruments generally used for hedging, speculation and investment. Though Islamic laws view derivatives as sometimes inevitable, she said the decision whether a particular derivative product is Shariah-compliant or otherwise depends largely on various issues, including its purpose, contract used and settlement mechanism. (By Habhajan Singh, The Malaysian Reserve, Nov 3, 2008, Page 32)

RHB Islamic to maintain a 20% loan growth next

Press Metal Bhd (PMB) has secured RM355m worth of Shariah-based financing from a consortium of banks, which include RHB Islamic Bank Bhd and Kuwait Finance House (Malaysia) Bhd, for its aluminum smelter plant in Sarawak. Present at the signing ceremony for the financing facility in Kuala Lumpur yesterday were (from left) Press Metal Sarawak Sdn Bhd director Datuk Paul Koon, PMB executive vice chairman PM Koon, RHB Banking Group MD Michael J Barrett and RHB Islamic Bank Bhd MD Jamelah Jamaluddin.

RHB Islamic Bank Bhd is expected to maintain a loan growth of 20% next year as it focuses on segments like Istisna (manufacturing contract) services bring businesses to the bank. RHB Islamic MD Jamelah Jamaludin said for this year, the lender is on track to meet its loan growth target of 20%. Speaking to reporters after a syndicated Islamic term financing facility signing ceremony in Kuala Lumpur yesterday, she said the bank also plans to grow its branch network from seven to 11 by yearend. On the bank's capital adequacy, she said the bank does not need extra capital and is comfortable with its current capital adequacy level. "Currently, our single customer limit is up to RM200 million. We do not need to inject more capital," she told The Malaysian Reserve recently. RHB Islamic belongs to the RHB Banking Group and started operations in 2005. It is the first full-fledged Islamic bank to mature from an Islamic banking window operation of a conventional bank. RHB Islamic offerings are available at more than 180 RHB Banks and RHB Islamic bank branches nationwide. — (By Isabelle Francis, The Malaysian Reserve, Oct 31, 2008, Page 6)

SAC: BNM to review SAC’s role

By Halim Wahab & Habhajan Singh
PLANS are underway to compel the High Court to refer to the Shariah Advisory Council (SAC) of Bank Negara Malaysia (BNM) when presiding over Islamic banking and finance-related cases, unlike presently, where High Court judges are neither required to consult the Shariah experts or heed their advise.
It is learnt that the central bank is reviewing the necessary laws to make this possible. This follows the recent controversy over Islamic financing under the Al-Bai' Bithaman Ajil (BBA) concept and the confusion over the role of the SAC in determining the compliance status of Islamic finance products.
To date, BNM has not responded to queries from this newspaper on the implications of the judgment to the Islamic banking industry or if plans for changes to the SAC's role and powers are underway.
On July 18, High Court judge Justice Datuk Abdul Wahab Patail ruled that the application of the BBA contracts in 13 cases he presided over were contrary to the Islamic Banking Act 1983 (IBA), as the sale element in the BBA was deemed "not a bona fide sale". The judgment, which came to light following The Malaysian Reserve report on Sept 8, brings into question the profit portion of the facilities, as it suggests that defaulters need not pay more than the original financing amount obtained, thereby depriving banks of the profit they would otherwise have booked.
Consequently, confusion abounds over how such "profits" would now have to be treated in the accounts and why the BBA contracts are deemed not Islamic when the SAC had considered the concept as Shariah compliant in the first place. Questions also arise as to whether it is appropriate for non-Shariah specialists to decide on the Shariah compliance status of Islamic banking concepts and products, thus bypassing the SAC over such matters.
According to BNM, the SAC is an independent advisory body established under section 16B of the Central Bank of Malaysia Act 1958 and shall be the authoritative body for the ascertainment of Shariah law in Islamic banking, finance and takaful business. It stated that the Act provides that the SAC can be referred to by the court in its proceedings relating to Shariah matters in Islamic banking and financial business disputes. The council, which comprises experts in the disciplines of Shariah, banking, finance, economics and law, are appointed by the Minister of Finance on the recommendation of the BNM, pursuant to section 16B(2) of the Act.
In essence, Justice Abdul Wahab's ruling stated that the BBA contracts considered in Arab Malaysian Finance Berhad v Taman Ihsan Jaya & Others (2008) were contrary to the Islamic Banking Act 1983 (IBA).
An initial inspection suggests that the judgment, if affirmed by Malaysia's Court of Appeal, or adopted by other High Court judges, can have major repercussions on the local Islamic financial sector. To begin with, Islamic banks are heavily reliant on BBA-related contracts. Bankers fear the judgment because this could mean that current BBA financing clients would only need to pay the facility amount and would escape from paying the profit portion, if they default. (By Halim Wahab & Habhajan Singh; The Malaysian Reserve, Oct 29, 2008, Page 1)

SAC: ‘Regulations on Islamic finance should be amended’

By HALIM WAHAB & HABHAJAN SINGH
A number of Shariah scholars who are involved in Islamic finance transactions have suggested that Bank Negara Malaysia (BNM) should effect an amendment to regulations to make it mandatory for judges to refer to the central bank's Shariah Advisory Council (SAC) when dealing with Islamic finance matters.
At the moment, High Court judges are not mandated to refer to the SAC, the anchor outfit in deciding the Shariah-compliance of banking and takaful products offered by Islamic financial institutions in Malaysia.
This issues came to light following remarks by High Court judge Justice Datuk Abdul Wahab Patail in a written ruling dated July 18 in Arab Malaysian Finance Bhd v Taman Ihsan Jaya & Others (2008).
In one of the two recent BBA judgment-related seminars, Dr Ashraf Md Hashim, Shariah adviser at ZI Shariah Advisory Sdn Bhd, said the court reference to the SAC must be made compulsory in determining the Shariah compliance status of any Islamic banking and finance product.
He said this might require amendments to the Act and therefore would take time to materialise. He believed the SAC was the best option available as far as Malaysia is concerned, and as such felt that what is allowed by the council should be accepted as Shariah-complaint by the courts.
"Shariah is a science by itself. Those who are not trained in the discipline should refer any issue in question to the expert in the field. It is the practice of the court to refer issues to relevant experts such as physicians and scientists. It will be a consistent practice if reference is made to the Shariah specialist for Shariah-related issues," he added.
Dr Ashraf was speaking at a seminar entitled Whither BBA in Malaysia? — Analysis of Recent Decisions, organised by legal firm Zaid Ibrahim & Co. ZI Shariah is a unit of Zaid Ibrahim.
However, another speaker at the same forum took a different view. Responding to the suggestion, former High Court judge Datuk Faiza Thamby Chik said there was no need for High Court judges to refer to the SAC on such matters. He contended that it was the duty of judges to interpret the law and if the ruling had created unhappiness, then the solution is to train the judges.
International Syariah Research Academy for Islamic Finance executive director Dr Mohd Akram Laldin, who also spoke at the half-day seminar, said there was a need to strengthen the role of the SAC to avoid confusion in the industry. He agreed that the SAC should be made the sole reference point on matters regarding Islamic finance, adding that the Islamic banking industry should depart from "controversial" contracts to other alternatives. (By Hablim Wahab & Habhajan Singh; The Malaysian Reserve, Oct 29, 2008, Page 4)

GIFC08: Sukuk issuers urged to be more care

By Habhajan Singh
Issuers of sukuk should re-examine the make-up of their product to ensure that it does not suffer the same fate as conventional bonds, an Islamic banker told a conference yesterday.
Parties involved in structuring sukuk, the closest cousin of conventional bonds, should be mindful to ensure that it does not go the way conventional bonds have gone in the ongoing global financial crisis, said OCBC Bank Malaysia Bhd's head of Islamic finance Alhami Mohd Abdan. He was one of the speakers at the Second Global Islamic Finance Conference (GIFC) 2008 in Kuala Lumpur.
Minister in the Prime Minister's Department Datuk Seri Dr Ahmad Zahid Hamidi officiated the two-day function which is organised by GlobalPro Consulting Sdn Bhd. In his presentation entitled 'Product development and implementation of Islamic finance', Alhami noted that the Western asset-backed securities (ABS) bubble-crashed primarily due to the questionable quality of the underlying assets, although the fundamental principles of securitisation are not without its merits. For the sukuk securitisation process, he said among the fundamental requirements for Shariah endorsement are that the nature of the assets securitised be tangible and economically viable.
New sukuk issues in 2007 reached a record high of about US$47 billion (RM168.28 billion) and the outstanding global sukuk market surpassed the US$100-billion mark, according to Bank Negara Malaysia (BNM). Up until August this year, BNM governor Tan Sri Zeti Ahtar Aziz, in a speech earlier this month, said sukuk had held its ground with a total global issuance now exceeding US$14 billion, and is expected to exceed US$200 billion in 2010.
Dr Aznan Hasan, a Shariah scholar from the International Islamic University Malaysia (IIUM) and a former member of the BNM Shariah Advisory Council, said that the demand for Shariah advisors is increasing, especially in auditing, product development and financial engineering. On the apparent divergence between Shariah views in Malaysia and the Middle East, he said that while efforts should continuously be made to narrow the gap in the divergence of opinion, "we should also approach these differences of opinion as a source of strength, rather than a source of weakness".
In his opening address, Ahmad Zahid praised BNM's role in ensuring the success of Islamic banking in Malaysia as the sector has continued to register significant growth since its introduction.
"Islamic finance has, thus far, remained positive, despite the current challenging global financial environment, thanks to rules that forbid the sort of risky business that is felling the mainstream institutions.
"The strength in Islamic finance is derived from Shariah principles, the key pillar of Islamic finance that has contributed towards its overall stability and resilience," he said.
Ahmad Zahid said Shariah injunctions require that financial transactions be accompanied by an underlying productive activity, thus giving rise to a close link between financial and productive flows. (By Habhajan Singh, The Malaysian Reserve, Oct 30, 2008, Page 8)