Monash's Islamic conference in M'sia

The 6th International Islamic Finance Conference 2008 in Kuala Lumpur on Oct 13-14, will provide new insights into the innovations and market strategies for Islamic finance, says Monash University's director of banking and finance, School of Business, Prof Bala Shanmugan. The conference is organised by the Institute of Bankers Malaysia, Monash University and the Islamic Banking and Finance Institute Malaysia, reports Bernama. One of the international speakers is Dr Yahia Abdul Rahman from American Finance House-LARIBA. Lariba calls itself the oldest community-owned, riba-free and Shariah compliant finance company serving the community in the US since 1987.

Bahrain’s Unicorn keen on investing in Malaysia

By Habhajan Singh & Ishun P Ahmad
Bahrain-based Unicorn Investment Bank (Unicorn), an Islamic investment bank with an outfit in Malaysia, is actively looking at investing in a number of areas locally, with plantation and real estate emerging strongly on their list.
"They have come and done their research some time ago," said chairman of Unicorn International Islamic Bank Malaysia Bhd (Unicorn Malaysia) Datuk Vaseehar Hassan.
Vaseehar said that the investments will probably be driven initially out of Bahrain until the Malaysian outfit has "enough size" to handle them locally.
Unicorn Malaysia, the first Islamic bank licensed under the Malaysian International
Islamic Financial Centre (MIFC) initiative, received permission to set up its operations from Bank Negara Malaysia early this year.
The Islamic banking outfit, which is licensed to conduct cut out non-ringgit transactions, is said to already have a number of deals in the pipeline and is reportedly confident of posting a profit by year-end.
However, when investing in the plantation sector, Unicorn will have to take into account the lower valuations of plantation assets due to the recent fall in crude palm oil prices and the current bearish sentiments on the edible oil.
"This, however, also provides opportunity in cheaper plantation assets," an analyst said.
According to him, the plantation sector continues to be relevant as CPO is likley to
rebound in the near- to medium-term. Hence, plantation assets would likely be revised upwards if this pans out.
In a recent interview, Vaseehaar, formerly chairman of RHB Islamic Bank Bhd, told the The Malaysian Reserve that Unicorn Malaysia had several deals in the pipeline, including a couple of mandates already signed that its teams are working on.
(The Malaysian Reserve, Page 1, Sept 23, 2008)

Rafe talk at IIUM forum

Rafe Haneef, who formerly spearheaded Citibank's Islamic business for Asia and now managing director of Fajr Capital, will speak on current institutional and regulatory issues in Islamic banking and finance at the International Islamic University Malaysia (IIUM) on Friday, Sept 18.
The talk, organised by IIUM's Institute Of Islamic Banking and Finance, is the 20th Islamic Banking and Finance Series. The talk, open to IIUM students and industry practitioneers, will be at the conference room at IIUM's Kulliyyah of Economics and Management Sciences.

Minor impact from BBA ruling, says OSK

By Habhajan Singh
The controversy surrounding certain Al-Bai' Bithaman Ajil (BBA) contracts is unlikely to lead to an industry-wide fallout, says OSK Research.
In a research note, it said this view is further underpinned by the fact that Bank Negara Malaysia (BNM) has been pro-active in giving out new Islamic banking licenses to foreign Islamic banks to encourage further liberalisation and development of the sector.
It said this in a research note released last Friday commenting on a series of articles in The Malaysian Reserve last week on a recent judgement by High Court judge Justice Datuk Abdul Wahab Patail. One of his judgments, dated July 18 and running into 54-pages, has caused a stir in the fast-growing Islamic finance industry.
In the note, OSK said the impact of a potential fallout is much bigger for full-fledged Islamic banks. Total Islamic banking financing assets represents 13.8% of the total banking outstanding loan portfolio as at July 2008, while that of BBAs represent an even smaller 4.6%, it reported.
"If we were to solely focus on commercial banks' exposure to BBAs, the percentage contribution as a total of industry wide commercial and investment banks' loan books is 2.3% as at July 2008, significantly smaller than the exposure of full-fledged Islamic banks' of more than 40%," it said.
In an attemp to quantify the impact on the listed banks' earnings in the event of an industrywide fall out, OSK used the industry's BBA's earnings percentage contribution of roughly 40% to total the Islamic banking industry income as a benchmark for a worst-case simulation analysis. It discounted the individual bank's Islamic banking income by that percentage quantum.
Its "back-of-envelope calculations" indicated that the potential negative impact on banks could range from 6.5% to 18.7%, with the largest impact being on AMMB Holdings Bhd, EON Capital Bhd and Affin Holdings Bhd, as these banks have the largest Islamic banking income as a percentage of a total group income.
Although Malayan bank Bhd and CIMB Group are particularly strong in terms of the Islamic banking income market share, the report said the strength and size of their investments and conventional commercial banking income streams help to mitigate any downside risks.
It highlighted that certain banks will have different earning contributions from the various classes of Islamic banking assets, with Commerz being particularly strong in the sukuk market and Public Bank in the Islamic hire purchase segment (Ijarrah Thumma Al-Bai) and thus the actual impact will again vary among banks.
The BBA, in essence, is a contract of deferred payment sale (the sale of goods on a deferred payment basis) at an agreed selling price, which includes a profit margin agreed on by the customer and the bank.
It is widely used in various Islamic financing instruments, including bridging finance, cash line facilities, contract financing, project financing and letters of credit.
(The Malaysian Reserve, Sept 16, 2008)

BBA: Banking sector braces for impact from ruling

By HABHAJAN SINGHThe Islamic banking fraternity is bracing to face a fallout from the recent High Court rulling that the application of the Al-Bai' Bithaman Ajil (BBA), a widely used Islamic home financing contract, is contrary to the Islamic Banking Act 1983.
At the heart of the written judgement by Datuk Justice Abdul Wahab Patail is 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 that they would have otherwise booked from the transaction.
Bankers also fear the judgement could mean that current BBA financing clients would only need to pay the facility amount and would escape from paying the profit portion.
The home financing facilty extended under the BBA concept runs into billions of ringgit. "It will impact (the industry) in a big way. Bankers and financiers are used to the idea that when a default takes place, they are entitled to recover the full balance of the sales price. This and the previous judgement by Justice Wahab has altered that," said a local lawyer who ranks among the pioneers in the field of Islamic finance.
Wahab's latest judgement, dated July 18, encompassed 11 separate cases involving Bank Islam Malaysia Bhd and Arab-Malaysian Finance Bhd as the plantiffs.
It is understood that the banks are appealing to the Court of Appeal to over turn the judgement which was received by lawyers involved in the case only last month.
Industry experts estimate that close to 70% of Islamic financing has been granted under the BBA concept which essentially is a deferred payment sale (the sale of goods on a deferred payment basis) at an agreed selling price, which includes a profit margin agreed on by the customer and the bank.
The BBA concept is widely used in various Islamic financing instruments, including for bridging finance, cash line facilities, contract financing, project financing and letters of credit.
Among the big local players on this front are CIMB Bank Bhd, Malayan Banking Bhd, Bank Islam Malaysia Bhd and Public Bank Bhd, all of whom have home financing facilities based on the BBA concept. Local banks like CIMB and Maybank now have full-fledged Islamic subsidiaries that handle such financing.
"Banks are worried this judgement will set off alarm bells with regard to confidence with BBA locally. As for foreign investors, they fear its potential ramification on Malaysia's efforts in becoming a global hub for Islamic finance.
"Our whole industry has been BBA-driven. Banks are fervently trying to find a solution," said an industry executive.
It is understood that the legal departments of some these banks are now trying to get their hands on Abdul Wahab's latest judgement which has yet to be published by any of the local regular sources for the legal fraternity.
On Monday, The Malaysian Reserve ran a report on Abdul Wahab's ruling followed by excerpts from the 54-page judgement the next day.
The judgement on the appplication of BBA, popular at home but much criticised abroad, is set to be another widely discussed judgement after Abdul Wahab's earlier ruling in the case of Affin Bank Bhd vs Zulkifli Abdullah, in which he passed a ruling on the calculation of the amount to be paid in the event of a foreclosure.
The 2006 case attracted much attention, and is still the subject of seminars today, as it turned on its head the way bank practitioners calculated the outstanding amount to be repaid by borrowers who had defaulted on their BBA contracts.
Some banks had calculated the amount up to the full period of the facility, even though the borrowers may have defaulted only a few years into the financing. to be fair, though, banks usually have a defaulter rebate, which is at their sole discretion.
"The effect of this judgement is that customers are obliged to pay only the principle that had been extended to them.
"Since the court holds this contract null and void, Section 66 of the Contract Act will apply," said a lawyer. Section 66 of the act states that "when an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under the agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it."
(The Malaysian Reserve, Sept 11, 2008)

BBA: Banks scramble to respond to BBA ruling

By HABHAJAN SINGH Local Islamic bankers are trying to get their act together in order to respond to the recent High Court rulling that the application of popular home financing Al-Bai' Bithaman Ajil (BBA) is contrary to the Islamic Banking Act 1983.
Since the written judgement by Datuk Justice Abdul Wahab Patail reached them towards end-August, Islamic bankers have begun contacting their legal advisors and lawyers on their panel for consultation.
It is understood that industry players are trying to act in unison to argue against the judgement for fear that it could take take root if it is approved by the higher courts. Lawyers familiar with Islamic finance say one possible option would be to to argue on grounds of public policy.
"Banks will appeal on the basis of a public policy argument. Whatever the law may be, if the repercussion is so great, the courts will look at the impact on the economy and on the various parties.
"Otherwise, the whole thing may collapse. Can you imagine if all customers refuse to pay the profit [element in the BBA contract] simply because of the faulty structuring of the contract?," said one lawyer.
One Islamic banker suggested that Bank Negara Malaysia (BNM), which regulates the industry, may introduce a new set of rules to clear the air with regards to the application of the BBA ruling.
At the heart of the written judgement by Datuk Justice Abdul Wahab Patail is the fact 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 that they would have otherwise booked from the transaction.
In his ruling, Abdul Wahab said that the sale element in the BBA is "not a bona fide sale" and he also brought into question the profit portion of the facility.
(The Malaysian Reserve, Sept 8, 2008, p4)

BBA: Islamic financial bodies study impact of High Court ruling

By Habhajan Singh
Islamic financial institutions have begun gathering their legal eagles to take a close look at the potential impact of the recent High Court ruling that brought into question some elements of the highly contentious Al-Bai' Bithaman Ajil (BBA) financing facility.
It is understood that some Islamic banks have already requested advise from their panel of lawyers on the potential impact of the ruling by High Court Judge Datuk Abdul Wahab Patail.
Though dated July 18, The Malaysian Reserve understands that the lawyers involved in the cases only got their hands on the written judgement in the last two weeks.
"This is going to be another hot potato for the Islamic finance industry. I must say it is a well-written judgement," says one lawyer familiar with cases pertaining to Islamic finance. Another lawyer said that a careful reading of the 54-page judgement shows that the judge had covered much ground concerning Shariah and Islamic finance.
"It makes (for) instructive reading," he said on the judgement, which runs close to 11,000 words.
In this latest case, Abdul Wahab Patail ruled that the sale element in the BBA is "not a bona fide sale" and he also brought into question the profit portion of the facility.
However, one lawyer said that this decision will not be binding on another High Court judge, who may chose to adopt it, reject it or find a middle ground. The issue may also take a turn if the judgement is overturned by the Court of Appeal. It is understood that the parties involved have filed an appeal.
(The Malaysian Reserve, Sept 8, 2008, p31)

BBA judgement by Msia's Justice Wahab Patail

By Habhajan Singh
The High Court recently ruled that the application of the Al-Bai' Bithaman Ajil (BBA), a hugely popular Islamic home loan financing contract in Malaysia for the last two decades but much criticised abroad, is contrary to Malaysia's Islamic Banking Act 1983.
In what is set to be another widely discussed judgement, High Court Judge Datuk Abdul Wahab Patail ruled that the sale element in the BBA is "not a bona fide sale". He also brought into question the profit portion of the facility. The written judgement, dated July 18 but made available to lawyers involved in the case late last month, may force Islamic banks and financial institutions to re-examine their legal documentations.
Carrying the stamp of the Kuala Lumpur High Court commercial court division, the 54-page judgement was a collective judgement for 11 cases involving Bank Islam Malaysia Bhd and Arab-Malaysian Finance Bhd as the plantiffs.
The BBA house financing is a contract of deferred payment sale (the sale of goods on a deferred payment basis) at an agreed selling price, which includes a profit margin agreed on by the customer and the bank.
Profits in this context is justified since it is derived from the buying and selling transaction as opposed to interests accruing from the principal lent out, according Bank Negara Malaysia's (BNM) website.
BNM is the regulator of Malaysia's financial institutions, including Islamic financial institutions operating in the country. However, Abdul Wahab's judgement does not concur with the said notion.
"This Court holds that where the bank purchased directly from its customer and sold back to the customer with deferred payment at a higher price in total, the sale is not a bona fide sale, but a financing transaction, and the profit portion of such Al-Bai' Bithaman Ajil facility rendered the facility contrary to the Islamic Banking Act 1983 or the Banking and Financial Institutions Act 1989, as the case may be," he said in his judgement (point No. 69).
In his reasoning earlier, the judge pointed out that "there is no dispute that the concepts" of BBA and several other contracts are "in principle, Islamic in nature since no interest is involved".
"The function of this Court is to examine the application of these Islamic concepts, as to whether as implemented, and in the particular cases before it, the transactions do not involve any element not approved in the Religion of Islam.
"It is a question of looking at the particular facts. That remains the judicial function of the Court which it cannot abdicate," he wrote.
In another point, the judge also made his earlier stand in the case of Affin Bank Bhd vs Zulkifli Abdullah, in which he passed a ruling on the calculation of the amount to be paid in the event of a foreclosure.
The 2006 case attracted much attention, and is still the subject of seminars today, as it turned on its head the way bank practitioners calculated the outstanding amount to be repaid by borrowers who had defaulted on their BBA contracts. Some banks had calculated the amount up to the full period of the facility, even though the borrowers may have defaulted only a few years into the financing.
In his latest judgement, Abdul Wahab wrote: "This Court accepts that where the bank is the owner or had become the owner under a novation agreement, the sale to the customer is a bona fide sale, and the selling price is as interpreted in Affin Bank vs Zulkifli Abdullah.
"Thus, where the bank is the owner of the property, by a direct purchase from the vendor or by a novation from its customer, and then sold the property to the customer, the plaintiffs' (the banks) interpretation of the bank's selling price is rejected and the Court applies the equitable interpretation."
It is understood that the banks are appealing the judgement.

Bank Islam eyes Indonesia for regional expansion

By Alfean Hardy
Bank Islam Malaysia Bhd, which is eyeing both organic growth and mergers and acquisitions (M&As) to grow its business, is looking at penetrating the Indonesian market for all the opportunities it offers despite the recent problems encountered by Malayan Banking Bhd (Maybank), its managing director Datuk Zukri Samat said.
Speaking at a media briefing in Kuala Lumpur on Bank Islam's financial performance for its financial year ended June 30, 2008, Zukri said the bank would take the lessons learnt from the Maybank affair before it ventured into the Indonesian market.
"It's the obvious choice. It's very near us... also, it's a country of 250 million with the major it y Muslims. There's a lot of potential in Indonesia, especially in consumer banking and we're a retail bank and we want to export our expertise there," he added.
Asked on what Bank Islam's strategy would be, Zukri said it could either acquire a strategic stake in an Indonesian bank or acquire completely one of the country's smaller banks. "There's nothing black and white but we're expanding a lot of energy and time looking for (the right partners)," he added.
"We want, if there's a suitable partner, to merge Bank Islam with a suitable partner in order to make a bigger Islamic bank. In terms of regional expansion, the focus for now will be Indonesia. Other markets like Thailand and Singapore will come later. For now we need to prioritise," he added.
On how Bank Islam could finance any future M&As, Zukri said the bank did not have have any financial constraints.
"As of now, there's no budget yet but, as and when, we've identified and finalised our target, then we will work out our numbers," he said.
"In terms of support from our shareholders, I don't think we've got any problems. We've got big shareholders like Dubai Investment Group (DIG) and Lembaga Tabung Haji (LTH), so we don't foresee getting more capital as an issue.
"The challenge is to find the right party and partner to marry," he added. DIG and LTH hold a 40% and 9% respectively in the bank. The 51% majority stake is held by BIMB Holdings Bhd.
(The Malaysian Reserve, p5, Sept 04, 2008)

Spore billion-dollar sukuk deal

Billion-dollar sukuk deals may be new to Singapore corporates but syariah-compliant lending has been growing rapidly in recent years, reports The Edge Singapore.
Singapore-listed property firm City Development Ltd (CDL) has until now depended on traditional ave­nues of funding. However, as the credit crunch squeezes, even a large player like CDL has been forced to look at more exotic instruments like ijarah-based sukuk. CDL's plunge into Syariah-complaint borrowing comes in the wake of local banks adopting a far more cautious approach to corporate lending, according to the report.
Singapore's second largest property firm had inked a deal for an unsecured S$1 billion (RM2.39 billion) Islamic multi-currency medium-term note (MTN) programme, or sukuk — the largest Syariah-compliant financing obtained by a listed Singapore corporate.

Albaraka Islamic economy symposium

The influential Albaraka Symposium on Islamic Economy will take place in Saudi Arabia on Sept 6-7. Malaysia played host to this key event in the Islamic finance calendar in 2001, the first time the event went beyond the Middle East.
The 29th symposium, to be held at the Hilton Hotel in Jeddah, will touch on issues like commodities and the rules that govern them and protection of the capital of deposits by reason of the applicable laws, reports Bahrain’s The Gulf Daily.
Other topics are the acceptance of the shares of a bank that deals in interest as security to the debt of an Islamic bank's customer, using the word "interest" as a substitute to the word "profit" or "yield", buying the shares of a company that has Sharia-compliant purposes but deals in interest-bearing deposits or loans and the subject of defaulting debtors who are capable of paying. The report quoted Albaraka Banking Group president and CEO Adnan Ahmed Yousif.