BNM mulls 5 Shariah advisors for Islamic banks

By Habhajan Singh
Bank Negara Malaysia (BNM) is mulling at pushing up the number of Shariah comittee members to five from the present three and getting directors more involved in Islamic governance under its wide-ranging proposals on Shariah governance for Islamic banks.

At present, Islamic banks operating on the local turf like Maybank Islamic Bank Bhd, CIMB Islamic Bank Bhd and Kuwait Finance House Malaysia Bhd, are required to have at least three members in their in-house Shariah committee. Each member is not allowed to sit on the Shariah committee board of another Islamic bank, but may sit on the Shariah committee of a takaful operator.

A member of the Shariah Advisory Council (SAC), the Shariah mother-board at the central bank level currently headed by Dr Mohd Daud Bakar, is also not allowed to sit on Shariah committee at the bank level. The measures are partly built in as a firewall to ensure proper governance on the Shariah front.

The central bank is also recommending Islamic financial institutions (IFIs) operating in Malaysia to appoint their respective chairman of Shariah committees onto the board as independent directors. It is understood the Shariah governance recomnmendations drafted by the central bank have been circulated to IFIs for their feedback.

"So far, feedback has been mixed. Some banks may be a little behind the curve on some of the proposals," said one Islamic finance expert with knowledge of the proposals.

In its latest recommendation, it is understood that BNM is also compelling Islamic banks to ensure that at least three of the five Shariah committee members have Shariah background. It is understood that the requirement is to ensure members are able to fulfil the board's role, as spelt out in the Islamic Banking Act 1983 and Takaful Act 1984, which is to ensure that all aspects of their bank's business operations are in accordance with the Shariah principles.

"At the moment, there is no specific requirement. However, in practice, BNM approval is required for the appointment of each and every Shariah committee member. So, invariably, they will ensure that the board is appropriately manned," said one industry executive.

These proposed changes will mark yet another milestone in the regulation regime in place to govern IFIs which come under the jurisdictions of BNM, especially after the introduction of the Central Bank of Malaysia Act 2009.

In a report on Nov 23, 2009, The Malaysian Reserve noted that an analysis of the new ground rules for the central bank showed a strong Islamic finance flavour running through the 68-page document, especially in empowering of the SAC, designated to be the "authority for the ascertainment of Islamic law for the purpose of Islamic financial business". On the proposal for Shariah committee chairman to sit on the bank's board, an industry expert told The Malaysian Reserve that it may raise some issues.

"Some banks have state muftis chairing their Shariah committees. Now, do you want muftis to sit on the boards of Islamic banks?" he asked. Perak mufti Tan Sri Harussani Zakaria, for example, is chairman of Maybank Islamic's Shariah committee.

At CIMB Islamic, on the other hand, its Shariah committee is headed by Prof Dr Mohammad Hashim Kamali, who is already sitting as an independent director on the bank's board. Mohammad Hashim is the chairman/chief executive office of Hadhari Institute For Advance Islamic Studies. On the takaful side, MAA Takaful Bhd's Shariah committee chairman, Dr Mohd Khalil Ruslan from Universiti Malaya's law faculty, also sits on the company's board.

(This story appeared in The Malaysian Reserve on 25 October 2010. 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)

Islamic fund management sector to see global players

The largely-fragmented Islamic fund management industry will welcome more global players as demand for sharia-compliant asset management products rise, a fund manager at Algebra Capital said, accordng to a Reuters (Oct 20, 2010) report.

The asset management portion of Islamic finance has been at a virtual standstill in the $1 trillion industry, in part, due to its perception of yielding poorer returns than conventional funds. "We think the type of players in Islamic funds is going to change and more established global managers will play a direct role," Mohieddine Kronfol, managing director at Algebra Capital told the Reuters Middle East Investment Summit. "The environment is better and people have begun to appreciate the need for such products."

THE REPORT ADDS:The Dubai-based asset management firm was in the process of developing additional funds along with its partners, including a global sukuk fund to tap into rising demand, Kronfol said.

"These don't necessarily have to be in our names. It will be someone else launching it and advising the work to us. It most probably will not be an Algebra Capital fund," he said.

The executive also said he expected the wave of debt issues in the region to continue as the need for additional sources of funding and demand for emerging market debt instruments among global investors increase.

"People generally are not really aware of how quickly the MENA bond market is developing," Kronfol said.

"You have several companies in the region that are well managed, that can access capital markets and that can think about diversifying their means of funding."

Global asset manager Franklin Templeton holds a 40 percent stake in Algebra and the Dubai-based firm runs the Middle East North Africa equity fund for the global asset manager.

M’sian Islamic finance education gets int’l demand

[PHOTO: Banker Norleza Abu Bakar (fourth from left) with four lawyers, (from left) Roziana Yusof, Wan Helmi Wan Hasan, Mohd Farid Azahari and Rafidah Ash'ari, are part of the batch that recently graduated from IIiBF]

By Habhajan Singh
Two local institutions specialising in Islamic finance saw their students graduating this month.

IIUM Institute of Islamic Banking and Finance (IIiBF), the wing under the International Islamic University of Malaysia, presented the latest batch of graduates their scrolls on Oct 4. On Saturday, International Centre for Education in Islamic Finance (INCEIF) celebrated a milestone with its second convocation ceremony.

IIiBF, officially established in January 2005, now offers a Postgraduate Diploma in Islamic Banking and Finance, Master of Science in Islamic Banking and Finance and PhD in Islamic Banking and Finance. Additionally, it also provides certificate programmes in Singapore and Sri Lanka.

"There are plans under way to offer similar certificate programmes in Bahrain, China, India, Maldives and Kazakhstan," said IIUM rector Prof Datuk Seri Dr Syed Arabi Idid. He said the institute has signed more than 15 MoUs and collaborations in areas of training, product development and consultancy with various private and governmental institutions nationally and internationally such as Brunei, Iran, Sri Lanka, Bahrain, Nigeria, Indonesia and Singapore.

"As part of IIiBF internationalization programme, our staff is involved in providing technical expertise to the Krygzstan and Afghanistan governments to develop Islamic financial system as a second pillar to support economic development there," he said.

INCEIF is also working on global collabaration in its quest to become a truly global university in Islamic finance going forward. Its resident and chief executive officer, Agil Natt, said the university would be collaborating with the University of Luxembourg, the Chinese University of Hong Kong and the Reims Management School in France next year in Islamic finance education.

"These are countries that have Muslim minorities. The fact that they are associating with us for Islamic finance education is indeed a good sign," he said in his speech at the recent convocation, reports Bernama.

The report added that INCEIF has already started its Chartered Islamic Finance Performance Professional (CIFP) programme in Bahrain in collaboration with the University of Bahrain, adding that the university is also currently working on accreditation in Iran and Yemen.

INCEIF was set up in March 2006 by Bank Negara Malaysia which provided an endowment fund to develop and enhance human capital in Islamic finance, to meet the needs of Islamic industry.

(This story appeared in The Malaysian Reserve on 25 October 2010. 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)

IBFIM inks pact to co-develop Islamic finance in Maldives

By Siti Radziah Hamzah
The first Islamic bank in Maldives, Maldives Islamic Bank, is expected to be fully operational in January next year, said its chairman Khaled Al-Aboodi.

He said the management team of the bank has been appointed and is currently in discussion with the advisor of the bank to provide advisory services in terms of providing training for the bank.

"Prospects are tremendous in terms of serving the market. We plan to take between 20% to 25% of the total market of Islamic banking (in the country) within the next three to five years," he told reporters after the signing of a memorandum of agreement (MoA) between the bank and the Islamic Banking and Finance Institute Malaysia (IBFIM) yesterday.

Khaled said the bank will be focusing on three main sectors namely small and medium enterprise (SME), fisheries and trade. He added that the bank also aims to diversify to other areas such as saving, takaful and mortgage businesses.

Khaled said the bank is in discussion with a Malaysian partner to develop an Islamic saving scheme. Witnessing the signing were Bank Negara Malaysia deputy governor, Datuk Mohd Razif Abd Kadir, and chairman of IBFIM, Datuk Seri Zukri Samat.

The MoA will bind both parties to co-develop Islamic finance in Maldives through extensive study of the country legal and banking framework to create an environment for the growth of Islamic finance. Maldives Islamic Bank has been granted a licence by the Maldives Monetary Authority to establish the country's first Islamic bank.

Jeddah-based Islamic Corp for the Development of the Private Sector, a subsidiary of Islamic Development Bank, holds a 70% stake in the bank and the remaining 30% is held by the government of Maldives.

Regional mandatory sharia finance body "years away"

The formation of a Gulf-wide sharia council with the mandate to set industry rules, rather than just issue guidelines in its present form, is still "years away", a senior executive at regulatory body AAOIFI, reports Reuters (Oct 11, 2010).

Speaking on the sidelines of an industry conference in Abu Dhabi, Assistant Secretary General Khairul Nizam said few expect such a centralised sharia council to be in place before 2013.

"It's an idea at the moment. It can help the Islamic finance industry because, if the committee has some regulatory bite to it, it can make AAOIFI standards mandatory," said Nizam.

THE REPORT GOES ON:

Currently, standards set by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) board are considered guidelines, rather than rules. Some countries such as Bahrain, however, require Islamic institutions to follow the standards.

Nizam said the Bahrain-based body is currently working to issue regulatory guidance for sharia scholars serving on the boards of Islamic institutions, which the regulatory body hopes to finalize by the end of 2011.

"It's going to be a long process because we have to make sure to get it right the first time," he said.

He said the industry body has had five meetings already to discuss key issues facing scholars that could be regarded as a conflict of interest in the growing $1 trillion Islamic finance industry.

Nizam said there is discussion over whether scholars should have a limit on the number of boards they sit on. Currently just 20 of the top scholars appear on 54 percent of sharia board positions, according to a report by consultancy Funds@Work.

AAOIFI will also address whether scholars should have shareholdings in the institutions they advise on, issues regarding compensation and whether scholars serving on sharia boards can also participate in separate sharia advisory firms that may have relationships with the institutions they serve. Nizam said an "exposure draft" will be circulated to all Islamic banks by the end of the first quarter for review.

Distressed Deals Lure Shariah Funds Managing $10 Billion

Islamic private equity funds in the Persian Gulf plan to take advantage of lower asset prices after the property market in Dubai tumbled as much as 50 percent from its peak in 2008, reports Bloomberg (Oct 27, 2010).

“We want to take advantage of massive dislocations that have taken place in this market over the past three years,” Yahya Jalil, director of private equity at Abu Dhabi-based investment and advisory company The National Investor, said in an interview Oct. 18. “We have gotten over that hump in the cycle when there were a lot of liquidity constraints.”

THE REPORT GOES ON:

Middle East and North Africa investment groups have about $10 billion available after raising a record $5.4 billion in 2008 that they haven’t been able to spend, Gulf Venture Capital Association said in a July 20 statement. Mid-sized businesses in the Gulf may need as much as $1 billion from investors, Jalil said. The Bloomberg GCC 200 Index of regional stocks has declined 26 percent since the end of September 2008 after credit markets collapsed.

The National and Kipco Asset Management Co., a Kuwaiti investment bank, started a $200 million Shariah-compliant fund this month, Jalil said in Abu Dhabi. Bahrain’s Capital Management House plans to complete a transaction and buy stakes in companies specializing in aviation and energy, Chairman Khalid Al Bassam said in an Oct. 25 telephone interview.

Islamic funds received $8.9 billion of commitments from investors from 2003 through July this year, of which about $4.5 billion has been invested, Kuwait Finance House KSC, the country’s biggest Islamic bank, said in an Oct. 8 report. About $75 billion of deals have been completed since 2003, the bank said.

“The private equity market is coming back,” said Al Bassam, whose firm has stakes in energy, banking and real-estate companies.

Shariah-compliant equity companies raised and completed deals worth about $3 billion worldwide last year, mostly in the Middle East and North Africa, Dubai-based Yasaar Media, a media and research company that specializes in Islamic finance, said in an August 2009 report.

Islamic finance industry under regulated, says Deloitte survey

by Habhajan Singh

At least two out of three Islamic finance industry leaders in the Middle East reg ion be l ieve t hat t he fast-growing financial sector is under regulated, a survey revealed. Some 31% of the Islamic Finance leaders from Saudi Arabia, Bahrain, UAE, Qatar and Lebanon surveyed by Deloitte believed that the Islamic Finance industry is appropriately regulated, majority (66%) indicat ing that it i s under regulated. Only 3% said it is over regulated.

"This result is consistent with the previous findings relating to the level of supervision and financial regulation in the GCC (Gulf Cooperation Council)," said the first of Deloitte's Islamic Finance leaders survey in the Middle East benchmarking practices.

The report noted that its findings also confirm the compelling need for an enhancement to the regulatory environment promoted by organisations like Islamic Financial Services Board, Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions and International Islamic Financial Market.

A copy of the survey, which excluded industry players from this part of the world, was made available to The Malaysian Reserve. Deloitte said it was the the first Islamic Finance leaders survey in a biannual series targeted at industry practitioners and leaders of Islamic financial institutions (IFIs) in the Middle East. It was based on interviews conducted with indust ry leaders between April and June 2010.

Islamic accounting standards and risk management were identified as the top two areas requiring new regulatory measures, and the leaders surveyed, view corporate governance and Shariah governance as prerequisites for best practices. It also noted that current and anticipated regulatory changes are the chief drivers of the business performance of IFIs.

It said the majority of industry leaders surveyed (84%) noted that within the next year,Islamic finance regulation will increase significantly.

"This is consistent with regulatory reforms that have recently taken place around the world. Includes are the US Securities and Exchange Commission's new rules requiring a large amount of disclosure about the information used to securitise notes," it added.

It noted that the European Commission has made similar moves. Reforms cited included new measures in Basel III to tighten core tier one capital, Ireland's new laws limiting bank credit exposures and exposures and the UK's bank tax levy. Bank Negara Malaysia (BNM) will also be introducing a new Shariah Governance Framework soon.

IILM to boost IFI capacity to facilitate cross-border flows

KUALA LUMPUR, Oct 25 (Bernama) -- The establishment of the International Islamic Liquidity Management Corp (IILM) will further enhance the capacity of Islamic finance in facilitating efficient cross-border flows, Bank Negara Malaysia (BNM) Governor, Tan Sri Dr Zeti Akhtar Aziz, said today.

She said the corporation would enable effective liquidity management not only for the Islamic financial institutions but also for the management of Islamic financial portfolios.

"This development is also significant as it demonstrates an international collaboration among the central banks. The greater collaboration among regulators seen in this decade cumulatively serves to contribute towards the continued resilience of the global Islamic financial system," she said in her welcoming address at the Global Islamic Finance Forum 2010 here today.

Zeti, who will chair the first IILM board meeting, said the meeting, which would be convened on the sidelines of the forum today, would pave the way for its operationalisation. Prime Minister Datuk Seri Najib Tun Razak, who is also present at the forum, witnessed the signing of the Articles of Agreement between central bank governors and bank representatives to set up the corporation She said recently, there has been an increased global engagement in syariah matters among scholars, practitioners and regulators through international platforms. This was a remarkable achievement, given that much of these developments had taken place amid the tumultuous global financial environment, she said.

"The rapid internationalisation in Islamic finance has also been underpinned by the massive flow of knowledge, ideas, technology and people across borders, a process which fosters a greater international understanding on the practices in Islamic finance," she said.

Zeti said Islamic finance has, during this period, been expanding steadily at a double-digit pace with the total Islamic financial assets estimated at more than US$1 trillion (US$1=RM3.06). She said this dynamic growth was driven by two key factors -- the pace of innovation in Islamic finance provided extensive range of financial solutions and the resilience derived from its inherent features provided foundations for financial stability in the Islamic financial system. On sukuk, for example, she said the advancement that has been achieved testified to the ability of Islamic finance in meeting the requirements of today’s differentiated demands of the modern economy.

"The sukuk market has demonstrated its ability to effectively intermediate funds across borders and thus contribute towards the efficient allocation of funds in the international financial system," say Zeti. Today, the sukuk market has become an important avenue for international fund raising and investment activities with the sukuk becoming a truly global product, generating significant cross-border financial flows, she said.

The central bank governor said the internationalisation of Islamic finance was also evidenced by the growing presence of Islamic financial institutions that now operated beyond their own jurisdictions and the increased number of international foreign financial institutions that offered Islamic financial products and services.

Indeed, increasingly, Islamic finance has become part of the growth strategies of a growing number of the global financial players, she said. Besides that, new horizons were also fast emerging, as seen by the concrete efforts for legislative and regulatory changes in several non-traditional markets to facilitate the introduction of Islamic finance in these markets, said Zeti. The Global Islamic Financial Forum, which gathers Islamic financial players as well as Islamic scholars around the world, will be held for four days beginning today. -- BERNAMA

BNM ruling on Islamic financial products

KUALA LUMPUR, Oct 26 (Bernama) -- All new Islamic financial products to be offered by Islamic financial institutions or any existing products to be offered to new customers must comply with the rulings of the new Syariah Resolutions in Islamic Finance (Second Edition), said Bank Negara Malaysia (BNM).

However, for Islamic financial products which had been contracted between the customers and Islamic financial institutions based on syariah rulings published in the first edition and the Summary of National Syariah Advisory Council (NSAC) decisions, the contract would remain in force until maturity, BNM said in a statement here today. The second edition is a compilation of all syariah resolutions made between 1997 and 2009, it said.

BNM said the move was also a continuation of all its earlier efforts to deepen the understanding on the syariah interpretations and the juristic reasoning for the rulings.

"It is also aimed to increase the level of transparency on juristic reasoning in Islamic finance and thus, an increased appreciation and acceptance of syariah decisions," it said. The central bank said it would also allow for more efficient syariah governance at institutional level, while catalysing greater cross-border harmonisation in the interpretation and application of syariah. -- BERNAMA

New licences to boost takaful take-up to 18%

by Jason NgThe penetration rate of takaful in Malaysia may increase up to 18% by 2013 following the issuance of four new licences by Bank Negara Malaysia (BNM) last week.

Presently, the penetration rate of takaful, or Shariah-compliant insurance, is just around 10% and the entry of four new operators will help to increase the reach to nonurban centres, said Malaysian Takaful Association chairman, Datuk Syed Moheeb Syed Kamarulzaman. "The market is very big and the penetration rate will accelerate with the new players," he told The Malaysian Reserve in a phone interview recently.

Under liberalisation measures of the financial services sector, BNM has granted four foreign-local joint ventures the licences to operate family takaful business in Malaysia, a market where about 60% of its 28 million population are Muslim, to help develop the industry and boost take-up rate.

The four are: American International Assurance Bhd (70%) and Alliance Bank Malaysia Bhd (30%); AMMB Holdings Bhd (70%) and Friends Provident Group plc (30%); ING Management Holdings (Malaysia) Sdn Bhd (60%), Public Bank Bhd (20%) and Public Islamic Bank Bhd (20%); The Great Eastern Life Assurance Company Ltd (70%) and Koperasi Angkatan Tentera Malaysia Bhd (30%).

Instead of selling risk at a price to the insurer, takaful is based on "mutual cooperation" where either part or all of the contribution paid is donated to the takaful fund, which also helps other participants by providing protection against potential risks.

"Certain sector of the market is difficult to reach especially the rural areas and where microtakaful can be beneficial. Since there are four new operators instead of two, we believe the penetration rate will accelerate," said Syed Moheeb, who is also the president of local takaful operator, Takaful Ikhlas Sdn Bhd. Two new family takaful licences were up for grabs as announced back in April 27, however, given the "vast potential" to enhance insurance penetration rate in Malaysia and in the region, BNM has decided to allow two more licences after considering the "strength of the applicants".

There are eight existing takaful operators in Malaysia, according to BNM website, namely CIMB Aviva Takaful Bhd, Etiqa Takaful Bhd, Hong Leong Tokio Marine Takaful Bhd, HSBC Amanah Takaful (M) Sdn Bhd, MAA Takaful Bhd, Prudential BSN Takaful Bhd, Syarikat Takaful Malaysia Bhd and Takaful Ikhlas Sdn Bhd. The new operators are expected to start business as early as 2011 as it "will take roughly six months for the new players to set up their business," said Syed Moheeb.

(This story appeared in The Malaysian Reserve on 4 October 2010. 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)

DEVELOP OTHER PREMIUM ISLAMIC FINANCIAL PRODUCTS & SERVICES, SAYS AHMAD HUSNI

Although Malaysia has done very well in the sukuk market, it has to seriously develop its capacity in other products and services that would command greater premiums not only within the domestic market but also in the foreign Islamic financial markets.

In making the call, Second Finance Minister Datuk Seri Ahmad Husni Mohamad Hanadzlah said it was therefore a national duty for domestic institutions to champion this cause to their highest possible capability and take the industry to the highest level. Malaysia's brand name in the field of Islamic finance is well-established and the domestic institutions must capitalise on this strong platform, but it has to do more, he said in his speech at the Khazanah's Megatrend Forum 2010 here today.

For instance, he highlighted how asset management was a critical component to further secure the country's position as a premier international Islamic financial centre. The expansion of a syariah-compliant asset management industry will give impact and add value across the financial services sector, he said.

"The asset management industry can directly support as well as complement a number of sectors including the takaful industry, private equity, mutual funds, private wealth management, trust and wakaf," he said. He also cited Tabung Haji -- one of the world's first Islamic fund management institution, which should expand its capability to partner with foreign brand names, if it must. -- BERNAMA (Oct 4, 2010)

M’sia is the largest 2010 sukuk issuer in the world

by Siti Radziah Hamzah
Malaysia remains the largest issuer of sukuk accounting for 64.6% of the total global issued outstanding as at end-June 2010. In line with the International Islamic Finance Centre (MIFC) initiative to develop Malaysia into a multi-currency global fund raising platform for Islamic finance, a number of foreign currency sukuk were issued, including those by the government, Nomura Holdings Inc and Khazanah Nasional Bhd, during the first eight months of 2010.

During the first seven months of 2010, 15 new sukuk were listed on Bursa Malaysia amount ing to RM70.5 billion, said the Ministry of Finance in the Economic Report for 2010/2011 released last week. In June 2010, the government issued the world's largest US dollar benchmark sovereign sukuk amounting to US$1.25 billion (RM3.86 billion) with a yield of 3.928% and was oversubscribed six times.

In July 2010, Nomura Holdings Inc's issue of US$100 million was the first sukuk listing by a Japanese international entity. Khazanah had in August 2010 raised a 5-year and a 10-year sukuk of S$1.5 billion (RM3.57 billion) which was oversubscribed by 4.3 times.

The sukuk was also the first Singapore dollardenominated issuance. In efforts to enhance diversity and depth of the MIFC initiative, the Deutsche Bank AG was licensed as an International Islamic Bank (IIB) in March 2010. In addition, the report said there was good response to the liberalisat ion measure, which all ows 100% foreign ownership in Islamic fund management companies. During the first-half of the year, three new key players were licensed as Islamic fund management companie s ( IFMCs) — Franklin Templeton GSC Asset Management Sdn Bhd, Saturna Sdn Bhd and OSK-UOB Islamic Fund Management Bhd — bringing the total IFMCs to 14 as at end-June 2010.

Assets of the takaful industry expanded 19.6% to RM13.9 billion, accounting for 9.1% of total insurance industry assets as at end-July 2010, from RM12.4 billion recorded at the end of 2009. The increase was attributed to the increase in family funds, which comprised 84.6% of total takaful assets.

Net contributions for family and general takaful recorded growth of 23.8% to RM2.2 billion compared to RM1.7 billion between January and July 2009. The Islamic banking system, including the development finance institutions, continued to expand in terms of market share of assets, deposits and financing in the first seven month of 2010, the report added.

(This story appeared in The Malaysian Reserve on 18 September 2010. 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)

Malaysia to cut taxes on Islamic transactions

Malaysia will cut taxes on Murabahah, and Bai Bithaman Ajil Islamic transactions based on Tawarruq to promote "innovation in Islamic securities," Prime Minister Datuk Seri Mohd Najib Razak said in his budget speech to parliament last on Oct 15, 2010.

Bloomberg reports that the policy will take effect next year and will last until 2015, he said. Bursa Malaysia Bhd, plans to start selling sukuk, or debt that pays asset returns to comply with the Islam's ban on interest, to individual investors, Mohd Najib said in Kuala Lumpur.

A Murabahah agreement refers to a transaction involving the sale and purchase of goods, whereby the seller provides a price to the buyer along with a profit margin. Bai Bithaman is a type of investment product with a pre-agreed profit rate. Islamic banking in Malaysia, the world's biggest market for sukuk, rose 21% in the first seven months of 2010 from a year earlier, and accounted for 20% of the total, the Ministry of Finance said in its 2010-2011 Economic Report issued last week before the budget announcement. Assets that comply with the religion's ban on interest climbed to RM337.6 billion ringgit, the report said.

Australia Seeks Tax Changes to Promote Sukuk

Australia plans to change laws to ensure Islamic finance products are taxed fairly as the government seeks to attract investors from the Middle East and Asia, paving the way for sukuk sales, reports Bloomberg (Oct 20, 2010).

The report reads:

The national taxation board will hold talks next month in Sydney, Canberra and Melbourne on how to best ensure that Islamic finance transactions are treated the same as equivalent non-Islamic deals. The board noted this month that mortgages that comply with religious principles may lead to stamp duty being paid twice, as the financier buys the property and then sells it to his client. Under a conventional mortgage there is only one sale that attracts the duty.

While Australia’s 365,000-strong Muslim population is 2 percent the size of Malaysia’s, the largest sukuk market, making the industry more accessible would generate demand, the government has said. Australia is looking to join countries from Egypt to South Korea in seeking to ease barriers to Shariah- compliant products and tap the industry’s $1 trillion in assets, which the Kuala Lumpur-based Islamic Financial Services Board predicts will reach $1.6 trillion by 2012.

“Islamic finance is a rapidly growing part of the global financial system and Australia is in an excellent position to capitalize on that growth,” Assistant Treasurer Bill Shorten said in an e-mail response to questions from Canberra on Oct. 18. Islamic finance will provide Australia with access to more offshore capital, he said.

Australia’s natural resources will provide companies seeking to sell sukuk with the underlying assets to back the debt and conform to the religion’s ban on interest, according to Zaid Ibrahim & Co., Malaysia’s biggest law firm.

Middle East money managers are interested in Australia investments that offer higher yields than most developed markets as well as potential returns from gains in the currency. Australia’s dollar advanced 7.1 percent this year against its counterparts among the Group of 10 currencies, second only to the yen.

“Australia wants investment from Gulf countries and that’s the reason they are taking it very seriously,” Abu Umar Faruq Ahmad, chairman of the Shariah Supervisory Board at the Sydney- based Islamic Co-Operative Finance Australia Ltd., said in an interview. “I see a lot of interest from the Gulf,” said Ahmad, who is also an assistant professor of Islamic finance at Hamdan Bin Mohammed e-University in Dubai.

There are a small number of companies offering Islamic financing in Australia, the tax office said this month, including the Muslim Community Cooperative Australia, a Melbourne-based mortgage provider, and Islamic Co-Operative Finance Australia.

Indonesia trails Malaysia in sukuk on taxes

Indonesia is under pressure from banks to match tax breaks and product offerings announced by Malaysia last week to catch up in developing Islamic finance, reports Bloomberg (Oct 19, 2010).

The report quoted Andi Buchari, a director at PT Bank Muamalat Indonesia, the nation’s oldest Islamic bank, in a telephone interview from Jakarta as saying: "The government needs to play a more active role. We need more incentives, things such as a tax holiday, or perhaps, an incentive for people to put their money in Syariah banks."

The report added:

Malaysia has the largest market for sukuk and is a global hub for the Islamic finance industry that manages US$1 trillion of assets. The government will cut taxes on Syariah-compliant transactions next year to promote “innovation in Islamic securities,” Prime Minister Datuk Seri Najib Razak said in his Oct. 15 budget speech.

Indonesia, which has the world’s biggest Muslim population at 192 million, had 75 trillion rupiah (US$8.4 billion) of Syariah-compliant banking assets in 2009, or about 3 per cent of the total, according to the central bank. The amount compares with RM337.6 billion (US$109 billion) in Malaysia, or 20 per cent of banking assets, the Finance Ministry said in the 2010-2011 economic report released in Kuala Lumpur last week. In Malaysia, 60 per cent of the 28 million people are Muslim.

Indonesia failed to sell all of the government sukuk it offered in an auction on Oct. 5, even after suspending sales for two months because investors demanded higher yields than the government was willing to offer. The government raised 382 billion rupiah less than the targeted 1 trillion rupiah, the 12th consecutive sale that fell short of plans this year.

Investors sought yields as high as 9.37 per cent for the five-year sukuk and 8.5 per cent for the 10-year notes, according to the Indonesian central bank’s website. The government raised 3 trillion rupiah from an auction of conventional bonds on Sept. 28 with yields of 7.3 per cent for the six-year notes and 7.72 per cent for the 11-year securities.

“Indonesia presents exciting prospects for the Islamic banking business,” Mudassir Amray, head of Asia Pacific Islamic banking at Citigroup Inc in Hong Kong, said in an e-mail on Oct. 15. “With the largest Muslim population in the region and gross domestic product of over US$670 billion, the growth potential is enormous.”

Global sales of sukuk fell 23 per cent to US$12 billion in 2010 from the same period a year earlier, according to data compiled by Bloomberg. Issuance totaled US$20.2 billion last year, up from US$14.1 billion in 2008 and was a record US$31 billion in 2007, the data show.

Wan Ariff gets loan for logistics takeover

By Habhajan Singh

Corporate figure Datuk Wan Ariff Wan Hamzah is all set to take control of Integrated Logistics Bhd's (ILB) local operations after securing the necessary financing from a local bank. Wan Ariff's outfit in the RM170 million takeover has secured loans totalling some RM70 million and is now prepared to assume control of the logistic company after earlier forking out some RM30 million cash.

"He has also been able to get Lembaga Tabung Haji (TH) behind him. Their presence in the deal, at the moment, is more of enabling Wan Ariff to take the deal through," one sources familiar with the deal told The Malaysian Reserve.

It is not clear at this moment whether TH, the local pilgrimage fund, is also pumping in money into the venture spearheaded by Wan Ariff, formerly part owner of privatised oil and gas services provider, Bumi Armada Bhd, along with business partner, billionaire T Ananda Krishnan.

Wan Ariff sold his stake in Bumi Armada and acquired Syarikat Borcos Shipping Sdn Bhd, which he has since sold a 40% stake to Sarawak-based Dayang Enterprise Holdings Bhd for about RM132 million last December.

In mid-February, ILB told the exchange it had received an offer for the takeover of its local logistics business for RM170 million.

On March 12, ILB announced that it had agreed to dispose of its Malaysian operations to AWH Equity Holdings Sdn Bhd for RM170 million in cash. The deal will see AWH, controlled by Wan Ariff, taking over ILB's wholly-owned unit, Integrated Logistics Solutions Sdn Bhd (ILSSB), and its wholly-owned unit, Integrated Warehouse Sdn Bhd, and M I Logistics Sdn Bhd.

The RM170 million in consideration includes the transfer of some RM141 million in ILSSB debts to ILB. AWH is jointly owned by Wan Ariff (70%) and Sidqi Ahmad Said Ahmad (30%).

Since Wan Ariff came into the picture, it is understood that ILB's local logistics business had been operating on a business as usual basis.

"It has been some six months. The business has suffered a little, simply because they could not go into an expansion mode due to the deal in the pipeline," said another source familiar with the company.

On March 15, sources had told The Malaysian Reserve that ILB's margin in its Malaysian operations had been slipping over the years, while the margins it was getting for its operations in China had been getting better.

(The Malaysian Reserve, 30 September 2010)

Maybank to boost Islamic finance ops in Indonesia

Top lender Malayan Banking Bhd (Maybank) has obtained Indonesian authorities' approval to convert its unit PT Bank Maybank Indocorp into a full-fledged Islamic bank, its chief said.

The move allows Maybank to step up its Islamic banking activities in the world's most populous Muslim nation. It also fits in with the group's plan of becoming the largest Islamic bank in Asean by 2015, president and chief executive officer Datuk Seri Abdul Wahid Omar said, reports Business Times (30 Sept 2010).

THE REPORT GOES ON:

The group's wholly-owned Islamic unit, Maybank Islamic Bhd (MIB), is already the largest Islamic bank in Southeast Asia with total assets of RM44 billion. It is ranked among the top 20 Islamic banks globally.

"Within the context of Asean, our market share in the Indonesian Islamic banking market is still small. We just started ... we just got the approval yesterday," Abdul Wahid told reporters after Maybank's annual general meeting yesterday.

He said Bank Maybank Indocorp, once converted, would be known as Maybank Syariah Indonesia (MSI).

"We are now in the midst of executing the plan for MSI and the next stage will be to consolidate that with the syariah operations under Bank Internasional Indonesia (BII).

"With that, we hope to be able to increase our (Islamic) asset base in Indonesia and to command a big market share. We are starting from a relatively small base with about US$200 million (RM616 million) of assets in MSI," he said.

BII is an Indonesian bank that Maybank acquired in 2008. There are currently 294 BII branches and Maybank aims to raise this to about 450 by 2012.

The group also hopes that more activities will come out of its joint venture investment bank in Saudi Arabia, known as Anfal Capital, in which it owns 18 per cent. "It could serve as a conduit for business and deal flows between the Middle East and Malaysia," Abdul Wahid said.

In Malaysia, Maybank is implementing a new strategy this financial year that will see it offering customers Islamic banking products over conventional ones as the first choice.

It aims to expand its Islamic financing base so that it accounts for a third of the group's total domestic financing portfolio by 2015 from 24 per cent currently, according to its annual report.

On Basel III global banking rules, Abdul Wahid said the Maybank group should have no problems complying.

30 vie for BNM Islamic finance award

Thirty nominees from around the world are being considered for The Royal Award for Islamic Finance.

The Securities Commission (SC) and Bank Negara said in a joint statement that the nominations were being deliberated by an independent international jury chaired by Tun Musa Hitam, chairman of the World Islamic Economic Forum Foundation.

“Unlike commercial awards which are deal-based, this award focuses on an individual’s record of achievement and outstanding contribution towards the advancement of Islamic finance globally,” they said.

“These 30 nominees represent the diversity and global acceptance of Islamic finance – from across all regions of the world including the Middle East, Europe, South-East Asia, Africa and Australia.

“This pool of influential drivers of global Islamic finance also includes non-Muslims and both genders.”

The Royal Award is spearheaded by the Malaysia International Islamic Financial Centre and supported by Bank Negara and the SC.

(The Star, 21 Septemebr 2010)

Al Baraka to spend RM618m on Indonesian, M’sian assets

By Anuja Ravendran
Bahrain-based Islamic lender, Al Baraka Banking Group, plans to spend US$200 million (RM618 million) on acquisitions and is looking at buying assets in Indonesia and Malaysia, Bloomberg reported yesterday, citing its chief executive officer, Adnan Ahmad Yousef.

Al Baraka also plans to sell US$200 million of sukuk by year-end and has appointed Standard Chartered plc as its manager for the sale, according to Bloomberg.

Al Baraka had even earlier on set its sights on Malaysia. In January, a Middle East news portal quoted Adnan as saying that the bank was talking to a Malaysian party to acquire a stake in Bank Muamalat Malaysia Bhd, which is 70% owned by DRB Hicom Bhd and 30% owned by government investment arm, Khazanah Nasional Bhd.
Al Baraka was said to be interested in buying a 40%-49% stake in the Malaysian lender as it sought new growth areas to diversify earnings amidst a maturing domestic market. Adnan had hoped to conclude the acquisition by end-2010.

However, a local newspaper had in mid-September reported that the talks had broken down as the parties could not agree on the terms.
DRB-Hicom had indicated that it was looking for a potential foreign strategic partner that will be able to bring its market to the Malaysian bank.
The Al Baraka Banking Group is is a Bahrain Joint Stock Company listed on Bahrain and NASDAQ Dubai stock exchanges, with Standard and Poors' longterm and short-term credit ratings of BBB- and A3 respectively.
The group, this year, acquired Pakistan's Emirates Global Islamic Bank Ltd, which boosted its network in the country to about 90 branches. It also began operations in Syria this year. The authorised capital for the bank is US$1.5 billion (RM4.64 billion), while total equity amounts to about US$1.7 billion.

(This story appeared in The Malaysian Reserve on 23 September 2010. 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)

Islamic finance seems overwhelmed by scholar reforms

Islamic finance is toughening supervision of its powerful religious advisers as shareholders worldwide demand increasing accountability from directors, but key reforms may do little to boost independence and transparency. Islamic banking is overhauling rules that govern the conduct of its influential sharia advisers, with competition for investor dollars and a growing market putting pressure on the once-arcane industry to adopt clearer, more uniform guidelines, according to Reuters (Sep 28 2010).

Key to these challenges is the small number of scholars advising a growing number of banks on increasingly complex financing structures, raising issues such as transparency of rulings, independence of advisers and how to groom new scholars. But varying sharia standards, different regulatory approaches and vast disparities in development across markets stand in the way of reforms to streamline and boost supervision, which are critical to growth, the article said.

It quoted John Sandwick, a Geneva-based Islamic asset and wealth manager, as saying: "Investors want to see the same degree of responsibility and professionalism going into sharia compliance as they expect from Moody's for credit ratings and S&P for market information."

The International Sharia Research Academy for Islamic Finance, which is backed by Malaysia's central bank, is planning a global regulatory body for sharia advisers. "This is a step too soon," said Ayman H. A. Khaleq, a partner and Islamic banking lawyer at Vinson & Elkins in Dubai, referring to the proposed global authority.

"I don't know how you're going to convince all governments that this is the best approach. Without convincing governments, how are you going to give teeth to that association?

Reflecting the industry's diversity, Middle Eastern countries like the United Arab Emirates leave regulation to the industry whereas Malaysian authorities assume centralized control through national sharia advisers and dedicated Islamic banking laws. Practitioners agree on the need for more supervision but differ on the scope of oversight needed, the article noted.

MAA Takaful inks collaborative agreement with LIMRA, CERT

By John Gilbert
MAA Takaful Bhd inked a collaborat ive agreement with Life Insurance and Market Research Association International (LIMRA) and Centre for Research and Training (CERT) yesterday as part of its strategies to further enhance its agency force and to reach a broader takaful market segment.
This is the first time LIMRA is undertaking a broadbased professional distribution development project with a takaful operator. Under the collaborative agreement, LIMRA and CERT will develop and implement a comprehensive Shariah-compliant leadership development programme encompas sing agency leadership training, certification and international recognition in addition to strengthening MAA Takaful's distribution network.
"We have about 6,000 active agents and we hope that within the next five years, half of the current active agents can be accredited as LIMRA Certified Managers of Financial Advisors," MAA Takaful chief executive officer, Salim Majid Zain, told reporters yesterday after the signing ceremony in Kuala Lumpur.

He said the programme will contribute towards value proposition and will further develop the takaful industry in the country.
"Our priority is to ensure that our takaful participants in every corner of the country receive professional advice through a well-suited system that focuses on their needs.
"We are confident this programme will deliver high and professional standard for takaful practitioners in the country," he said.

On MAA Takaful's revenue, Salim said the company is expecting RM1 billion in total revenue in five years through the strong presence of its distribution channels.
He said the contributions will come from life and general insurance segments, which stand at 60% and 40% respectively.
"We expect to receive RM750 million from life insurance in five years time and with the strengthening of our agency force, this will also contribute to our future growth," he said.
Up to June this year, MAA Takaful had already earned RM160 million in revenue and is expected to earn RM250 million by year-end.

(This story appeared in The Malaysian Reserve on 21 September 2010. 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)

Shariah scholars & Malaysia's SC

The amended Capital Markets and Services Act 2007 (Act) institutionalises in law the pivotal role of the Shariah Advisory Council (SAC) of the Securities Commission Malaysia (SC) as the authority for all Shariah matters relating to the Islamic capital market (ICM).

The amendments to the Act, which came into effect on 1 April 2010, give the SAC statutory recognition and mandate, empowering it in its role to ensure Shariah compliance on matters pertaining to ICM business or transactions, according to an article in Bank Negara Malaysia's electronic newsletter.

The article, entitled 'Amendments to Capital Markets and Services Act 2007 Institutionalises Role of Shariah Advisory Council in Malaysian Islamic Capital Market', reads:

The Act, as amended by the Capital Markets and Services (Amendment) Act 2010, contains comprehensive provisions relating to the role of the SAC and the Shariah governance process for the ICM. The amendments further give the SAC the mechanism to ensure legal certainty and comfort regarding Shariah rulings in the Malaysian ICM.

The SC's Chairman, Zarinah Anwar, is confident that the amendments will strengthen the SC's SAC as the law recognises it as the authority for the ascertainment of Shariah principles for ICM business or transactions. The SAC since its establishment has not only been an enabler but also a catalyst for innovation in the ICM on both the domestic and international front

The Act, amongst others, details out the functions of the SAC including "...to ascertain the application of Shariah principles on any matter pertaining to ICM business or transaction and to issue a ruling upon reference made to it; to advise the Commission on any Shariah issue relating to ICM business or transaction; to provide advice to any person on any Shariah issue relating to ICM business or transaction...".

In accordance with provisions of the Act, members of the SAC are duly appointed by His Majesty the Yang di-Pertuan Agong of Malaysia, and are qualified in the field of Fiqh al-Muamalat (Islamic law relating to financial transactions); Islamic jurisprudence; Islamic finance and other relevant disciplines.

The new provisions also enable any licenced person, stock exchange, future exchange, clearing house, central depository, listed corporation or any other persons to refer matters to the SAC for its advice and ruling which shall be binding on the person or entity concerned.

Another important provision of the Act relates to any proceedings before any court or arbitrator concerning a Shariah matter in relation to ICM business or transaction. In such a case, the court or the arbitrator is obliged to take into consideration any ruling of the SAC or refer such matter to the SAC for its ruling.

Where a ruling given by a SC-registered Shariah adviser to a person engaging in any ICM business or transaction is different from the ruling given by the SAC, the ruling of the SAC shall prevail.

HSBC Amanah picks Rafe as chief, awaits BNM nod

By Habhajan Singh

HSBC Amanah Malaysia Bhd is said to have chosen a local Islamic banker to helm its operations while Maybank Islamic Bhd is casting its net wider, including the Middle East, in search for a potential new head for its operations.

Rafe Haneef, a promising local banker in the Islamic finance circle, has been tipped to take charge of the Islamic banking subsidiary of HSBC global banking group.

It is understood HSBC Amanah Malaysia is now awaiting for the green light from Bank Negara Malaysia (BNM), one of the steps any person must go through before they can be appointed as a chief executive at local banks and insurance companies, both sectors which come under the purview of the central bank.

"His move to Dubai is on hold for now with this new assignment," said one source.

Rafe, who was managing director of Dubai-based Islamic investment company Fajr Capital, had just taken up the position of managing director at HSBC Amanah, responsible for its global markets in Asia-Pacific, which would have required him to move to Dubai.

At Maybank Islamic, sources told The Malaysian Reserve that the largest Islamic banking player in Asia-Pacific asset size is "still on active pursuit" in its search for a potential new chief executive. "Wahid himself has met some candidates," one source said.

Maybank Islamic is the subsidiary of Malayan Banking Bhd headed by Datuk Seri Abdul Wahid Omar.

On Aug 23, this newspaper, quoting sources, reported Maybank Islamic was in the market to head-hunt for a new CEO to replace Ibrahim Hassan who will retire soon.

In the same report, HSBC Amanah Malaysia was also reported to be on the lookout for a new head as its executive director and CEO Musa Abdul Malek had opted for retirement.

A check on Rafe's profile found references of him having played a "leadership role" in developing sukuk and Islamic-structured and project finance since 1999 at HSBC, ABN AMRO and Citigroup. He was previously the head of Islamic banking for Citigroup Asia based in Kuala Lumpur. Then, he was also responsible for developing Malaysia as a regional Islamic finance hub for Citigroup and spread its Islamic business footprint across the region.

Prior to joining Citigroup, he established the Global Islamic Finance Department at ABN AMRO based in Dubai and was in charge of the Islamic wholesale and retail businesses for the group. Before that, he was with HSBC Amanah in London and Dubai focusing on Islamically-structured crossborder transactions and the sukuk market.

(This story appeared in The Malaysian Reserve on 8 September 2010. 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)

Bank Muamalat, Saadiq handle Bernas RM750m sukuk

KUALA LUMPUR, Sept 7 (Bernama) -- Bank Muamalat Malaysia Bhd and Standard Chartered Saadiq Bhd (Saadiq) have acted as joint principal advisers, lead arrangers and lead managers for Padiberas Nasional Bhd's (Bernas) sukuk.

In a joint statement here today, they said the sukuk involved the issuance of RM750 million Islamic Islamic commercial papers/medium-term notes (ICP/MTN) programme. "The sukuk issuance marks a significant milestone for both Islamic banks as it is the first time Bernas is tapping the sukuk market for its funding," it said.

The ICP/MTN programme has been asigned respective long- and short-term ratings of 'AA3' and 'P1' with stable outlook by RAM Ratings Services Bhd. Bernas managing director, Bakry Hamzah, said the sukuk was an important source of financing for large-scale investment projects and played a key role in facilitating the economic development process of Bernas.

"The RM750 million will be used for working capital purposes as well as to finance Bernas' current and future investments while enabling Bernas to focus more on business and market expansion," he said.

Bank Muamalat chief executive officer (CEO), Datuk Mohd Redza Shah, said with the improving economy and corporate performance, the bank would continue to participate in more corporate issues. "Bank Muamalat is committed towards making Malaysia the hub of Islamic finance, supporting the government and corporate issuers," he said.

Saadiq CEO, Azrulnizam Abdul Aziz, said the bank was delighted to put together the sukuk for Bernas which would meet its key financing requirements in this challenging environment. -- BERNAMA

Plans for certified syariah experts in Islamic finance

Leading Islamic finance scholars are preparing the first global certification for syariah experts, seeking to bolster the industry's reputation and make it easier for banks to find qualified advisers, reports Bloomberg (8 Sept 2010).

The International Syariah Research Academy for Islamic Finance in Kuala Lumpur will pick a board of regulators by year-end to issue permits for scholars qualified to sit on syariah boards, said Aznan Hasan, president of the oversight committee. The scholars decide whether financial products meet the religion's precepts, including a ban on interest payments.

"We are worried that people who aren't qualified to be syariah scholars may enter and become members of the advisory boards as the market flourishes. Banks try to search for competent advisers. Sometimes they get the right person, sometimes they get the wrong person," ," Aznan told the news agency an interview in Kuala Lumpur.

The report goes on:

Attempts to set up an organisation with a code of ethics to certify Islamic scholars have been frustrated by differing interpretations of syariah law across the Muslim world, Madzlan Mohamad Hussain, a partner at Zaid Ibrahim & Co, Malaysia's largest law firm, said in an interview.

Scholars are now required to have recognised university degrees before they can act as advisers to banks and companies. The council of scholars at the academy includes Sheikh Nizam Yaquby of Bahrain, Mohammad Daud Bakar of Malaysia and Abdul Sattar Abu Ghuddah of Syria, who were all ranked among the top 10 experts in a 2008 report by the Chicago-based Failaka Advisors LLC, an advisory company that monitors and publishes data on Islamic funds. Yaquby serves on the Islamic boards of 52 institutions, including the New York-based Citigroup Inc and London-based HSBC Holdings plc. Daud advises firms such as the Paris-based BNP Paribas SA, according to the data.

"The whole idea is to further strengthen confidence by making syariah scholars truly professional," Madzlan said, adding that the majority of experts also have full-time careers. "The plan will materialise because there's a need for it."

A shortage of scholars versed in syariah law means they tend to sit on a number of advisory boards simultaneously, which increases the risk of conflicts of interest, according to the Bahrain-based Accounting & Auditing Organisation for Islamic Financial Institutions, or AAOIFI.

"We desperately need an institution that could certify and standardise different Islamic products in the market," Kaleem Iqbal, a senior executive vice-president at Al Baraka Islamic, a unit of the Bahrain-based Albaraka Banking Group, said in an interview yesterday from Islamabad, Pakistan. "The banking community will certainly welcome a common platform with a global mandate."

BT: 4 family takaful licences given out

Bank Negara Malaysia has given out four family takaful licences, instead of two as had been announced earlier. The central bank said the decision to grant the additional licences was driven by the favourable economic conditions since the initial announcement made on April 27 last year and the growth potential of the industry in the country as well as region, reports Business Times (2 Sept 2010).

"There are tremendous growth opportunities for the insurance and takaful industry in supporting the requirements of the economy," Bank Negara said in a statement yesterday.

In a report by Jeeva Arulampalam, the newspaper noted that the new licences see several banking groups collaborating with foreign insurance partners.

AMMB Holdings Bhd teamed up with the UK's Friends Provident Group plc. Public Bank Bhd and its Public Islamic Bank Bhd formed a tripartite pact with ING Management Holdings (Malaysia) Sdn Bhd, while The Great Eastern Life Assurance Co Ltd tied up with Koperasi Angkatan Tentera Malaysia Bhd.

A joint venture between American International Assurance Bhd (70 per cent) and Alliance Bank Malaysia Bhd (30 per cent) was also granted a licence. AMMB and Friends Provident will set up a new company, tentatively known as AmTakaful Bhd. AMMB will have a 70 per cent stake, while its British partner will own the remaining 30 per cent. Both parties previously collaborated in forming AmLife Insurance Bhd, a life insurance company. With an initial capital of RM100 million, the new company is expected to begin operations in the second quarter of next year, AMMB told Bursa Malaysia yesterday.

"The approval for the family takaful licence will greatly enhance AMMB's existing Islamic finance activities and widen its insurance services to provide financial solutions across all levels of Malaysian society," it said.

ING Management will hold a 60 per cent stake in a partnership with Public Bank (20 per cent) and Public Islamic (20 per cent). The joint-venture company will have a built-up agency force of 15,000 in the long term, the companies said. Its takaful products will be promoted through tied agency, banctakaful and employee benefits, which currently exist in ING and the Public Bank group. "The family takaful company will focus on increasing takaful penetration domestically and develop Malaysia as an international Islamic financial hub," ING and Public Bank said in a joint statement. The new company is targeted to be fully operational by the first half of next year. ING and Public Bank officially began their 10-year strategic bancassurance alliance in 2008.

The collaboration between Great Eastern and Koperasi Tentera will see the former holding a 70 per cent stake. To be known as Great Eastern Takaful Sdn Bhd, the new insurer will be operational early next year. "Malaysia will function as the group's Islamic finance headquarters as we expand our takaful business beyond Malaysia's shores into the region," Great Eastern chairman Fang Ai Lian said in a statement yesterday.

BT: Cagamas set to issue another landmark sukuk

By Hamisah Hamid
The ringgit-denominated sukuk is now ready and will probably be launched this month after it receives approval from the authorities, sources say. National mortgage company Cagamas Bhd is expected to issue another landmark sukuk, after the launch of the benchmark Sukuk Al-Amanah Li Al-Istithmar (Sukuk ALIm) in mid-July.

Like Sukuk ALIm, Cagamas' latest sukuk is also an innovative issuance that does not incorporate "doubtful" principles. Sources said the new sukuk will be ringgit-denominated. However, they declined to reveal the amount.

"The sukuk is now ready and will probably be launched this month after it receives approval from the authorities," the source told Business Times in Kuala Lumpur. While Sukuk ALIm was designed to meet the requirements of broader investors, especially from the Middle East, the new sukuk is anticipated to attract local institutional investors.

Sukuk ALIm, which was developed in collaboration with Al Rajhi Bank Malaysia, marks the first of its kind in the country's Islamic bond market and sets a benchmark for future sukuk issuance in the global Islamic debt capital market. Cagamas' mixed asset Sukuk ALIm, which includes a RM5 billion Islamic commercial paper and Islamic medium term note programme, completely precludes the elements of sale and buyback (Inah), trading of debt (Bai' Dayn) and undertaking (Wa'ad) - concepts which are not be acceptable to some Syariah scholars, particularly from the Middle East.

Cagamas' new sukuk is also expected to be well-received by local investors.

Analysts see huge appetite for sukuk among institutional investors in Malaysia's Islamic debt capital market. "Although the yield of sukuk originated from Malaysia is not that high, of between 3 and 4 per cent, they are always oversubscribed. This is because there is more demand than supply in the market," an analyst based in Kuala Lumpur told Business Times. Sukuk issued in the international market usually fetch double-digit returns.

In an interview with Business Times earlier this year, Cagamas president and chief executive officer Steven Choy said the corporation plans to sell more sukuk this year, in line with the recovering economy.

Last year, the country's biggest buyer of home loans sold RM11.3 billion worth of bonds, down by more than half from the record RM25 billion in 1999. About 40 per cent, or RM4.3 billion, were sukuk. Cagamas issues bonds or debt securities to finance the purchase of housing loans from banks, freeing up lenders to give out more loans. It is the second biggest issuer of debt papers after the government and carries the highest credit rating of "AAA" from local rating agencies. This means that its paper is highly sought after by investors because the probability of a default is very low.

(Business Times, 6 Sept 2010)

Two Islamic banks looking to hire CEOs

By Habhajan Singh
At least one local Islamic bank and a foreign bank's Islamic subsidiary is headhunting for new heads while another Islamic bank had recently axed its former acting chief executive officer.

Maybank Islamic Bhd and HSBC Amanah Malaysia Bhd are looking for new top guns while it is understood that Kuwait Finance House (Malaysia) Bhd had just recently axed a top official who had been on a long suspension.

Maybank Islamic, the Islamic arm of Malayan Banking Bhd which badges itself as the largest Islamic banking player in Asia-Pacific, is already headhunting for a new CEO to replace Ibrahim Hassan who will be retiring soon, say industry sources.

At HSBC Amanah Malaysia, the Islamic subsidiary of the global banking group should also be on the lookout for a new head as its executive director and CEO, Musa Abdul Malek had opted for retirement, though it could not be confirmed if they are looking outside the group.

"With the dearth of talent, it would be interesting to see how they fill these and other vacancies at the Islamic bank," said one Islamic bank official, who also highlighted the impending entry of the Islamic megabanks.

At KFH Malaysia, it is understood the Kuwaiti-owned Islamic bank had recently axed its former deputy CEO, Ab Jabbar Ab Rahman, who was also at the point the bank's acting CEO, after a long suspension and a domestic inquiry. It is understood that another KFH Malaysia senior bank official had also been axed.

However, Ab Jabbar could not be reached to confirm the latest events at the Islamic bank which had been mired with allegations of mismanagement. At Press time, it could not be confirmed if Ab Jabbar and the other top official were terminated or simply asked to leave after their contracts lapsed.

On March 29, The Malaysian Reserve had reported KFH Malaysia's then new boss Jamelah Jamaluddin, who came on board just under two months earlier, had directed more than a dozen staff to go on leave pending internal investigations into "transactions and contractual arrangements that have been undertaken over the years".

In an email response back then, Jamelah said the bank was "taking a proactive approach and conducting a due diligence status audit, in light of the different and more challenging economic environment". She added: "This is aimed at obtaining an accurate picture of certain transactions and contractual arrangements that have been undertaken over the years. Some employees have taken leave to help facilitate the exercise and the bank will be guided by pragmatism and act accordingly as per the recommendations of the audit team conducting the due diligence status audit."

At KFH Malaysia, though, hiring is not the order of the day for the moment as the Islamic bank tries to recover lost ground after its recent debacle.

In November 2009, Rating Agency Malaysia had given it a negative outlook on the financial institution ratings due to the deterioration in the financial metrics of both the bank and its parents.

On Aug 3, Malaysian Rating Corp Bhd affirmed KFH Malaysia's long- and short-term financial institution ratings at AA+/MARC-1 while outlook on KFH's long-term rating was downgraded to negative from developing. Accordingly, it said KFH Malaysia's long-term rating outlook has been revised to negative from developing to reflect that of its parent.

(This story appeared in The Malaysian Reserve on 23 August 2010. 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)

Global sukuk issuance to reach US$30b in 2010

By Muin Abdul Majid

DUBAI, Aug 23 (Bernama) -- The global sukuk issuance is expected to reach US$30 billion in 2010, according to a report prepared by Kuwait Finance House (KFH) Research Ltd.
It said the 2010 sukuk market would be driven by the recovery in global economic activity, record low interest rates, continued sovereign fund raising to support economic growth as well as revival of private sector projects.

"More sovereign and corporate issuers are anticipated in 2010, which include potential debuts from Japan, Thailand, Turkey, United Kingdom and Russia," it noted.

According to the study, sovereign sukuk issuances in the first half of 2010 were expected to help revive the global sukuk market as they provided the necessary benchmark pricing for the private sector to gauge investor appetite this year.
The report said over the years, the sukuk market had grown to reach approximately US$100 billion and contributed 12 % of the total global Islamic finance assets in 2009.

KFH Research said in the first half of 2010, total sukuk issued globally was valued at US$16.5 billion, 116.3 % higher than the US$7.6 billion raised in first half of 2009.

By country, Malaysia continued to dominate the global sukuk market, contributing 60.5 % of the total value of sukuk issued in first half of 2010, it said. Saudi Arabia and Indonesia each trailed at 14.1 %.
By currency type, ringgit-denominated sukuk deals topped at 53.4 %, followed by US dollar deals at 10.3 % and Qatari riyal issues, at 8.3 %.

The report indicated that the long-term prospects for the sukuk market were expected to remain strong. This was based on the increasing popularity of syariah-compliant products, governments' support for Islamic finance, huge investment and financing requirements in the Gulf Cooperation Council (GCC) and Asia, and issuers' desire to tap investors from the Middle East and Muslim Asia.

"With a healthy array of sukuk in the pipeline, the market is attracting interest from an increasing number of issuers in Muslim and non-Muslim countries alike," it added. -- BERNAMA

Committee to enhance its legal framework

IN a move to position and strengthen its existing legal framework as ‘the Laws of Choice’ for Islamic financial transactions, Bank Negara Malaysia, the central bank, last week established a Law Harmonization Committee (LHC) comprising members from among key government stakeholders, including the Attorney General's Chambers as well as industry players and experienced Islamic finance legal practitioners, reports Arab News.

The report, authored by Mushtak Parker, goes on:

The LHC, which is chaired by Tun Abdul Hamid bin Mohamad, the former Chief Justice of Malaysia and a current member of the Shariah Advisory Council (SAC) of Bank Negara Malaysia (BNM), the Shariah authority of last resort for the Islamic finance industry, is engaging with the industry and general public for feedback on laws which require harmonization.

Muhammad bin Ibrahim, Deputy Governor of Bank Negara, revealed at the recent 21st Conference of Presidents of Law Associations in Asia (POLA) held in Kuala Lumpur that the establishment of the LHC “is also consistent with our objectives to create an enabling environment that facilitates and accommodates the development of the industry, a clear and efficient system that preserves that enforceability of Islamic financial contracts and a credible and reliable forum for settlement of legal disputes arising from Islamic financial transactions.”

There is a consensus that Malaysia’s Shariah framework is distinctively robust. Malaysia pioneered the centralized Shariah authority in the form of the consultative role of the Shariah Advisory Council of Bank Negara Malaysia and Securities Commission, complemented by the Shariah board of individual Islamic financial institutions.

This strategy has nurtured innovation whilst ensuring stability in the marketplace. It has also paved the way for other countries such as the UAE, Pakistan, Indonesia and Brunei to emulate the same centralized SAC model.

“This referral system,” maintained the deputy governor, “preserves the sanctity of Shariah rulings and the consistency in the interpretation and application of Shariah principles for Islamic finance transactions in Malaysia.”

Bloomberg: Afghanistan Opening First Shariah-Based Banks

By Khalid Qayum and Eltaf Najafizada

Aug. 19 (Bloomberg) -- Afghanistan plans to issue licenses for three Islamic banks, the first to offer a range of services that comply with religious law in a country where 99 percent of the population is Muslim.

Afghan United Bank, Ghazanfar Bank and Maiwand Bank are seeking permission to provide products that meet Shariah principles, said Aimal Hashoor, a central bank spokesman in Kabul. Now, seven local banks can offer Islamic services through dedicated tellers at branches, he said. The products are limited to Islamic loans, said Sayed Mahmood-ul-Hassan, chief executive officer of Afghan United Bank.

The government wants to expand Islamic finance to draw more assets into the financial system and help reduce the nation’s reliance on overseas aid for reconstruction following 30 years of war and insurgency, according to Hashoor. The country has received more than $32 billion in international aid since U.S.- led forces toppled the Taliban in 2001, he said.

“Afghanistan is a Muslim society and many people don’t want to use conventional banking,” Hashoor said in an interview on Aug. 15. “We want to bring all of the money that we have in businesses and with individuals into the economic cycle.”

The $23 billion economy has expanded an average 11.3 percent annually since 2004, according to the U.S. Department of State. Islamic finance would be popular with Afghans, who are “very religious” and often prefer cash transactions to interest-based banking, holding back the development of local businesses, according to Al Baraka Islamic Bank.

“Islamic banks can fill the vacuum as conventional banking is not fully developed in Afghanistan,” Kaleem Iqbal, a senior executive vice president at Al Baraka Islamic, a unit of Bahrain-based Al-Baraka Banking Group, said in an interview yesterday in Islamabad. “The government would be looking forward to participation by banks in its plans to sell sukuk.”

MAHB to decide on final sukuk proposal in 3 months

By Bhupinder Singh

Malaysia Airports Holdings Bhd (MAHB) will only know how much of the RM3.1 billion proposed sukuk issue it will take up to help finance the building of the new low-cost carrier terminal (LCCT) project when it has completed awarding all the contracts in the next two to three months.

The airport owner and operator's management indicated that it initially proposed a RM2.5 billion issue to finance the construction of the new LCCT or KLIA2 building but with a credit rating of AAA for the issue, its financial advisors said it could tap the markets for as much as RM3.1 billion without any deterioration to the rating.

Managing director Tan Sri Bashir Ahmad Abdul Majid said part of the money raised from the sukuk would also be used to repay/service its short-term borrowings while new projects like the US$350-400 million (RM1.11-RM1.26 billion) Male airport expansion in Maldives and the outcome of the bid for Prince Mohammed Abdulaziz Airport in Medina, Saudi Arabia, could have a barring on the issue size.

Meanwhile, the 17.77% rise in passenger movement to 27.74 million for the first-half of the year, however, was not able to offset rising staff costs and loss at associate company Sabiha Gokcen International Airport Ltd as MAHB's net profit fell 14% to RM132 million for the financial period ended June 30, 2010 as compared to RM153 million in the same period last year.

Revenue for the six-month period rose 11.4% to RM872.12 million driven by recovery in air travel demand and higher sales and profits from its retail operations and rental and royalty charges.

The management expects the second-half period to remain strong with tourist arrivals from the Middle East helping to sustain its aeronautical operations aided by more new carriers using airports operated by MAHB, according to Bashir Ahmad.

He expects passenger growth of 10-12% for the full year and good financial prospect for the second-half of the year due to sustained demand for its services and facilities. International passenger movement rose by 12.7% in the six-month period, outgrowing domestic movement which expanded by 9.78% partly due to the fact that international passenger arrivals to regional airports like Kota Kinabalu and Penang rose 43.7% as a result of more direct flights to these airports by various carriers, he said.

The company, he added, is seeking to attract another two carriers to have flights into the country by the end of the year, without giving any names. CFO Faizal Mansor said MAHB's balance sheet is healthy with its gearing level at 0.27 times, cashflows of about RM50-60 million a month while annual operational capital expenditure to stand at about RM200 million.

(This story, written by Bhupinder Singh, appeared in The Malaysian Reserve on August 18, 2010. 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)

Bloomberg: DIFC Investments’ Sukuk Rally ‘Gone Too Far’

Aug. 12 (Bloomberg) -- The two-month rally in DIFC Investments LLC’s Islamic bonds is ending on concern the Dubai state-controlled developer will struggle to meet payments on more than $3 billion of debt.

The notes that comply with Shariah law dropped for a third day yesterday to 79.15 cents on the dollar after surging almost 10 percent since the end of May, according to data compiled by Bloomberg. The securities need to fall at least 4 percent to 76 cents or below before they are attractive to buy, according to Zafar Nazim, a JPMorgan Chase & Co. analyst in London.

DIFC Investments, the owner of assets in the Dubai International Financial Centre, a tax-free zone, had its credit rating cut one level by Moody’s Investors Service on July 8 and its outlook reduced to negative this week by Standard & Poor’s, which cited about $3.1 billion of debt and “uncertainties” over the company’s plans to sell $1 billion of assets.

“The rally we have seen in DIFCI sukuk and other Dubai names has gone too far,” Abdul Kadir Hussain, chief executive officer in Dubai at Mashreq Capital DIFC Ltd., which manages $2 billion of mainly Persian Gulf assets, said in an interview on Aug. 10. “The source of that sukuk repayment is going to be asset sales. So, as much as there is uncertainty in their asset- sale plan, obviously there will be concern on their sukuk repayment capability.”

DIFC Investments posted a loss in 2009 after an $842.5 million profit in 2008 as it wrote down the value of properties. Real-estate prices in Dubai, the Persian Gulf’s financial hub, retreated more than 50 percent from their peak in 2008 as the global credit crisis led to a cut in mortgage lending and pushed companies to slow expansion, according to estimates from Colliers International.

Bloomberg: Standard Chartered Plans `Big Push' on Shariah Contracts

Standard Chartered Plc, the U.K. bank that earns most of its profit from emerging markets, plans to introduce Shariah-compliant contracts in Asia to hedge against changes in commodity prices, reports Bloomberg.

The products, which the London-based bank made available in the Persian Gulf in March, will allow buyers and sellers to agree on fixed or floating prices and make it easier for companies to protect themselves from volatility in goods such as sugar, rice, wheat and crude oil, Afaq Khan, chief executive officer of Standard Chartered’s Islamic banking unit in Dubai, said in an interview on Aug. 9.

“This year the big push is on commodity derivatives,” he said. “We will certainly be offering them in countries like Malaysia and Indonesia in due course. When there is sufficient demand we will go to the central banks to seek approval.”

Asia accounted for 68 percent of the total $7.8 billion of sukuk, or Islamic bonds, sold worldwide this year, according to data compiled by Bloomberg. Economic growth in developing Asia, including Malaysia and Indonesia, will accelerate to 9.2 percent in 2010 from 6.9 percent in 2009, according to estimates by the International Monetary Fund on July 7. Expansion in the Middle East was forecast at 4.5 percent, compared with 2.4 percent last year.

Malaysia is the world’s biggest market for Islamic bonds, while Indonesia has the largest Muslim population. Global sales of the securities have dropped 28 percent to $7.9 billion so far this year, Bloomberg data show.

Bloomberg: Repos for Sukuk Planned to Expand Shariah Market Trading

The International Islamic Financial Market, founded by the central banks of Bahrain, Indonesia and Malaysia, plans to create Shariah-compliant repurchase agreements to help Islamic banks manage funds and boost trading.

The IIFM, a Bahrain-based standards-setting body for Islamic markets, wants to introduce repos that don’t violate the religion’s ban on interest. It has proposed allowing third parties to act as intermediaries between buyers and sellers of sukuk used as collateral for short-term funds, reports Bloomberg (17 Aug 2010).

Regulators from Bahrain to Malaysia are trying to expand products available to Islamic banks and borrowers. The repurchase agreements recommended by the IIFM would use a profit rate, unlike non-Shariah repos, where traders post securities as collateral for cash and agree to buy them back at a specified price and date, earning or paying the difference as interest.

If “banks don’t have an option like an alternative repo tool, then their balance sheets remain tied up,” IIFM Chief Executivei Officer Ijlal Ahmed Alvi said in an Aug. 15 interview from Manama, Bahrain. “A repo tool would definitely help.”

Demand for services complying with Shariah law is increasing about 15 percent annually, according to the Kuala Lumpur-based Islamic Financial Services Board, another standards body for the industry, which oversees about $1 trillion of assets. Holdings may almost triple to $2.8 trillion by 2015, the IFSB estimates.

BIMB to swap listing status with Bank Islam

By Habhajan Singh

The listed status of BIMB Holdings Bhd, the entity controlling an Islamic bank and a takaful operator, may be "transferred" to its 51%-owned subsidiary Bank Islam Malaysia Bhd.

It is understood Lembaga Tabung Haji, which has a 51.47% stake in BIMB and another 9% direct stake in Bank Islam, is mulling at stripping the listing at the holding company level and passing it on to Bank Islam, which contributed a huge chunk to BIMB's revenue and operating profit.

"The matter has been raised at Tabung Haji's investment panel. The thinking is to collapse the listing direct to the Bank Islam level in recognition of its role as the main group revenue driver," one source told The Malaysian Reserve.

At the moment, BIMB holds a 65.22% stake in Syarikat Takaful Malaysia Bhd, which is also listed on Bursa Malaysia.

"The decision, if any, will come from the investment panel. It's a powerhouse when it comes to deciding Tabung Haji's investments," said another source familiar with the operations of the pilgrim fund.

The Tabung Haji investment panel, chaired by Eastern & Oriental Bhd chairman Datuk Azizan Abdul Rahman, include Malayan Banking Bhd president and CEO Datuk Seri Abdul Wahid Omar, legal firm Kadir Andri & Partners' Abdul Kadir Md Kassim and Shell Malaysia Trading Sdn Bhd former managing director Datuk Mohzani Abdul Wahab.

When contacted, BIMB said it was "not aware" on any transferring of the listing status by Tabung Haji. At press time, Tabung Haji had yet to response to queries from The Malaysian Reserve.

[FULL STORY IN THE MALAYSIAN RESERVE, 16 AUG 2010, or at epaper.themalaysianreserve.com]

PPZ spearheads pro-active zakat collection

The zakat collection body for the Federal Terriroties (FT) has been making inroads in its endeavour to allow Muslims to fulfil one of their religious obligations. The numbers speak for the this outfit.

From 1991 to 2009, the Pusat Pungutan Zakat (PPZ) MAIWP has collected a total of RM1.45 billion in zakat. This year, the zakat body entrusted with the collection of zakat, or tithe, in FT is targetting total collections of RM260 million. This works out to be a tageted increase of 26%.

What has made this possible for PPZ, which began operations in 1991 after being established by the Federal Territory Islamic Religious Council, better known locally by its Malay acronym MAIWP?

"I would say it is our pro-active approach. We don't wait for the people to come to us to paya zakat, we go to them," said PPZ general manager Mohd Rais Alias.

This, perhaps, sums up best the consistent growth in both the amount of zakat collected over the past few years and also the total number of people fulfilling their zakat obligations. "We made a total change in our approach some time ago," he added.

[FULL STORY IN THE MALAYSIAN RESERVE, 16 AUG 2010, or at epaper.themalaysianreserve.com]

Aussie Crescent looking for Malaysian Shariah-compliant partners

By Dalila Abu Bakar

Shariah-compliant wealth management firm Crescent Investments Australasia Pty Ltd is looking for Malaysian Shariah-compliant partners to tap the country's Islamic superannuation fund estimated at be twe en A$3 billion (RM8.49 billion) and A$6 billion.

Crescent chief executive officer, Chaaban Omran said the firm is talking to several local Islamic financial institutions in Kuala Lumpur for assistance in getting a superannuation licence to enable the firm to tap into the market.

The superannuation fund is similar to a pension fund with employees contributing a slice of their wages to be invested by the trustees of the pension fund in assets. About 400,000 Australian Muslims must contribute 9% of their wages towards the fund.

Omran said Crescent plans to create Australia's first Islamic superannuation fund. With a superannuation licence, the firm can manage the superannuation fund in a Shariah-compliant manner.

"We are looking for partners, Islamic asset management or finance companies. We feel that we can offer our own Shariah compliant superannuation funds.

"But, to offer Shariah compliant superannuation funds require a large injection of capital. We feel that our jointventure (JV) partner will be able to contribute to our debt capital," he said.

[FULL STORY IN THE MALAYSIAN RESERVE, 16 AUG 2010, or at epaper.themalaysianreserve.com]