KFH probing previous contracts, transactions

By Habhajan Singh

Kuwait Finance House (Malaysia) Bhd new boss, who came on board just under two months ago, has 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 to queries from The Malaysian Reserve, KFH Malaysia CEO Jamelah Jamaluddin said the bank is "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."

In a communication with staff on March 19, it is understood that Jamelah had asked a number of staff, including at least one head of department, to go on leave to enable the Kuwait-based Islamic banking unit to conduct its internal investigations.

Exactly a week later, on Friday, RAM Rating Services Bhd had issued a note putting the bank on what it calls a 'negative rating watch' in connection to the "on-going due diligence status audit, which required senior credit personnel to be on leave pending the completion of this exercise."

"This event heightens concerns on the potential for further deterioration in the Bank’s asset quality and credit fundamentals," the local rating agency said.

On Friday, RAM Ratings said it had met with the senior management of KFH Malaysia to seek further clarification on the matter. The rating agency was made to understand that an "internal reorganisation exercise has been put in place to strengthen the Bank’s credit team and processes, with the intention of improving asset quality."

People familiar with the bank told The Malaysian Reserve that the latest management move is putting a strain on staff morale, with word on the ground that more suspensions could follow.

Jamelah returned to KFH Malaysia as the new boss effective Feb 9 after a stint of just over two years at RHB Islamic Bank Bhd. She was the KFH Malaysia deputy CEO, a position now held by Ab Jabar Ab Rahman, when she left to helm RHB Islamic in August 2007.

Ab Jabar was designated acting CEO when Datuk Salman K Younis left as KFH Malaysia MD/CEO on June 1, 2009. Salman, who spearheaded the establishment of KFH Malaysia in 2005, was asked to return to head office in Kuwait "to assume wider responsibilities", but continued to act as a director of the Kuwaiti bank's unit in Malaysia.

However, the latest KFH Malaysia website no longer carries his name as a director of the board, which is chaired by Shaheen Alghanem. Alghanem joined the board in March 2007 and was appointed as chairman five months later. The other Kuwaiti on board is Abdul Wahab Al-Rushood.

The three other directors, all Malaysians, are Islamic finance lawyer Mohamed Ismail Mohamed Shariff, former Mesdaq Bhd executive chairman Khairil Anuar Abdullah and former Island & Peninsular Bhd MD Dr Radzuan Abdul Rahman.

On the management side, some of the key executives at KFH Malaysia, according to information from its website, are Annis Sheikh Mohamed who heads its corporate and investment banking, Mohamed Iqbal Mohamed Iqbal (international business and treasury), Nawaf Menayekh (international distribution), Siti Mariam Mohd Desa (real estate advisory), Maimunah Alias (commercial banking), Wong Kee Poh (retail and consumer banking), Amin Siru Abdul Rahman (credit risk management) and James Chong Wai Choy (risk management).

On the financial front, the latest KFH Malaysia results available are for the first nine months for 2009, which shows it posted a net profit of RM4.62 million on the back of RM364.92 million in operating revenue, at the group level.

In a note for the financial results, KFH Malaysia had noted that notwithstanding the ‘more difficult operating environment, the Group and the Bank will continue to focus on its business growth strategies through new and competitive product offerings, products cross selling as well as exploring new business opportunities within the region and the Middle East, while remaining vigilant on the impact of the global economic crisis to its businesses and profitability’.

(This story appeared in The Malaysian Reserve on 29 March 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)

Crescent Investments on Islamic banking in Oz

By Habhajan Singh

The lack of regulations supportive is one of the challenges when one tries to structure Islamic finance proeducts in Australia, but the sitaution is slowly changing. This was one of the challenges identified by Crescent Investments Australasia Pty Limited, an investment firm providing Shariah compliant investment products.

"We face many challenges in Australia, in trying to structure Shariah compliant products. The laws and regulations were not designed for Shariah compliant products and we have spent significant time, effort (not to mention expense) negotiating our way in the legal system to ensure compliance with the Australia statute and common law as well as Shariah rulings," said its executive chairman Talal Yassine. However, he noted that the Australian authorities are now paying serious attention to the Shariah compliant market.

"We anticipate that the policy and regulatory frameworks in Australia will be looked at quite closely with a view to further facilitating Shariah compliant investments," he said in an email reply. Crescent Investments has worked hand-in-hand with Amanie Business Solutions, a Malaysian inspired Islamic finance consulting firm, in structuring products for the new, but growing, market for Islamic finance in Australia.

On March 19, The Malaysian Reserve reported that Amanie, led and anchored by prominent Shariah scholar Dr Mohd Daud Bakar, is looking to expand its presence in Australia and Europe to tap the growing business opportunities in those regions. The report said that Amanie was looking at opening up offices or partnerships in Australia, while the choice for Europe is between London and Luxembourg.

"There are concrete proposals to the [Australian] Government to amend some laws to accommodate Islamic finance. These are some of the areas of interest," Dr Daud Bakar had told The Malaysian Reserve.

He was referring to the Australia financial centre report presented to the Australian Parliament and made public in mid-January which had recommended on withholding tax on offshore borrowings and on Islamic finance, to improve its ‘access to offshore pools of savings at competitive rates, so as to provide more diversified and cheaper funding for Aust ra l ia’s inve stment needs’.

Commonly known as the Johnson Report, it was commissioned by the Government in September 2008 as part of its commitment to secure Australia’s future as a leading financial service centre.

Amanie has advised a number of deals originating from there, including LM Investment Management Ltd’s (LM) Islamic property fund and Crescent Investments’s equity fund, both being the first of their kind in that part of the world.

On Amanie's plans to step up its presence in Australia, Talal said there is much potential in Australia for the development of a Shariah compliant market for the local community and global investors.

"If you look at the Australian market, it is very robust, well run and safe. It also has significant positive exposure to the ever growing Chinese market and has even weathered the GCC with aplomb. Combine this with a world leading Shariah compliance advisory firm and this, in my view, creates a recipe for success," he said.

Asked to describe his outfit, Talal said Crescent Investments is a specialist investment firm focused on providing investors with a range of Australian focused wealth management products that are based on a new global investment phenomenon called Shariah compliant Investments to meet the needs of the Muslim and the broader Australian investment community.

"Crescent develops the products in consultation with our Shariah Supervisory board, who are scholars and experts in managing the products over a range of different risk profiles and domains.

"Crescent is lead by an experienced and robust team, made up of professionals from the Australian Muslim Community, which is committed to ensuring that all returns are absolutely Shariah compliant and that such investments are attractive, sustainable, diversified and consistent," he said.

(This story appeared in The Malaysian Reserve on 29 March 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 gets the nod: The Australian

The Rudd government is pressing ahead with plans to develop Islamic finance in Australia to help position the nation as a leading global financial services hub, reports The Australian (March 27, 2010)
Assistant Treasurer Nick Sherry told funds managers yesterday he would travel to the United Arab Emirates, Qatar and Bahrain at the end of next month for talks on the regulation, promotion and export of Islamic finance, banking and insurance. Estimated at $US729 billion at the end of 2007, the Islamic financial services sector has been growing rapidly, and the government sees it as an alternative source of capital for Australian business and consumers, the report added.
"Australia sits as one of the closest neighbours to Indonesia, a rapidly growing developing economy and the largest Muslim nation in the world," Mr Sherry said at a function hosted by the Investment and Financial Services Association and Deloitte.
"We have close and growing business ties to the Gulf region and beyond. We must do more."
Charging interest is prohibited in Islamic financial services, as is speculation, and financial transactions must be underpinned by a tangible asset and require both parties to share the risk.
The government-appointed Australian Financial Centre Forum has recommended equal access for such products be introduce by removing regulatory and tax barriers.
Mr Sherry said the government was also considering ways to improve the tax treatment of managed investment trusts to attract foreign investment.
"In 2008, we asked the Board of Taxation to review these tax arrangements, and now we are considering the board's final report," he said.
He said the government strongly supported foreign investment in Australia.

Bank Muamalat: Islamic finance on steady growth path

The Islamic finance industry is on a steady growth path of about 20% per annum in Malaysia, said Bank Muamalat Malaysia Bhd chairman Tan Sri Mohd Munir Abdul Majid, reports The Star (March 17, 2010).
“The rate of growth of Islamic financing has been impressive,” he told reporters after an agreement signing ceremony between Bank Muamalat and Bank Kerjasama Rakyat Malaysia Bhd with Columbia Asia Sdn Bhd for an eight-year RM250mil syndicated financing facility yesterday. The financing facility is based on the Islamic principle of Ijarah Muntaniah Bitamik.
Under the financing agreement, Bank Muamalat, the lead arranger and Bank Rakyat, the co-arranger would contribute RM150mil and RM100mil respectively to the financing package.
The newspaper quoted Mohd Munir as saying that demand for Islamic financing has been increasing the past few years, especially after the recent global financial crisis. The Islamic financing industry is believed to be worth about RM3.38 trillion worldwide.

Meanwhile, Columbia Asia vice-president (treasury services) Kahar Mohamed said the bulk of funds from the facility would be used to build three new hospitals in Bukit Rimau, Balakong and Setapak, which were expected to be completed by this year.
“Currently, we have six private hospitals that are fully operational spread across the country and have recently started another private hospital in Bintulu,” Kahar said.
The six hospitals are located in Miri, Shah Alam, Seremban, Puchong, Taiping and Nusajaya.
Kahar said the private hospitals were targeted at the medium income group and strategically located.
“The increasing demand for affordable healthcare services across Asia has resulted in a substantial increase in the number of people medically insured by employers and insurance companies.
“Hence we plan to aggressively expand to reach out to this group segment for long and short stay,” he said.

Malaysia's EONCap Islamic eyes equity venture: Reuters

Malaysia's EONCap Islamic Bank plans to launch its first profit-sharing property financing by June, its chief executive said on Friday, reflecting the industry's move towards more equity funding, reports Reuters (25 March 2010).
Profit-sharing ventures are a cornerstone of Islamic finance but sharia banks have mostly granted straight financing to avoid the risk of failure of the projects funded. But some practitioners expect the industry to slowly use more equity financing as it tries to distinguish itself from conventional lending, a move that could transform Islamic banks from capital providers to project partners, the report said.
EONCap Islamic, which is part of Malaysia's seventh largest banking group EON Bank, said it is evaluating several property projects for development.

In an interview, Reuters quoted EONCap Islamic chief executive Fozia Amanulla as saying: "We really hope to kick off in the first half of this year but we'll see how it goes.
"There's a lot of due diligence to be done, a lot of homework to be done first before we embark on it."

THE REPORT GOES ON:
Some Islamic banks have used structures such as mudaraba and musharaka to fund building projects. Kuwait Finance House had earlier used the mudaraba concept to develop a 1.3 billion ringgit ($392.1 million) shopping mall in the Malaysian capital's main shopping district.
Under mudaraba, a bank provides capital for a project while the entrepreneur manages the deal; profits are split according to a pre-determined ratio and the bank bears any monetary losses that arise.
In musharaka, parties contribute capital to a venture with profits to be shared in an agreed ratio, while losses are generally divided in line with capital contributions.
Some practitioners say any shift towards more equity-based financing would be slow as Islamic banks seem reluctant to assume added risks.
"It's also encouraged by the central bank because they want to see differentiation between conventional and Islamic banking activities," Fozia said of EONCap Islamic's move into profit-sharing projects.
EONCap Islamic, which is mainly focused on the retail business, hopes to expand its assets by a fifth this year, with personal financing expected to post strong growth, she said. The bank has 6.8 billion ringgit of assets.
"Even though there was a 25 basis point rate hike, there hasn't been any impact and demand is still there," Fozia said, referring to the Malaysian central bank's interest rate rise this month.

Maybank Islamic Still Sees Strong And Robust Growth

SHAH ALAM, March 19 (Bernama) -- Maybank Islamic Bhd is still experiencing strong and robust growth in its operations due to an increasing acceptance in the use of Islamic financial services in this country, said its Chief Executive Officer, Ibrahim Hassan.
"Islamic banking is growing at robust rate. In the eight months of the financial year ending June 30, 2010, Maybank Islamic posted an annualised financial growth of 36 per cent and annualised deposit growth of 32 per cent," he told a press conference after handing over RM300,000 to the Lembaga Zakat Selangor (LZS) here on Friday.
The money is for its financial year 2009 zakat payment.
According to Ibrahim, with such an expansion and growth in business, the company expects to pay more zakat for its financial year ending June 2010.
He said in the financial year ended June 30, 2009, the company allocated RM5 million for zakat payment, a RM1.4 million increase from 2008.
Such an increase, he added, is in line with the growth of Maybank Islamic's business in terms of financing and deposits.
Ibrahim handed over the zakat payment to LZS General Manager, Ahmad Shahir Makhtar, witnessed by Selangor Menteri Besar Tan Sri Abdul Khalid Ibrahim and Maybank Group President and Chief Executive Officer, Datuk Seri Abdul Wahid Omar. -- BERNAMA

Amanie plans expansion into Australia, Europe

By Habhajan Singh

A local Islamic finance consulting company anchored by prominent Shariah scholar Dr Mohd Daud Bakar is looking to expand its presence in Australia and Europe to tap the growing business opportunities in those regions, attempting to tap into changes in regulation to accommodate Islamic finance and also the growing need to structure Shariah-compliant products.

Amanie Business Solutions is looking at opening up offices or partnerships in Australia, while the choice for Europe is between London and Luxembourg.

"There are concrete proposals to the [Australian] Government to amend some laws to accommodate Islamic finance. These are some of the areas of interest," Dr Daud Bakar told The Malaysian Reserve.
He was referring to the Australia financial centre report presented to the Australian Parliament and made public in mid-January which had recommended on withholding tax on offshore borrowings and on Islamic finance, to improve its ‘access to offshore pools of savings at competitive rates, so as to provide more diversified and cheaper funding for Australia’s investment needs’.
Commonly known as the Johnson Report, it was commissioned by the Government in September 2008 as part of its commitment to secure Australia’s future as a leading financial service centre.

The move would make Amanie a Shariah consultancy with one of the widest global presence. Most Shariah consultants tend to concentrate in either London or Dubai, while Malaysia is populated more by individual Shariah scholars who work mostly with Islamic banks and takaful operators who require their services.
The developments coming out of Australia would have been the impetus for legal firm Zaid Ibrahim’s to open offices in Sydney and Melbourne in the December 2009.
One of the largest local legal firms in Malaysia, Zaid Ibrahim had stated that its primary focus would be to promote Shariah-compliant business. Zaid Ibrahim, with offices in Singapore, Thailand, Indonesia, Vietnam and Dubai, had set up in 2008 an Islamic finance advisory firm called ZI Shariah Advisory Sdn Bhd.

Dr Daud Bakar, who also chairs the influential Bank Negara Malaysia’s Shariah Advisory Council (SAC), is no stranger to the Islamic finance scene in Australia. Amanie has advised a number of deals originating from there, including LM Investment Management Ltd’s (LM) Islamic property fund and Crescent Investments Australasia Pty Ltd’s equity fund, both being the first of their kind in that part of the world.
"LM came to see us in Dubai. In fact, they were our first clients in Dubai," he said. The Dubai-based vehicle, Amanie Islamic Finance Consultancy and Education LLC chaired by Dr Mohamed Ali Elgari, signed off the fatwa for Crescent’s fund. The other signatories on that document, displayed on the company’s website, are Dr Daud Bakar, Dr Muhamad Amin Ali Al-Qattan and Dr Osama Al-Dereai.
LM, which described itself as privately owned specialist Australian income funds manager, floated the LM Australian Alif Fund. It said that it is a 'Shariah compliant fund, with fatwa confirming the Shariah compliant status' of the funds and its investments, suitable for investors seeking 'Australian assets delivering profit in a Shariah compliant manner, and is available for investment in a range of major international currencies'.

As for the European move, industry observer note that European cities like London, Dublin and Luxembourg are vying to be international hubs for Islamic finance.
Luxembourg, for example, is key domicile of funds in Europe and have amended a number of taxation laws to accommodate Islamic finance funds. "Here, they would be interested in originating and listing of funds," said one observer.
Dr Daud Bakar said that Amanie sees 'potential business expansion' in Luxembourg. "We have some experience endorsing few Islamic funds licensed from Luxembourg using UCIT 3 and SICAV structure," he said.
UCITS3 is an European Union initiative. Funds go through a stringent regulatory process which then allows it to be floated in the EU jurisdictions without much further local clearance. SICAVs, a vehicle much like an umbrella for funds, are increasingly being cross-border marketed in the EU under the UCITS directive.

Asked what prompted the move to expand further, Dr Daud Bakar said: "Looking at global financial movements, we’ve seen some strong interest in some jurisdictions like South Korea, Australia, Luxembourg, Kazakhstan. We like Kazakhstan, where we have partners who take care of our interest.
"We are a global Shariah firm, originating from Malaysia. We then expanded to DIFC [Dubai International Financial Centre] in 2008. Now we are seriously considering to position Amanie in other new potential markets and jurisdictions. Islamic finance is a global industry. We need to be close to out clients, be in the same time zone. We’re proud to fly the Malaysian flag in other countries."

(This story appeared in The Malaysian Reserve on 19 March 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)

Putrajaya, we have some serious issues

COMMENT: By Habhajan Singh

TWO years after the general elections, the dust has yet to settle on both sides of the political divide. The ruling coalition, Barisan Nasional (BN) and the opposition Pakatan Rakyat are still grappling with issues that are testing their leadership.
At the last general elections, the nation was rocked by a political tsunami caused by the strong showing of the Opposition political parties.
The three parties, stitched together with "glue" called Datuk Seri Anwar Ibrahim, managed to deny the BN its traditional two-thirds majority in Parliament. This margin allows a ruling party to amend the Federal Constitution, the all important legal document for Malaysians. For example, you need that margin to redelineate Parliamentary constituencies.

It has certainly not been smooth-sailing for the BN. The latest debacle involving its second largest component party, the Malaysian Chinese Association (MCA), shows that all is not well within the coalition. The MCA's president Datuk Seri Ong Tee Keat seems to be caught in a bizzare battle, with most of his central committee members resigning just before the party's annual general meeting held yesterday.
On Saturday, Prime Minister Datuk Seri Mohd Najib Razak announced that he will not attend the meeting. One would reasonably expect Mohd Najib, as the coalition's chairman, to attend such an important event.
"The MCA should be given the opportunity to resolve its internal problems. It is hoped that the party will be able to resolve the issue and enable the MCA's leadership to obtain a fresh mandate from party members," the PM's office said in a statement.
The BN's smaller member, the People's Progressive Party (PPP), is also mired in a leadership tussle. Datuk M Kayveas is battling it out with Deputy Minister in the Prime Minister's Department Datuk T Murugiah for the presidency. On May 24 last year, the junior minister had actually manouvered to declare himself as party president in an extraordinary general meeting (EGM) in Putrajaya.

Across the divide, Anwar and company are also under siege. Losing Perak was certainly the biggest blow to them. After many rounds in the courts, the nation's highest court decided in the BN's favour, allowing Datuk Seri Dr Zambry Abd Kadir to keep the position of Mentri Besar.
Datuk Seri Mohammad Nizar Jamaluddin from PAS was left out in the cold. With the law on their side, the BN now has a chance to recoup some of their losses in this northern state.
For a while however, it seemed as if Mohammad Nizar and his compatriots from the DAP and Parti Keadilan Rakyat (PKR) were able to demonstrate some level of active partnership. They are now trying to maintain a semblance of working together.
However, it must surely be so much tougher now that the dynamics of the situation have changed. The latest headache for Anwar comes from the spate of resignations within his own team.
So far, three PKR MPs have left the party, with specualation rife that more may follow. On March 3, Member of Parliament (MP) for Bagan Serai, Mohsin Fadzli Samsuri, became the third member to leave. His resignation comes right after Bayan Baru MP Datuk Seri Zahrain Mohamed Hashim and the MP for Nibong Tebal Tan Tee Beng left the party.
With MPs leaving left, right and centre, PKR on Saturday sacked Kulim-Bandar Bharu MP Zulkifli Noordin, urging the controversial lawmaker to vacate the Parliamentary seat he had won under its ticket.
While trying to get a handle on matters political, there is also Anwar's sodomy trial playing out in the background. PKR leaders are certainly worried and they should be.

Will the "glue" that binds them together now still hold fast when the nation next goes to the polls? All said and done, it has been a roller-coaster ride for everyone on both sides of the political divide, as well as the rakyat.

(This story appeared in The Malaysian Reserve on 8 March 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)

Takaful Ikhlas eyes rental, property investments

By Alfean Hardy Takaful Ikhlas Sdn Bhd, which has invested RM97 million on two tower blocks in Bangsar South, Kuala Lumpur, is targeting similar investments going forward given the long-term sustainability of rental income for revenue generation, its president and chief executive officer Datuk Syed Moheeb Syed Kamarulzaman said.
The Islamic insurance firm used RM87 million of its policy holders’ funds to buy the commercial property and another RM10 million was invested in renovating both towers. The company has more than a million individual and group policy holders to date.

The unit of main boardlisted MNRB Holdings Bhd moved into all of Ikhlas Point Tower 11A and three floors of Ikhlas Point Tower 11 on Feb 1, 2010. Covering a built-up area of 99,286 sq ft in total, some 32,000 plus sq ft in one of the towers have been earmarked for rental/future expansion.
Speaking at a media briefing in Kuala Lumpur last Thursday, Syed Moheeb said, essentially, the buildings were not Takaful Ikhlas’s.
"These buildings were paid by policy holders’ funds coming from our risk fund. So, inevitably, the policy holders are the owners of the buildings, we’re merely renting it from them.
"We chose this strategy because we wanted to ensure rental income to policy holders and, over the last few years, one of the better revenue generating strategies is rental income, which is more sustainable over the long-term," he said.

Going forward, he said Takaful Ikhlas would make use of either shareholders’ funds or policy holders’ funds to purchase buildings and then rent them out to generate rental income.
"By doing this, we will slowly acquire property. Eventually, we also want to house all our branches in our own buildings. We’re not sure yet whether we will use funds from our shareholders or from our policy holders (when we buy these buildings)," he said, adding that Takaful Point was the firm’s first property investment.
Syed Moheeb said Takaful Ikhlas could have ventured into property investment earlier, but he felt that the firm needed to ensure that, whatever it bought, would have made an impact to investment income.
"The fact that (the two towers) have a capital appreciation of more than 20% indicates that this was a good decision.
"Among some of the things that we’re looking at will be rentable office premises and it won’t be anything else at this point in time. Our investment policy has been very cautious and has been more towards capital preservation and, in any thing that we do, we have to make sure that we don’t have to answer to any bad decisions later on," he said.
Syed Moheeb said Takaful Ikhlas was currently looking at housing two new branches in Klang, Selangor, and Kuala Terengganu, Terengganu, by middle of the year in new properties.
"At this point in time we haven’t identified yet any properties yet (for these two new branches). If you look at the 10 branches that we have currently, these are the areas that we would be looking to make investment opportunities," he said.
The Islamic insurer currently has branches in Kota Baru, Johor Baru, Sungai Petani, Ipoh, Kuching and Kota Kinabalu in Kelantan, Johor, Kedah, Perak, Sarawak and Sabah respectively. Asked on how much would be set aside for Takaful Ikhlas’s property buy war chest going forward, Syed Moheeb said the company’s investment strategy was set by the board, which decides how much went into equities, governmentbacked securities and others.
"Where property is concerned, we’re looking at not more than 20%. In the shorter term at least, until our financial year ending Mar 31, 2011, we will cap this at 20%," he said.

(This story appeared in The Malaysian Reserve on 1 March 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)