BADLISYAH: Invasion of Shariah scholar wannabes

The Islamic financial market globally has been invaded by Shariah scholar wannabes and they are destroying it from the inside out. 

While this is a strong statement, it is one which I have made many times in open conferences and many would agree with me. However, like so many other issues in Islamic finance, most prefer to keep such opinions to themselves. Many real and qualified Shariah scholars have lamented about this in private and some in public but most times, like the Malay proverb, “Ibarat mencurah air ke daun keladi”, the lamentation goes unheeded. These Shariah scholar wannabes have infiltrated Islamic banks at the highest level of decision-making bodies — the board of directors, the Shariah committee and the senior management — dictating what cannot be done without due consideration to stakeholders value, which at times resulted in the overnight dismantlement of businesses that took years to build.

They have infiltrated financial regulators and Shariah governing bodies and exerted unner vi ng and disast rous influence on industry regulatory frameworks and policies in many jurisdictions, causing Islamic finance to fail its function as a public good to facilitate optimum financial inclusion for the general populace or the Ummah, particularly Muslims. As a result, the industry becomes a non-starter in many jurisdictions until today.

They have infiltrated many institutions of higher learning and distorted the teaching of Shariah and its applicat ion i n com merce or Muamalat, especially in Islamic finance, by imposing their personal opinion and biasness in their teachings. This weakens the very foundation of the industry from the inside out as they train the industry’s workforce.

Those that provide distorted Shariah application in Islamic finance have also written many books and presented many papers, putting themselves as the industry’s authority although most of them have never done a single Islamic banking and finance business themselves. They have a tendency to make prohibition on what has never been expressly prohibited in the Quran and Hadith, such as debt.

There have been instances where they have changed the meaning of Quranic verses and Hadith to suit their arguments and define established Shariah principles differently, such as defining “Bai” or “Bay” as risk sharing instead of its true meaning, sale.

Considering that most of them are excellent orators and have a stronger command of English than most qualified Shariah scholars, many people are easily persuaded and influenced by what they say. I believe that even if we call ourselves an Islamic economist, Islamic accountant, Islamic banker, Islamic journalist or whatever with an Islamic prefix, we are still just an economist, accountant, banker, journalist and so on. We are not Shariah experts. We have to accept that we cannot be a Shariah expert by simply learning about Shariah as a single subject or module in our higher education programmes. Being a Shariah expert or A scholar certainly requires a different kind of training.

I have never referred to myself as a Shariah expert nor have I ever allowed people to think that I am one. I have my opinions. My opinions may be legitimate under Shariah and I can appear to come out very strong on it but I have never and would never impose them on others as an authority of Shariah.

Of course to be fair, most people in the industry are just like me, someone who knows Shariah from self-learning and on-the-job training and rely on real qualified Shariah scholars to guide us on Shariah matters in the industry. However, there are some that truly takes the cake and present themselves as a Shariah scholar to the extent of instating themselves as members of the Shariah scholars’ fraternity although they have no qualification to be one. The reality of Islamic finance is that Shariah is simple but it is the people, particularly the Shariah scholar wannabes, that make it difficult.

[Badlisyah Abdul Ghani is CIMB Islamic Bank Bhd executive director and chief executive officer. This is his third column, entitled STRAIGHT TALKING, in the 7 Jan 2013 issues of The Malaysian Reserve, a business/finance daily printed out of Kuala Lumpur]

Ab Latiff helms Takaful Ikhlas

Takaful Ikhlas Sdn Bhd has appointed Ab Latiff Abu Bakar as president and chief executive officer (CEO) of the general and family takaful company effective yesterday.

Latiff, who holds a Bachelor Degree in Business Administration from the University of Portland, US, brings with him over 20 years of experience including senior management positions in insurance and takaful companies. His last posting prior to joining Takaful Ikhlas was head of takaful in one of the international insurance players where in that position he was instrumental in establishing and developing a new takaful company within the Asia-Pacific region.

“Latiff takes over a growing organisation at a key moment in its development. I am confident that with his past experience and knowledge, he will be able to steer and lead Takaful Ikhlas to the next growth level,” said chairman Sharkawi Alis in a press statement.

Latiff replaces Datuk Syed Moheeb Syed Kamarulzaman who, according to The Malaysian Reserve, “left the company after building up the homegrown takaful outfit from the ground up to become the nation’s third-largest takaful operator in terms of gross return contribution.”

Takaful Ikhlas is a whollyowned subsidiary of MNRB Holdings Bhd, an investment holding company listed on the FBM KLCI.

[The Malaysian Reserve, 8 Jan 2013]

Strong growth predicted for Malaysia’s takaful sector

by Azli Jamil

The Malaysian takaful sector is expected to grow by 20% per year for the next two years as consumer acceptance grow and regulatory changes provide infrastructure for Shariah-compliant insurance. According to an industry report by OSK Investment Bhd, more people and companies will buy into takaful products, providing liquidity in sukuk and Shariah-compliant instruments even as the industry is able to increase capacity to cater to the demand.

This increased capacity is in part due to the expected finalisation of the government framework for risk-based capital for Islamic banking and takaful. The industry expects the Shariah-compliant framework to be essentially similar to the framework that is currently applied to conventional insurance but will add to the valuation of the takaful sector.

OSK Research Sdn Bhd said the new framework for Islamic banking and takaful, coupled with the requirements of the Malaysian Competition Act may trigger mergers and acquisitions among takaful players as they attempt to pool capital and size in order to compete in the market. OSK Research said with just 13% penetration rate for family takaful, there is a healthy latent growth potential for the Shariah-compliant product. In comparison, the penetration rate for conventional life insurance is 55% as measured by the number of life policies over population.

A recent report by Fitch Ratings said the introduction of the new framework, as well as market volatility, may affect the earnings stability of insurance and takaful players but also that this can be a good thing.

The rating agency said the combination of low market penetration and the entry of more players could accelerate the growth of the market for general and family takaful. Fitch Ratings took a positive view of Bank Negara Malaysia’s Risk Based Capital framework for the takaful sector, which would align the capital requirement of takaful operators with that of conventional insurers. This also means capitalisation would be more reflective of takaful operators’ risk exposure.

In a recent interview with Etiqa Insurance and Takaful chief executive officer Hans De Cuyper, he sees penetration as a percentage of the gross domestic product (GDP) where takaful’s share is slightly less than 1% adding that in more mature market the figure would reach between 7% and 8% penetration. According to the Malaysian Rating Corp Bhd in its report published in June 2012, the new business family contributions grew to RM2.18 billion in 2011, up from RM503 million in 2003.

The rating agency said that in general insurance, takaful’s gross direct contributions grew to RM1.6 billion in 2011, up from RM551 million in 2005. There are 12 takaful operators licensed under the Takaful Act 1984 to conduct family and/or general takaful business in Malaysia. The companies are AIA AFG Takaful Bhd, AmFamily Takaful Bhd, CIMB Aviva Takaful Bhd, Etiqa Takaful Bhd, Great Eastern Takaful Sdn Bhd, Hong Leong MSIG Takaful Bhd, HSBC Amanah Takaful (M) Sdn Bhd, ING PUBLIC Takaful Ehsan Bhd, MAA Takaful Bhd, Prudential BSN Takaful Bhd, Syarikat Takaful Malaysia Bhd and Takaful Ikhlas Sdn Bhd.

[The Malaysian Reserve, 7 Jan 2013]

BADLISYAH: In reality, Malaysia shows the way in Islamic finance

Last week, I went on a business trip to the Middle East, visiting four different cities in the Arabian Peninsular. Within a span of five short days, I met with a diverse group of chief executive officers and royals on the value of dealing with CIMB Group Holdings Bhd, particularly in Islamic finance, for their investments in Asean and Asia Pacific.

Having conducted Islamic finance in the Middle East for the last 15 years, this was just another routine trip for me. Nonetheless, for some of my colleagues who were there for the first time, this trip was an eye-opener.

Like many typical Malaysian bankers, my colleagues have this preconceived idea that since the Middle Easterners are much closer to Makkah than us here in Malaysia, they would know Islamic finance far better than us. Supposedly their products are far more advance and more Shariah-compliant than that of ours in Malaysia.

They soon learned that many of the Middle Easterners are keen to conduct Islamic finance in the manner that we do it in Malaysia. Despite this keenness, they could not do so due to the lack of a comprehensive industry infrastructure and regulatory framework, be it domestically or regionally.

It was enlightening for some of my colleagues to find out how much the Middle East Islamic bankers and Shariah scholars are envious of the unparalleled Islamic financial market that we have in Malaysia. You can imagine my satisfaction while seated in the various meetings as I wish that many more Malaysians could get such enlightenment — in order for them to stop wasting time trying to emulate something that does not really exist or do something that we have as an industry decided not to do because it was proven to have failed or identified as a non-starter.

I strongly share what some academicians have ventured to say — that Malaysia has suffered a lost decade where innovation and creation of new products became stagnant as a result of this irrational preconceived idea. They are asking why Malaysia is considering dropping certain products that has made us the largest, deepest and most dynamic Islamic financial market in the world. If we continue like this, we would even run the risk of causing our industry to regress.

When Malaysia started Islamic equity capital market ie the trading of shares on the stock exchange, Middle East scholars said it was “haram” or prohibited because trading of shares was considered gambling. About 15 years later, these same scholars said it was fine.

When Malaysia started Islamic bonds or sukuk market, Middle East scholars also said that it was haram because one cannot trade debt at a price other than par, but 11 years later, these same scholars said it was fine.

I experienced this first hand when I handled the first global corporate sukuk for Kumpulan Guthrie Bhd in 2001 during my time at Bank Islam (Labuan) Ltd. The Shariah boards of every Islamic bank in the Middle East that we approached to invest in the deal said the sukuk structure we proposed was “haram”. The ironic thing about this is that the structure used was the Sukuk Al-Ijarah, which today is the most widely accepted sukuk structure in the world.

I am sure many of you reading this would be surprised to know that Sukuk Al-Ijarah when it was first introduced was declared “haram” by everyone in the Middle East except for one enlightened Middle East Islamic bank that did proceed with the deal. We pushed the structure knowing that history will repeat itself — that the Middle East will eventually follow suit. It did!

All in all, we must take comfort in the knowledge that what we do in Malaysia is right under Shariah, even when others seem to think otherwise. This is one reality about Islamic finance that we in Malaysia must fully appreciate so that we stop questioning our own credibility and doubt ourselves.

[Badlisyah Abdul Ghani is CIMB Islamic Bank Bhd executive director and chief executive officer. This is his second column, entitled STRAIGHT TALKING, in the 10 Dec 2012 issues of The Malaysian Reserve, a busness/finance daily printed out of Kuala Lumpur]

HSBC tops list of banks for Islamic bond, loan issuance

By Tanu Pandey

Malaysia’s second-largest lender CIMB Group Holdings Bhd saw its underwriting for global and local sukuk issuance fall in 2012 while HSBC Bank plc’s market share rose substantially in the period, according to data obtained in Bloomberg.

CIMB’s total issuance for global sukuk fell to US$6.21 billion (RM18.82 billion) from US$7.77 billion in 2011, which resulted in its ranking dropping to second place and its market share easing to 12% from 17.7% in 2012.

For local sukuk issuance, CIMB’s market share dropped to 21.4% from 24.1% with total issuance at US$5.94 billion from US$7.24 billion in 2011.

HSBC moves to first place with total global issuance rising to US$11.35 billion from US$4.88 billion in 2011 with its market share almost doubling to 21.9% from 11.1% in 2011.

Other bankers that were heavily riding on booming global sukuk trade last year are Standard Chartered plc, AmInvestment Bank Bhd, Deutsche Bank AG, RHB Banking Group and Citigroup Inc with 6.4%, 5.2%, 5.1%, 5.1% and 3.5% market share respectively.

National Bank of Abu Dhabi, Dubai Islamic Bank, Barwa Bank and Noor Islamic Bank were also among the top underwriters for global sukuk. All banks charge an underwriting commission for such services.

Among the institutions that helped grow HSBC’s to take it to the top position were Saudi Hollandi Bank, Kimanis Power Sdn Bhd and Tanjung Bin Energy Issuer Bhd.

Similarly, the main issues by CIMB were for Cagamas Bhd, UEM Land Bhd and Khazanah Nasional Bhd, which issued a number of bonds in 2012.

With the current trend and growth in the Islamic finance sector, Malaysia could easily achieve its target of RM1 trillion of sukuk issuance by 2020 as part of its capital markets plan for the 2010-2020 period.

Among other Malaysian institutions engaged in the underwriting business for Islamic bonds and loans are Kenanga Investment Bank Bhd, Bank Islam Malaysia Bhd, Affin Investment Bank Bhd and Bank Muamalat Malaysia Bhd.

[The Malaysian Reserve, 4 Jan 2013]

Waqaf, zakat are areas of growth in Islamic finance

Waqaf and zakat (tithe) management are among areas of growth for Malaysia as the global hub of Islamic finance, according to Fajr Capital Ltd CEO Iqbal Khan.

“There are a lot of areas of growth in the Malaysian Islamic finance as the country is well positioned for this purpose and the regulations are already in place,” he told reporters after giving a public lecture on “Our Markets, Our Values — A principles-based approach to creating value in Muslim majority markets” in Kuala Lumpur yesterday. The lecture focused on the developments and key issues in the Muslim-majority markets including values which had fundamentally driven the history and development of the Islamic finance industry.

TMR PHOTO - GLOBAL ISLAMIC FINANCE HUB: Waqaf and zakat management are among areas of growth for Malaysia as the global hub of Islamic finance, according to Fajr Capital Ltd chief executive officer Iqbal Khan. (From left) Securities Commission Malaysia (SC) deputy chief executive Datuk Dr Nik Ramlah Mahmood, Shariah Advisory Council member and former Chief Justice of Malaysia Tun Abdul Hamid Mohamad, SC chairman Datuk Ranjit Ajit Singh, Perak Regent Raja Dr Nazrin Shah and Bursa Malaysia Bhd chairman Tun Mohamed Dzaiddin Abdullah at the public lecture by Iqbal entitled ‘Our Markets, Our Values — A principles-based approach to creating value in Muslim majority markets’ in Kuala Lumpur (pic: Muhd Amin Naharul)

Earlier in September, Bank Mualamat Malaysia Bhd had tied up with Perbadanan Wakaf Selangor to enable its customers and the public to contribute cash to waqaf.

Kicking off the fund, Bank Muamalat had made a RM1 million contribution, while the bank employees had chipped in RM75,040 to be mainly chanelled to improve and develop health and education.

In 2010, Maybank Islamic Bank Bhd had launched Waqaf, a structured community-giving initiative that allows its customers and the public to make waqaf contributions through its payment channels.

It had then signed a memorandum of understanding with Yayasan Waqaf Malaysia. It is understood that in the latest Bank Muamalat venture, the bank also plays a role in the management of the funds.

Besides that, Iqbal added another area of growth includes the corporate social responsibility (CSR) sukuk where Malaysia can excel and become the role model economy which can create a good demonstration effect for other countries.

He said the CSR sukuk can be issued by any institution or government which have got long-term commitment budgeted for CSR causes for the next five to 10 years.

“What the CSR sukuk will do in the current climate is to create the funding for priority social sector initiatives like others. I hope Malaysia will be again the first one to issue such a sukuk,” he said.

He said previously, there was such a CSR sukuk done in the conventional format including debt for equity swaps and debt for CSR swaps including bond issuance for the purpose of vaccination on budgeted commitment of the Organisation for Economic Cooperation and Development and Bill & Melinda Gates Foundation.

Meanwhile, the Securities Commission (SC) held a public lecture in Kuala Lumpur yesterday by Iqbal, who is a recipient of the prestigious Royal Award for Islamic Finance 2012.

[The Malaysian Reserve, 4 Dec 2012]

BADLISYAH: Reality check on what is Islamic banking

I was honoured when The Malaysian Reserve asked me to write for them on the Islamic banking and finance industry.

Perhaps they like my straight talking, no holds barred approach to tackling industry issues and would like me to share my knowledge and experience with others.

So I said yes, and here I am writing my very first column. For my first, I thought I should lay down how I will write about the industry to give everyone a feel of what to expect. My viewpoints will be frank and straightforward and my writing will balance between fact-based information and my opinion.

I am no agony aunt, and I will probably be throwing my two sen-worth on anything and everything whether people want it or not. I will express my opinion on any topic of great interest to the industry or on something I feel strongly about. I may even gossip on the latest happenings in the market!

I will from time to time illuminate the various misperceptions people have on the industry such as “Islamic banks must be different from conventional banks”, “Mudharabah is the truest Islamic banking products”, “doing Islamic banking is a commandment”, “Islamic financial products are sacrosanct”, “Islamic banking products are disguised conventional riba based banking products” and more.

It boggles the mind how after 50 years of operations in over 100 countries around the world, these misperceptions STILL exist and persist to thwart the development of a robust and sustainable industry globally.

Today, as a result of these misperceptions, many jurisdictions refuse to have a comprehensive enabling legislation and regulation for the industry, with the exception of Malaysia and a few other countries. To illustrate, let me share with you what transpired a few days ago.

I was told that in a particular foreign jurisdiction not so far away, a bank could not set up a marketing booth outside its branch to sell Islamic banking products. This was because the regulator — despite having allowed the bank to offer such products — considers them to be religious products, and therefore, limits the bank from selling them in public.

Naturally I was dumbfounded.

Islamic banking products cannot be equated to religious products such as prayer mats, symbols and spiritual charms.

Islamic banking is a pure commercial transaction involving contractual relationships between two or more legal persons just like any other commercial transaction.

Get real people!!! It is a wonder how the industry became the fastest growing component of the global financial market.

There are many other irrational behaviours towards the industry caused not just by misperceptions but outright prejudice and paranoia.

I hope by highlighting them the industry will eventually outlive them. I intend to continuously provoke and challenge what is considered the truth and the norm and have some, if not all, of the misconstrued understanding on the industry thrown out the window.

[Badlisyah is CIMB Islamic executive director and chief executive officer. This is his first column for The Malaysian Reserve, 19 Nov 2012. His column, entitled STRAIGHT TALKING, will appear monthly in the Islamic Finance section]

London the key to setting regulatory framework

By Farah Saad

London could be the key to resolving the issue of finding a standardised regulatory framework for cross-border trading in Islamic finance.

The city’s positioning, both historically and within the Islamic trade route, gives it a neutrality which could help in setting a framework, according to UK-based Gatehouse Bank plc chief executive officer (CEO) Richard Thomas.

“In London, we work with both the Gulf and Malaysia and it seems one of the things that London may be able to contribute is assistance with standardisation, because English law is the best current legal structure within which to manage Islamic contracts.

English law accommodates all of the Shariah principals,” he told The Malaysian Reserve in a recent interview.

London was also one of the pioneer non-Muslim cities to adopt Islamic finance more than 30 years ago, said Thomas.

Critics and supporters of Islamic finance alike have often pointed out that cross-border trading in Islamic finance is less regulated compared to conventional finance.

“I would say that these problems are exaggerated because the vast majority of the contracts are standardised, but there are some areas that need to be worked on. Murabahah and sukuk is a controversial area between schools of thought, but scholars discuss matters regularly and more often than not, reach a favourable conclusion,” said Thomas.

Cross-border Islamic financial instruments are expected to result in a greater rate of litigations compared to their local counterparts since the former involves contending parties in different jurisdictions where Shariah and legal interpretations have a greater divergence, suggested a paper presented at an Islamic banking and finance conference organised by the International Islamic University Malaysia (IIUM) in 2010.

The paper highlighted the cases of Shamil Bank of Bahrain EC v Beximco Pharmaceuticals Ltd and others, and that of Tajik Aluminium Plant v Ermatov and others in the English courts, evidenced the existence of Shariah and legal issues with regard to Islamic financial instruments.

“Even when these instruments involve parties in a particular jurisdiction, both Shariah and legal issues arise. The former relates to the interpretation of the Shariah while the latter involves the correct administration of the law,” the paper argued.

In a recent interview with the media, Dubai-based Fajr Capital Ltd CEO Iqbal Khan pointed out the existence of variation in regulatory frameworks, which are then further distorted by history and market dynamics.

“Cross-border transactions play an increasingly significant role in the Organisation of Islamic Cooperation (OIC) economies.

“Despite showing an upward trend, intra-OIC merchandise trade growth is not as rapid as the growth in Islamic finance itself,” he said in a panel discussion at the recent Bank Negara Malaysia-hosted Global Islamic Finance Forum (GIFF) 2012 in Kuala Lumpur.

Thomas said there is a myth, or a misconception, that conventional finance is more regulated or more standardised.

“Its just an easy target for critics to point out but you have to think about how long conventional finance has taken to get where it is today, compared to Islamic finance, which has been around on a global level for only 30 years.

“The different schools of thought actually encourage growth by creating more products,” said Thomas.

The cost of capital for Islamic finance, which has often placed it at a disadvantage in the past, has gone down, making it more accessible. Asia has also become a source of liquidity for countries who traditionally leverage by conventional means.

“The credit crunch and the recent turmoil has restricted conventional banks’ ability to leverage. It’s all invented money and they can’t do that now.

“Because of that, Islamic capital has become more price efficient,” he said.

Gatehouse Bank, established five years ago, is a London-based Islamic bank with Kuwaiti shareholding.

The bank acts as a middleman for funds from Malaysia’s Permodalan Nasional Bhd and Employees Provident Fund, which it invests in its real estate holdings in London, along with its capital market products and treasury products.

To date, its assets under management total £1.5 billion (RM7.4 billion), with a paid-up capital of £150 million pounds.

[The Malaysian Reserve, 15 Oct 2012]

Islamic finance should not be debt-based and ‘Islamist

Islamic finance, often touted as the cure for the European crisis, will not be able to save the European economy unless certain changes are made in the way the products are structured, according to industry experts.

The European crisis was caused mainly by a debt-driven financial structure, which is what Islamic finance aims to avoid, but Islamic products have ended up “mimicking” their conventional counterparts by adopting the same debt-driven base, said Associazione per lo sviluppo di Strumenti Alternativi e di Innovazione Finanziaria chairman Alberto Brugnoni.

Brugnoni said because of the debt-based structure of a lot of Islamic finance products in Europe, when compared side-by-side, ethical financing has very often turned out “more Shariah-compliant” compared to Islamic finance.

Ethical financing, also known as civic, social, or sustainable banking, is financing concerned with the social and environmental impact of its investments and loans.

Brugnoni was one of the panellists discussing the future of Islamic finance in Europe during the recent Global Islamic Finance Forum (GIFF) in Kuala Lumpur.

Fellow panellist Antwerp Bar Association lawyer Paul Wouters agreed. He said: “Even if we offer every Muslim in Europe an Islamic product, but if it adheres to the debt-based economy, what are we going to change? Are we even offering a real alternative?”

Brugnoni said: “Most of the Islamic products, the murabahah-based ones, are debt-based. There is a tremendous amount of money that is leaked out into the conventional system.

“We call it Shariah-compliant, but where are the values? Islamic finance has a very clear approach (based on real assets) but on the balance sheets of most Islamic banks are still creating money the conventional way.” To promote growth, Islamic finance should not isolate itself from the public by adopting an “Islamist” approach said Brugnoni.

[The Malaysian Reserve, 8 Oct 2012]

Kuwait Finance House expects to see turnaround

By Farah Saad

Kuwait Finance House Bhd (KFH) expects to end its losing streak this year, after three consecutive years of losses beginning 2009.

KFH, the first foreign Islamic bank given licence to set up shop in Malaysia in 2004, targets a growth of 15% to 20% in its retail and consumer business, said chief executive officer (CEO) Datuk Jamelah Jamaluddin.

“Our strategy is to focus on our existing accounts in retail and consumer banking as well as expanding our business to the non-Muslim market,” she told The Malaysian Reserve.

The bank has also stepped up its advertising campaign in order to increase its brand presence in the market.

In addition to the 12 branches in Kuala Lumpur, Selangor, Penang, Kelantan, Johor, Sabah, and Sarawak, another new branch is being set up in Penang and is scheduled to open next year, said Jamelah.

In 2011, the bank added four branches.

So far, the bank has been on track towards achieving a profitable 2012 financial year (FY12) by posting profit after tax of RM16.5 million for the first-quarter (1Q) of the year.

For the whole of 2011, KFH posted a net loss of RM596.2 million, which the bank attributed to impairment allowances.

With the allowances safely out of the way, the bank can now look towards brighter times ahead, said Jamelah.

“The losses were due to the bank’s provisioning exercise in dealing with legacy accounts.

This was a necessary approach for the bank to adopt in order to remain on track to write off the last traces of legacy matters while maintaining prudent quality management,” she said.

The bank remains “fully committed” to its transformation exercise, and will continue to take the neccessary measures to improve asset quality, said Jamelah.

KFH was incorporated in 1977 as the first bank operating in accordance with Shariah principles. Its Malaysian operations acts as a regional hub for the Asia-Pacific region.

[The Malaysian Reserve, 27 Aug 2012]

Aberdeen plans new Islamic funds to tap retail market

By Ishun P Ahmad

UK-based Aberdeen Asset Management plc, an asset manager with presence in both the conventional and Islamic finance space, plans to introduce two Shariah-compliant unit trust funds to break into the local retail funds market.

It is now in the advanced stage of its application with the Securities Commission (SC) to launch the two funds, which industry sources familiar with the process said would be another addition to Malaysia’s rich Islamic finance landscape.

“They made their submission to the SC sometime in March and they can expect a reply by next month,” one source told The Malaysian Reserve.

Aberdeen Asset Management Sdn Bhd, the first foreign fund manager to get a domestic asset management licence in Malaysia, and its wholly-owned subsidiary Aberdeen Islamic Asset Management Sdn Bhd have been active in the institutional fund management scene locally, but yet to dip their fingers into the retail market.

The retail unit trust industry, dominated by local giants like Public Mutual Bhd, CIMB-Principal Asset Management Bhd, AmInvestment Services Bhd and Hwang Investment Management Bhd, commanded a total net asset value of RM277.83 billion as at end-June, which accounted for 20.3% of Bursa Malaysia’s market capitalisation. The investments were in 15.8 million accounts handled by 40 management companies managing 609 funds approved by the regulator.

“Aberdeen may want to get a slice of that huge market, but they are probably looking at a small slice as they would not be able to command the number of agents that the local players have,” said a local fund manager.

“Up till now, they have been managing institutional businesses since they started in 2009. These two new funds will see them breaking into the local retail business,” a source familiar with the company said.

On the local front, the Aberdeen group currently has US$3.7 billion (RM11.53 billion) invested in stocks listed on Bursa Malaysia.

It has an 18% stake in superstore chain operator AEON Co (M) Bhd and appears as the top five shareholders in manufacturer of carbonated drinks Fraser & Neave Holdings Bhd, insurer LPI Capital Bhd and diversified Malaysian conglomerate Oriental Holdings Bhd. It also holds shares in Public Bank Bhd, Alliance Financial Group Bhd and insurer Manulife Holdings Bhd.

As for the timing of the launch of the funds, one source said Aberdeen Islamic is "all ready to go" and only awaiting the SC approval.

The funds, said to be the first of its kind in Malaysia, are tailored to be acceptable not only for the local investors but also for the international markets.

A source said Aberdeen plans to sell the funds to overseas investors in the third year, after cementing a strong hold on local investors.

[The Malaysian Reserve, 13 Aug 2012]

Dr Zeti: SRI has significant appeal to Islamic finance

By Habhajan Singh

Socially responsible investment (SRI), which is fast gaining currency in the global market place, will have a “significant appeal” to Islamic finance, particularly in the context of the recent global financial crisis, according to Bank Negara Malaysia (BNM) governor Tan Sri Dr Zeti Akhtar Aziz.

“Beyond financial returns, SRI also accords primary consideration to the impact on economic activity and on the broader society, thereby incorporating the important dimensions of environmental sustainability, social responsibility and governance.

“This is in close parallel with the inherent principles of Islamic finance, in which financial transactions must be underpinned by real economic activities, and its operations guided by the principle that money should also be used to create social good,” she said in her opening speech at the 2nd ISRA Colloquium 2012 in Kuala Lumpur yesterday.

PHOTO: BNM govenor Dr Zeti and Dr Akram at the launch of the 2nd ISRA Colloquium. Photo: MIFC.com

Dr Zeti noted the need for financial products and services that manifest the value propositions of Islamic finance, and that such products are marketed with simplicity so as to facilitate a greater understanding of the main benefits of the products.

“In relation to this, Islamic finance presents significant appeal to the growing Socially Responsible Investment, sustainable investments and ethical finance. This is particularly relevant in the context of the recent global financial crisis.

“It has brought to the forefront the need for the financial system to be linked to the economy and for the need for greater and improved levels of transparency, fairness, ethics and social responsibility in modern finance,” she said.

She added that the SRI market is “fast growing” and is expected to become a mainstream asset class by 2015, reaching a projected total of more than US$26 trillion (RM79.17 trillion) of asset-under-management, accounting for 15%-20% of the global market.

“This recent growth has largely been driven by the demand from institutional investors which are increasingly prioritising the consideration of sustainability and social responsibility in their business conduct and institutional value system.

“Indeed, the ongoing economic challenges in the major advanced economies have resulted in the re-emphasising of the importance of growth that is sustainable and responsible. In the emerging economies, this is also important, given that rapid economic development also needs to ensure that the progress will be sustainable,” she said.

The one-day colloquium was organised by the International Shariah research academy for Islamic Finance (ISRA), an outfit that was set up with a generous endownment from the central bank in 2008.

The function was meant to provide a venue for young Islamic finance scholars to exchange views on how to develop the industry. Three doctorage students at International centre for education in Islamic Finance (Inceif) presented papers at the function.

In his speech, ISRA executive director Dr Mohamad Akram Laldin said the forum was meant to bridge the gaps among the Islamic finance academic community and to enhance understanding on different practices of Islamic finance from different parts of the world.

“The challenge remains whether Islamic finance is able to address the challenges in the challenging economy that we are currently facing and whether Islamic finance is able to rearrange modern financial practices in line with Shariah principles and requirements and elegantly offer a better approach and direction for the financial industry,” he said.

Dr Beebee Salma Sairally presented on Islamic liquidity management, Mohammad Mahbubi Ali on a framework to deal with Shariah non-compliance transactions, and Muhammad Ali Jinnah on takaful benefits protection from the Shariah perspective. INCEIF chair of Islamic finance Prof Dr Abbas Mirakhor presented a keynote address.

[The Malaysian Reserve, 28 Nov 2012]

IRTI: Can Islamic finance solve basic economic issues?

By Habhajan Singh

The demands on Islamic finance to solve basic economic issues like unemployment and growth in the Islamic world is one of the challenges facing Jeddah-based Islamic Research and Training Institute (IRTI) in the wake of what was called the Arab Spring and recent global financial crisis.

“The demand from member countries is great. Many are looking at Islamic finance to solve basic economic issues like unemployment and growth,” IRTI director-general (DG) Prof Datuk Dr Mohd Azmi Omar told The Malaysian Reserve in a recent interview.

He said many countries have gone to the Islamic Development Bank (IDB) Group, under which IRTI is placed, for solutions to their economic woes.

“Our capacity to support them is limited,” he said.

The IDB Group, comprising 56 member countries and Muslim communities, has set itself the task of fostering the economic development and social progress of its members in accordance with the principles of Shariah.

One tricky challenge facing Dr Mohd Azmi and his team is the expectation placed on Islamic finance.

“Most countries think by implementing Islamic finance, they can solve their problems. But that's not the case. It’s part of the solution, not the only solution.

“We are concerned. What if the economies of the countries undertaking Islamic finance don’t grow? They might say Islamic finance itself has failed,” he said.

Dr Mohd Azmi, formerly a deputy vice chancellor at the International Islamic University Malaysia (IIUM), became the first Malaysian to be appointed to the top executive IRTI position in January. He was the dean of IIUM Islamic Banking and Financial Institute when the three-year appointment took place.

“I was head hunted by IDB to lead this organisation. The process took some time,” he said.

One industry executive familiar with IRTI said that the organisation was looking for someone with a strong academic background and with the appropriate leadership skills. Up against 16 other international candidates, Mohd Azmi was found to have fulfilled the criteria.

As the DG, he is tasked to oversee research and training and advisory for member countries.

[The Malaysian Reserve, 5 Nov 2012]

Islamic banks face liquidity management issues, forum told

By Habhajan Singh

Liquidity management and effective Shariah governance are two major challenges faced by Islamic financial institutions (IFIs) today, a global forum was told yesterday.

On the banking front, Islamic banks continue to face challenges on the liquidity management front despite many jurisdictions having introduced certain measures to mitigate its impact.

“Islamic banks still face the challenge in their day-to-day management of cash because of the lack of a comprehensive Islamic interbank money market today,” Bank Islam Malaysia Bhd general manager Norashikin Mohd Kassim told one of the panels at the Global Islamic Finance Forum (GIFF) 2012 hosted by Bank Negara Malaysia (BNM) in Kuala Lumpur yesterday.

At a parallel International Shariah Scholars Forum held under the GIFF umbrella, Shariah scholar Sheikh Abdulrahman Al-Atram said Shariah governance standards issued by international bodies have yet to receive international acceptance.

“The standards are there, but they are not being paid proper attention by Shariah boards and individual institutions,” he told the forum. On this matter, International Shariah Research Academy for Islamic Finance executive secretary Dr Mohamad Akram Laldin said issues related to Shariah governance were now emerging as Islamic finance has now grown in size.

“Malaysia does not have many issues here as we have the framework issued by Bank Negara,” he told The Malaysian Reserve on the sidelines of the forum.

The BNM-issued Shariah Governance Framework for the Islamic Financial Institutions, which took effect on Jan 1, 2011, marked a key milestone in the development of Islamic finance in Malaysia and was another first for Malaysia in the global Islamic finance arena.

In the 50-page document, the central bank said it has developed the framework with “the primary objective of enhancing the role of the board, the Shariah Committee and the management in relation to Shariah matters, including enhancing the relevant key organs having the responsibility to execute the Shariah compliance and research functions aimed at the attainment of a Shariah-based operating environment”.

The framework is applicable to all Islamic banks licenced under Islamic Banking Act 1983, takaful and retakaful operators registered under the Takaful Act 1984, financial institutions licensed under the Banking and Financial Institutions Act 1989 that participate in the Islamic banking scheme, and development financial institutions prescribed under the Development Financial Institutions Act 2002 that participate in the Islamic banking scheme.

On liquidity management, Norashikin said Islamic money market faces issues with regard to lack of instruments, non-standard documents and processes, counterparty or credit risk, and the Shariah-compliant poser.

“Funds must emanate from a Shariah-compliant source and they need to be taken up by a Shariah-compliant source. In most places, there is no infrastructure in place to ensure that the funds are ‘clean’ Shariah-compliant,” she said in her presentation.

[The Malaysian Reserve, 19 Sept 2012]

HSBC quits Islamic biz in UK, focuses on M’sia and Saudi

By Habhajan Singh

HSBC Holdings Group is pulling out of the retail Islamic finance business in the UK and a number of countries, but will continue to seek sukuk issuance from Malaysia and other jurisdictions.

It has decided to focus its Islamic finance offering in Malaysia and Saudi Arabia, and maintain a limited presence in Indonesia.

This is a result of what it called a “strategic review” of its Islamic finance business, the group said in a statement released yesterday.

“HSBC will continue to offer wholesale Islamic financing/Sukuk products to its global client base through its operations in Malaysia and Saudi Arabia,” the statement said.

Following the restructuring, HSBC said it would retain 83% of the group’s Islamic business revenues.

In Malaysia, HSBC faced stiff competition on the Islamic finance front from local competitors Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd, and foreign players like Standard Chartered Bank Bhd.

In Saudi Arabia, the group intends to offer Islamic financial products through The Saudi British Bank (SABB), in which HSBC Holdings plc indirectly holds a 40% shareholding.

HSBC Saudi Arabia Ltd, in which HSBC Holdings plc indirectly holds a 49% shareholding, will offer Islamic investments and wholesale Islamic financing/sukuk products to customers globally.

HSBC is the biggest sukuk underwriter, ahead of Maybank and CIMB after handling 78 sales valued at US$10 billion (RM30.56 billion), among 42 companies tracked by Bloomberg.

Aside from the UK, HSBC said the group will cease to offer Shariah-compliant products and services in the United Arab Emirates, Bahrain, Bangladesh, Singapore and Mauritius, with the exception of wholesale Islamic financing/sukuk products that will continue to be offered in these jurisdict ions and globally through HSBC Saudi Arabia.

“This announcement represents further progress in HSBC’s execution of the global strategy set out in May 2011 and demonstrates the group’s commitment to driving growth and improving returns by restructuring or exiting businesses that do not meet its investment criteria.

“HSBC remains committed to delivering world-class Shariah-compliant products and services for customers in Malaysia, Indonesia and Saudi Arabia (through SABB), and Islamic Investments and global wholesale Islamic financing/sukuk solutions (through HSBC Saudi Arabia),” the statement added.

[The Malaysian Reserve, 5 Oct 2012]

Danainfra to issue RM1.5b sukuk by mid-November

by Habhajan Singh

Danainfra Nasional Bhd is finalising plans to issue a RM1.5 billion sukuk tranche by mid-November to finance the Sungai Buloh-Kajang (SBK) mass rapid transit (MRT) line, with one portion to be marketed as retail bond as mooted in Federal Budget 2013.

The issuance, part of the RM8 billion Islamic commercial papers/Islamic medium-term notes (ICP/IMTN) programme signed in early July, will see one fifth of it, or RM300 million, being floated as retail bond, said officials involved in the issuance.

"This is an opportunity to widen the investor base for the MRT project. However, should retailers fall short, we expect the corporates to snap up the retail bond portion," said Danainfra principal officer Fazlur Rahman Ebrahim [pix, below: Courtesy: Utusan].

Danainfra, a Ministry of Finance Incorporated (MOF) unit, was formed in June 2010 as an infrastructure finance entity (IFE) to help finance the country's biggest construction project. One of its key tasks would be to raise funds in the most efficient manner, both in terms of pricing and structure, for the mammoth MRT project now underway.

In his Federal Budget 2013 speech on Sept 28, Prime Minister Datuk Seri Mohd Najib Razak, who is also the finance minister, proposed that Danainfra will issue a RM300 million retail bond by end-2012 to finance MRT development projects.

"Apart from institutional investors, the government also encourages retail investors to participate in the capital market. For this purpose, the SC has formulated a framework for retail bond and sukuk issuances to enable investors to acquire stakes in the bond and sukuk markets," Najib said in his speech.

To encourage companies to issue retail bonds and retail sukuk, the Prime Minster said the government was proposing that additional expenses incurred in the issuance of retail bonds and retail sukuk be given a double deduction for a period of four years effective from the year of assessment 2012 to 2015.

At the same time, individual investors are also given stamp duty exemption on instruments relating to the transactions of retail bonds and retail sukuk, Najib said.

The latest RM1.5 billion issuance comes after an earlier RM2.4 billion sukuk from Danainfra for the MRT project, which had included RM1 billion as a bridging loan.

On the preparation to issue the retail bond, Fazlur said Danainfra was finalising the necessary documentation and framework.

"There is a debate on the size for the retail bond. Should it be RM1 million, or lower? These are some of the issues being ironed out," Fazlur said.

The Securities Commission (SC) had earlier paved the way for the issuance of retail bonds when it announced on Sept 6 on Danainfra's plan to venture into retail bonds.

On the framework, SC said it enables retail bonds and sukuk to be issued and traded either on the exchange (Bursa Malaysia) or over-the-counter (OTC) via appointed banks.

During the introductory phase, the SC statement noted that retail investors would be able to invest in bonds and sukuk issued or guaranteed by the Malaysian government.

The Danainfra issuance would be one of them as the RM8 billion programme is government guarateed.

[The Malaysian Reserve, 3 Oct 2012]