Sunday, September 15, 2013

TMR: M’sian reinsurers left out of Battersea project

By Azli Jamil

Malaysian reinsurance or retakaful operators could have benefitted from the London-based Battersea mega development project, led by SP Setia Bhd as the project principal, if the project owners had made it a condition for insurers to park a portion of reinsure with these companies.

The project, managed by Battersea Power Station Development Co Ltd (BPSD), would involve taking insurance coverage such as contractor’s all risk insurance, workmen compensation, advance loss of profits and motor, with total premium charged running into millions of ringgit.

An insurance industry veteran suggested that although the risk would be insured in the UK, the reinsurance of the risks could be done with Malaysian companies, reinsurance or retakaful, if the project principal were to include the condition in the insurance tender.

“If I’m directed by the principal to parcel some of the retakaful to Malaysian companies, I would do so. The question is if the principal of the project has or intends to do so,” said the veteran insurer.

When asked to comment on the matter, BPSD chairman Teow Leong Seng said qualified insurers, irrespective of their nationality, but with the requisite financial standing, experience and expertise in each particular area, will be invited to bid. “All bids will be carefully evaluated to ensure that awards go to the party which provides the best terms at the most competitive price,” he said in an email response to The Malaysian Reserve.

Teow said as the Battersea project is a UK asset, the risks would be insured in the UK in pound sterling to guard against foreign exchange risks.

One local reinsurance company is Malaysian Reinsurance Bhd and MNRB Retakaful Bhd on the takaful front, both wholly owned by MNRB Holdings Bhd which in turn is 69%-owned by Permodalan Nasional Bhd (PNB) and its schemes. SP Setia, helmed by Tan Sri Liew Kee Sin, is about 70%-owned by PNB.
Another local reinsurer is Asia Capital Reinsurance Malaysia Sdn Bhd which was established in 2007 with Khazanah Nasional Bhd holding a 70% stake and the rest by ACR Capital Holdings Pte Ltd.
The foreign reinsurers players with a presence in Malaysia are international giants Swiss Re, Germany-based Munich Re, Hannover Re and Japan- based Toa Reinsurance Company Ltd.

The insurance veteran said all reinsurance companies operating in Malaysia will have the capacity to underwrite the risks.
“The project client can instruct in their initial agreement for the insurer to look at Malaysian retakaful companies once they have exhausted the net retention.
The insured can insist that beyond the primary insurer’s net and treaty capacity, retakaful capacity from Malaysia be given priority before reinsurance capacity.
“This insurance arrangement could set a new trend for future major projects taken on by Malaysian-based companies,” he said.

When asked if BPSD had made such a request to the insurance companies, BPSD declined to respond.
Insurance industry executives were unable to recall of any significant Malaysian-led projects abroad which benefitted Malaysian reinsurance or retakaful players.
Battersea is owned by a consortium with SP Setia and conglomerate Sime Darby Bhd each holding a 40% stake respectively and the Employees Provident Fund another 20%.
BPSD will develop the project with an estimated gross development value of £8 billion (RM38.96 billion) in eight phases over the next 15 years.

Monday, September 9, 2013

HUMAYON: Mudaraba — an alternative model for investment banking in M’sia

Pakistan is perhaps the only country in the world with a vibrant Mudaraba business. With the promulgation of Mudaraba Companies and Mudarabas (Floatation and Control) Ordinance in 1980 followed by Mudaraba Companies and Mudaraba Rules 1981, Pakistan established an alternative investment and finance model that could be used for developing a viable governance framework for Islamic investment banking.

From as many as 50 Mudarabas listed on the three stock exchanges in the country in the 1990s, now the number has gone down to almost its half (27), as a result of consolidation, mergers and acquisitions, and declining interest in the Mudaraba sector.

Still, in terms of total assets under management (AUM), Mudaraba sector holds more than US$263 million (RM875.53 million) in AUM, significantly lower than the corresponding figure in 1990s — US$425 million — when the number of Mudarabas reached its peak.

In Malaysia, while Islamic banking has progressed and prospered in the last two decades, the profit and loss sharing nature of Islamic banking is being fast replaced with fixed return deposits.

A number of banks have gradually moved away from Mudaraba-based investment accounts to Wakala-based investment accounts, following the issuance of Mudaraba guidelines by Bank Negara Malaysia (BNM) requiring Islamic banks to offer restricted investment accounts, which in turn requires a purer form of profit and loss sharing than what is at present being practiced.

Bankers by default do not like profit and loss sharing, and hence it will always be difficult to build an Islamic banking model on the basis of profit and loss sharing. Even if banker’s arms are twisted to adopt profit and loss sharing, the regulators in most countries are also averse to the concept.

According to Mudaraba Companies and Mudarabas (Floatation and Control) Ordinance 1981, a Mudaraba can be defined as:

“Mudaraba means a business in which a person participates with his money and another with his efforts or skill or both his efforts and skill and shall include Unit Trusts and Mutual Funds by whatever name called.”

The governance structure of Mudaraba business in Pakistan is very tight. All Mudarabas are regulated by the Securities and Exchange Commission of Pakistan, and not by State Bank of Pakistan, the central bank.

Mudaraba regulations require separation of the Mudaraba management company (MMC) and the Mudaraba itself, with the latter being a company independent of the former and must be listed on one of three stock exchanges in the country.

Most of Mudarabas in practice are listed on all the three stock exchanges, ie, Karachi, Lahore and Islamabad stock exchanges.

The requirement of listing the Mudaraba on the stock exchange is to ensure that the investors are able to exit freely and easily. Most of investors in Mudaraba sector, however, intend to benefit from dividends rather than capital gains.

Mudarabas and MMCs are not deposit-taking institutions. This makes them pure investment companies, allowing their investors to benefit from the upside of the business and also taking the hit in case there is a loss in the Mudaraba business. A number of banks have set up Mudarabas but these are run by MMCs independent of the bank management.

Malaysia has already emerged as a leader in Islamic banking and finance, and it stands a better chance of developing a Mudaraba sector in the country.

[Dr Humayon Dar, chairman of EdBiz Corp Ltd, is also an adjunct professor at International Centre for Education in Islamic Finance. This article appeared in the 9 Sept 2013 issue of The Malaysian Reserve]

Kedah MB says he’s ‘still’s a tough decision to make’

by Habhajan Singh & Prem Kumar Panjamorthy

Newly minted Kedah Mentri Besar (MB) Datuk Mukhriz Mahathir is torn between devoting energy to develop the state and seizing the window of opportunity to move up the party ranks to fortify his political career.

With the Umno polls coming closer, Mukhriz has yet to announce his game plan, though some speculate that he may vie for one of the three VP posts.

“I’m still undecided. It’s a tough decision to make,” he told The Malaysian Reserve (TMR) in an interview at his office in Alor Setar last week.

After putting the question to a contest in the next Umno polls from a few different angles, TMR believes that Mukhriz is most likely to contest for a post in the coming Umno elections, though he may shy away from joining the fray for the already crowded contest for VPs.

Mukhriz seemed to make a distinction between an elected Umno supreme council member and an appointed one.

Umno is set to go for polls on Oct 19, with about 146,500 delegates from 199 Umno divisions voting for the posts for president, deputy president, three VPs and 25 supreme council (SC) members.

Aside from the 25 elected SC members, the Umno president can appoint any number of members to the powerful decision making body. MBs of Umno-led states get free-passes if they are not already elected in their own right.

“Even if I don’t (contest), I will be automatically appointed to the SC. But an appointed SC member sits at the end of the big table, where I am now. His voice was not quite heard. By the time I got a chance to speak, it’s towards the end of the meeting.

“It’s something else if you contest and be higher up in the food chain,” he said.

Taking a more philosophical look at his position, Mukhriz, the 49-year-old son of former Prime Minister Tun Dr Mahathir Mohamad, shared his personal dilemma.

“On one hand, I have some heavy obligations in the state. The workload is gruelling. I don’t want to do anything that may raise concerns (as to) whether I’m paying enough attention to my own state.

“Having said that, there are calls for me to participate in the national party politics. Supposedly, I represent the younger generation. There is this worry that if this process of making Umno more youthful doesn’t quite pan out as they hope, then we may face some serious challenges in the next general election,” he said.

“I’m kind of torn between these two schools of thoughts,” he said.

Mukhriz may have reasons to throw caution to the wind when it comes to a VP post. While he may have the backing of his still-influential father, he is not assured of a free pass, judging by what happened in 2009.

Then, he ran for the Umno youth chief position, only to come out third behind winner Khairy Jamaluddin Abu Bakar and former Selangor MB Dr Mohamed Khir Toyo.

For the VP slots this time around, the battle will be tough.

Current Umno VPs — Datuk Seri Dr Ahmad Zahid Hamidi, Datuk Seri Hishammuddin Hussein and Datuk Seri Mohd Shafie Apdal — are all set to defend their seats against other heavyweights like influential former Chief Ministers (CMs) Tan Sri Mohd Isa Abdul Samad (Negri Sembilan) and Datuk Seri Mohd Ali Rustam (Malacca).

Sabah CM Datuk Seri Musa Aman may also vie for the VP post, though he has yet to make his position known.

On calls for state Umno chiefs to refrain from contesting in the upcoming Umno polls, Mukhriz described them as “uncalled for” as it is against the democratic process to deny one’s right to contest.

“This is not the time to set certain parameters to exclude a certain group of people from exercising their right.

“I have once said that even the position of the president and deputy president should be open for contest, though I qualified it. Personally, I don’t think there is anyone in Umno credible enough to make a dent on the support that the two leaders are currently enjoying,” he said.

For the moment, Perak MB Datuk Seri Dr Zambry Abdul Kadir and Johor MB Datuk Seri Mohamed Khalid Nordin have stated that they will not be contesting any position in the upcoming Umno polls.


Ever since I was a child, I have always felt Aug 31, to be very special. As a Malaysian, I would wait eagerly every year on that day to watch the Merdeka Day celebratory procession, either attending it at Dataran Merdeka or glued in front of the TV like millions of other Malaysians.

The most memorable Merdeka Day for me was the year when I got the opportunity to sit next to the stage where the king, queen, prime minister and the whole Cabinet ministers were sitting during the procession. I was just a little lad following his father to work that day. I was really bitten big time by the patriotic bug then.

Meeting the men and women who served and fought to protect the sovereignty of an independent Malaysia, I was drowned in patriotic feelings and aspirations.

I was ready to take up arms and fight the communists who were still waging war against the country back then. The amused smiles of adults around me as I announced my intention loudly did not deter my enthusiasm. I made a promise to myself that I will fight endlessly to serve my country and protect her from harm, just like my father.

My enthusiasm has not dampened today but I did learn much later that I did not have to be in the military or the police to do it. I learnt that I could be just as effective in any line of work. As a Malaysian, I was born with the duty to be patriotic irrespective of the line of work that I choose to do. Even as a banker, more specifically an Islamic banker, today, I find myself in the front line fighting the good fight for Malaysia in a global financial market. Together with many others, I continuously battle to put forth our Islamic finance industry as a credible and viable value proposition and global marketplace for Islamic finance not just for Malaysians but for everyone.

It was 30 years ago that we made one of the most important choices of our young nation’s independent existence, which was the formation of Bank Islam Malaysia Bhd, the first Islamic bank in Malaysia and my first employer, 26 years after we achieved independence from the British. It was a historic moment to my mind to rival that of Merdeka Day for it was the day that marked the start of us achieving real independence.

Many do not realise that when we formed Bank Islam under a new legislation called the Islamic Banking Act 1983, we introduced the world’s first formal dual banking system, that helped bring about our eventual financial independence. Political and economic independence is worthless without financial independence. That one act cemented our sovereignty in the world.

Many Malaysians fought hard since Merdeka Day in shedding the colonial shackles that we found ourselves tied to in the effort to reintroduce and implement Islamic finance after 500 years of foreign occupation.

I see them all as patriots who fought the good fight in introducing the appropriate legislation, regulation, judicial and Shariah frameworks that enabled Islamic finance to coexist on a level playing field with conventional riba-based finance.

As a result, Malaysia has one of the most free and liberalised financial markets in the world and a force to be reckoned with in international finance.

In my opinion, Malaysia is arguably the most democratic financial market in the world, where no one is left out of the financial market with the availability of Islamic finance offerings; where core poverty has been eradicated; where everyone is able to be involved in mainstream economic activities; where we are second to none in the world in terms of optimal financial inclusion.

Malaysia is the only market in the world that allows a young Islamic bank like CIMB Islamic Bank Bhd to compete head on with conventional banks effectively to become the top 15 of the world’s largest Islamic banks by assets and deposits in less than seven years.

Malaysia is the only country that offers her citizens the full and real freedom of choice in choosing their preferred financial solutions where Islamic financial products and conventional riba-based financial products are offered side by side competitively.

I am a firm believer that there is no real sovereignty or true freedom in this world without financial freedom.

At the end of the day, the Malaysian patriots in the Islamic finance industry have not only served to protect and enhance Malaysia’s independence and sovereignty but have also contributed in making the world a better place. The memory of my childhood promise drives my commitment to serve my country but it is those patriots who have come and gone that continue to inspire me to do more.

Merdeka! Merdeka! Merdeka!

[Badlisyah Abdul Ghani is the ED and CEO of CIMB Islamic Bank Bhd. This column appeared in the 2 September 2013 issue of The Malaysian Reserve]

COMMENT: It’s time to plug leakages

By Habhajan Singh

Subsidy reduction makes good economic sense when there is overwhelming proof that part of the money doled out is not reaching the targeted groups. This base argument, while bitter for many, will make better sense if the government shows equal resolve in getting a handle on issues pertaining to leakages.

Yesterday, the government announced a price hike for petrol RON95 and diesel, the most widely used fuel for Malaysian cars, following a reduction in fuel subsidy. With the general election (GE) out of the way and the international rating agencies increasing their pressure on the nation’s sovereign rating, there is no better time to act.

The move comes after the maiden meeting of the newly formed government’s fiscal policy committee. It’s a powerful outfit made up of the prime minister, deputy prime minister, finance minister II, Bank Negara Malaysia governor, government chief secretary, secretary general of the Treasury and the Economic Planning Unit minister in charge and its director general.

After the meeting of the committee yesterday, Prime Minister Datuk Seri Mohd Najib Razak announced the 20 sen per litre reduction in subsidy for the RON95 petrol and diesel. At current prices, it works out to a total subsidy savings of RM1.1 billion.

“It’s a process of fiscal consolidation, the market will be more confident if we are able to bring down our fiscal deficit,” he told reporters at a press conference yesterday. That statement is aimed at the international rating agencies which have trained their eyes on Malaysia, with Fitch Ratings having recently downgraded the nation’s sovereign credit rating outlook.

This marks the first major fiscal consolidation attempt on the part of the Najib administration post-GE 2013. As we can see, our economy is up against an unstable global economy. Being an exportheavy economy, we will not be spared what is happening out there in the world.

Fuel subsidy will always remain a burning issue. In neighbouring Indonesia, riots erupted when it hiked fuel prices.

In Malaysia, the collective reaction has been, thankfully, much more restrained. Yes, in the past, people have taken to the streets. But by and large, the rakyat probably appreciate that this piece of market distortion cannot go on forever.

How not? Even the rich folks, being driven in their high-powered vehicles, enjoy the fuel subsidy. So do the tourists. A free-flowing fuel subsidy does not make economic sense.

Hence, the rakyat should welcome the reduction in subsidy in fuel, if there are proper mechanism in places to ensure that the vulnerable groups within their midst are taken care of. This is where BR1M comes into play. That’s short for Bantuan Rakyat 1Malaysia, a cash aid to the lower income group.

The administration is promising a higher BR1M payout when it unveils the proposed federal budget in Parliament next month. In the long run, the administration is also promising to widen the safety net for the less fortunate.

At the same time, it is high time that the administration also train its eyes on plugging leakages.


Govt may delay big ticket projects

By Habhajan Singh

The government may put on hold some big ticket items, take a hard look at the way subsidies are dished out and pave the way for the possible introduction of the much-debated goods and services tax (GST) regime.

Prime Minister Datuk Seri Mohd Najib Razak is expected to make some major announcements which may come as soon as Monday when he chairs the next sitting of the administration’s recently announced fiscal policy committee made up of ministers and government’s heads of departments.

In a statement yesterday, Finance Minister II Datuk Seri Ahmad Husni Mohamad Hanadzlah said the government is exploring measures to rationalise and better target expenditure, including subsidies, to ensure value for money spending.

“Projects that have a big impact on public finances will also be reviewed and sequenced properly, to avoid excessive strain on the federal budget,” he said in the statement released yesterday.

He added that the ministry is also looking at the narrowing current account surplus. “Therefore, all future public sec tor projec t s wi l l be considered carefully, taking into consideration the current account position in the balance of payments.

“Public sector projects with low impact content and high multiplier effects will be given priority, without compromising economic growth,” he said.

It is understood that the move may not impact some of the mega projects already underway. Some of the mega projects are the RM56 billion Klang Valley Mass Rapid Transit project and the RM60 billion refinery and petrochemical integrated development project spearheaded by Petroliam Nasional Bhd. Others include the Kuala Lumpur-Singapore high-speed rail project and the West Coast highway project. However, Ahmad Husni did not name any projects, present or future, in the two-page statement.

In July, Fitch Ratings downgraded Malaysia’s sovereign credit rating outlook to negative from stable, though it retained the nation’s high investmentgrade ratings of A- on long-term foreign debt and A on longterm local debt.

In a report as far back as August 2012, Fitch had urged Malaysia to reduce its heavy dependence on petroleumlinked revenue and implement the GST due to concerns on weakening public finances, noting what it deemed as the “growing strains” on the country’s credit profile.

“Fitch Ratings is concerned that negative pressures may build and eventually offset the existing strengths of the sovereign credit profile unless structural weaknesses in the public finances are addressed,” it said in a special report on “Malaysian Public Finance”.

In the same statement, Ahmad Husni said: “There is increasing concern over property market imbalances, rising household indebtedness, rising government debt and fiscal deficit.”

However, he reiterated that the government is committed to achieving the three guiding principles of fiscal policy: That the federal government will not exceed 55% of the gross domestic product (GDP); that revenue will always exceed operating expenditure; and the fiscal deficit for 2013 will not exceed 4% of GDP.

The statement noted that the fiscal policy committee will meet next week to discuss further measures to strenghten the country’s current economic position. The meeting will table for approval various initiatives and options to ensure Malaysia’s economic and fiscal position are strong and sustainable, both in the immediate and medium term, it added.

“The key areas to be discussed are better expenditure management (subsidies rationalisation), revenue enhancement (GST implementation and real property gain tax review), as well as improving governance and work processes,” the statement said.

This is yet the most clearest signal from the authorities that the introduction of the GST is imminent.

Yesterday, The Malaysian Reserve reported that the government was expected to announce major fiscal policy changes that may include the GST in the upcoming October budget to trim widening fiscal deficit that has hit RM14.9 billion.

In an exclusive interview with The Malaysian Reserve on Tuesday, Ministry of Finance secretary general Tan Sri Mohd Irwan Serigar Abdullah said a slew of fiscal reforms were being discussed to bolster the country’s monetary position.


TMR: Islamic portfolios attract ethical investors in US

By Kazi Mahmood

Ethical investment which has similarities with Islamic based investments has reached US$32 trillion (RM105.6 trillion) in size in the US and the European Union, an expert in wealth management and ethical investment said.

Meanwhile, responsible investing such as Islamic finance is probably one of the most appreciated form of investment even in the US, a prominent global investment manager specialising in the issues of ethical and Islamic investment Nicholas Kaiser said.

“There are over 1,200 signatories with US$32 trillion of assets under management and that shows the tremendous growth of assets categorised under the principles of responsible investment,” Kaiser said.

Though the number of very wealthy Islamic investors in the US were scarce compared to investors in conventional funds, he said his Amana funds are doing very well in the US.

“The investors in the Islamic funds are not all Muslims as the funds attracted American citizens from all backgrounds and Muslim investors are only a small number of the investors in the Amana fund,” he said.

“We have US$4.1 billion in asset management in 10 different mutual funds, with two separate families. The Amana family has three funds and the rest is from the Sextant family which has seven funds,” he said while explaining on the size of his business.

There are no surprises that the Amana Mutual Funds, which has 90% of the company’s managed assets, is popular with investors who choose to invest in ethical investment funds, and they are those who do not really care if these funds are religious based funds.

Kaiser said his involvement in the Islamic mutual fund started in 1984 when a group of Muslim businessmen urged him to start an Islamic fund, to which he responded positively.

“They offered to teach me about Islamic finance, of which I had no idea at all at that time but that was how it all started and today it has grown into a major sector of the business,” he told The Malaysian Reserve in an interview at the Saturna offices in Kuala Lumpur.

Islamic finance funds shun shares in firms involved with alcohol, tobacco, gambling, pork, pornography. The funds avoid bonds and other interest bearing securities while seeking protection against inflation by making long-term equity investments.

According to Saturna, the company’s Amana Trust Income (ATI), which is its oldest of the group of Amana funds has US$1 billion in assets and it derive its dividends thanks to investments in top market portfolio’s.

The annual return for ATI for the past 10 years averaged 6%, 6.5 percentage points better than the Standards & Poor’s (S&P) 500 and good enough to put ATI in the top 5% of its category, according to Morningstar.

Kaiser’s biggest fund, the Amana Trust Growth which has US$1.5 billion in size, has invested in stocks like Apple and Google and has returned 3.4% a year and is has done better in the S&P 500 by 4% a year during the same time frame.

Kaiser explained that his company are equity fund advisors, managing funds primarily for US investors, but decided to start operating in Malaysia where they will be conducting market research and analysis.

The company uses its years of investment experience to aid investors in navigating today’s volatile markets, he said.

In the long run, the company will also offer Islamic stocks and perhaps engage in other investment portfolio’s which could include personal retirement funds as and when the market opens up in Malaysia.

Nevertheless, it appears that while Amana’s success is the result of the discipline of its Islamic investment nature, investing in Islamic stocks does not necessarily bring profit to the investors.

“In times of economic downturn, the investors are after stocks that can bring them profit. But during the 2008 crisis, what is called the ‘sin’ stocks were rejected by the investors as they found they could gain more with Islamic cum ethical stocks,” he said.

He explained that it is a good deed to invest in ethical stocks since they are relevant as environmental, social and good governance stocks, and rejected portfolio’s that encroached on human rights, child labour or harmed the environment.


TMR: Licence for Kerala Islamic finance

By Kazi Mahmood

In a landmark ruling, the Kerala government has been given the go ahead by the Reserve Bank of India (RBI) to launch an Islamic financial institution (IFI), which will be a joint venture between the Al Barakah Financial Services Ltd and the Kerala State Industrial Development Corp (KSIDC), according to media reports.

Kerala will get its first Islamic non-banking finance company Al Barakah in India, after the dismissal of petitions filed by Subramaniam Swamy and RV Babu in the High Court, paving way for a unique partnership in a bid to raise funds for industrial and infrastructure projects.

Kerala Industries Minister Elamaram Kareem said the licence was granted due to the great interest by Gulf nations to invest in Indian infrastructure projects.

“There is enormous interest among Gulf-based NRIs (nonresident Indians) on investing in Kerala through the Shariah route. There has been an offer to bring in Rs10,000 crore (RM6.74 billion) from Oman alone, through the initiative of Muscat-based Keralite businessman, P Mohamed Ali,” the minister said, as reported by

The interest in the proposed NBFC (non-banking financial companies) is so strong, that immediately after it was floated, a large corporate with interest in multiple domains sought 74% stake in it, and the Doha Bank expressed desire to pick up a 46% equity, Kareem said.

The project will be floated by the Cheraman Financial Services Ltd (CFSL) for the KSIDC. A formal announcement on CFSL, the latest incarnation of Al Baraka Financial Services, was made for the purpose of officially registering RBI’s support for the project.

Counting on the state’s traditional Gulf links, a previous government in Kerala had hoped to raise Rs40,000 crore.

The issue of Islamic banking and finance is that India made the headlines earlier this year with the RBI declining to grant Islamic banking licence, citing the incompatibility of the Indian financial laws that did not allow banks and finance houses to operate without charging interest.

Al Barakah will be an unique company with an authorised share capital of Rs1,000 crores and will operate on the principles of Islamic financial institutions, much like a venture capital or an investment firm.

“Al Barakah will not operate as a bank and extend loans but make direct investments in infrastructure projects not linked with pork, alcohol and other non-halal products, after which profits would be shared in the form of dividends and not as an interest. KSIDC has a 11% stake and the rest would be raised by NRIs and state Muslim population,” reported.

Kerala, with a 56% Hindu population, is seen as a cosmopolitan society where tolerance among the people is high and it is said to be the perfect example where Islamic finance could be enrolled for large projects. The state has a 24% Muslim population with 19% Christians.

After the introduction of Shariah index in Bombay Stock Exchange (BSE), it is a second serious attempt to include the Indian Muslim in the mainstream financial setup and certainly will be a milestone to achieve the inclusive growth vision of the country, the report added.

Meanwhile, Indian Centre for Islamic Finance secretary general Abdur Raqeeb, who is responsible for the campaign to establish interest free banking in India, said the need to bring the Muslim population into the mainstream banking system, with Islamic banking, is a must as India will benefit from such a move.

He said the size and purchasing power of Indian middle class is increasing year-on-year, creating wider scope for consumer finance on Islamic finance principles.

“The savings of the 200 million Muslims of India, mostly whom are currently unbanked, will provide ample opportunity for IFIs of Malaysia,” Raqeeb said.

The fact that major chunk of India’s growth is driven by domestic demand makes investment in India more attractive and sustainable vis-avis investment in China or other growing economies.” he said, adding that Malaysian and Gulf nations should be interested in infrastructure investment in India.

Islamic banking and finance is the largest alternative financial system in the world. It is approximately a US$2 trillion (RM6.55 trillion) industry present in over 75 countries including Australia, France, the UK, Hong Kong, Singapore, Luxembourg, South Africa, Sri Lanka and Malaysia.


TMR: RM4b Murabahah GII oversubscribed

By Kazi Mahmood

The inaugural issuance of government investment issue (GII) under Murabahah contract amounting to RM4 billion was oversubscribed 2.92 times, translating into a highly competitive yield, Bank Negara Malaysia (BNM) said last week.

The bank said the recent inaugural issuance of a murabahah- based GII issued on July 22 was an important development in the Islamic financial industry.

“The RM4 billion issuance of GII under the widely accepted structure of Murabahah was 2.92 times oversubscribed; the highest bid-to-cover year-todate, translating into a highly competitive yield,” the bank statement said.

The issuance of GII, the bank said, was based on Murabahah contract which is essentially a certificate of indebtedness arising from a deferred mark-up sale transaction of an asset, such as commodity (mainly crude palm oil), which complies with Shariah principles.

Maybank Islamic Bhd Islamic global markets director Aria Putera Ismail said the inaugural issuance of murabahah- based GII is timely as it potentially will attract participation from the Malaysiabased Islamic foreign financial institutions.

“It will attract Middle East investors who are looking for Shariah-compliant sovereign risk asset in the emerging market,” Aria said in the same statement.

Aria also said this will create a greater depth and active sukuk market, besides providing opportunities for more Shariah-complaint foreign exchange and hedging transactions to be taken place in the near future.

The much awaited product is another milestone in the standardisation and harmonisation of the Islamic finance industry across the globe, Bank Islam Malaysia Bhd treasury head Norashikin Mohd Kassim said.

“The issuance of GII under Murabahah is greatly welcomed by the market. The initiative is consistent with BNM’s support and innovative approach to meeting market requirements,” she said.

Norashikin also said the product was based on globally accepted Islamic concepts, thus greater participation from domestic and international investors is anticipated.

The primary issuances will continue to be conducted through competitive auction via the principal dealer network. Secondary trading of the GII will be based on bay aldayn concept where it involves buying and selling of the securities issued by the government of Malaysia as evidence of indebtedness.

The weighed average successful yield at the point of issuance was 3.389%, similar to the three-year Malaysian government securities which was trading around 3.396%.

The issuance was widely supported by principal dealers, both conventional and Islamic. Post-auction, the GII rallied 5.6bps amid RM1.7 billion worth of trades.

The Islamic money market is integral to the functioning of the Islamic banking system, firstly, in providing the Islamic financial institutions with the facility for funding and adjusting portfolios over the short-term, and secondly, serving as a channel for the transmission of monetary policy, a policy statement on the BNM website said.

Financial instruments and interbank investment would allow surplus banks to channel funds to deficit banks, thereby maintaining the funding and liquidity mechanism necessary to promote stability in the system.

The Islamic interbank money market (IIMM) was introduced on Jan 3, 1994, as a short-term intermediary to provide a ready source of short-term investment outlets based on Shariah principle.

Through the IIMM, the Islamic banks and banks participating in the Islamic banking scheme will be able to match the funding requirements effectively and efficiently. BNM issued the guidelines on the IIMM on Dec 18, 1993, to facilitate proper implementation of the IIMM.


TMR: Amanie launches ALIF banking system

By Kazi Mahmood

Amanie Nexus Sdn Bhd, a division of Malaysia-based company Amanie Holdings, is targeting a niche to supply Shariah-compliant IT solutions for banks with the launch of its new adaptable core-banking software system.

Amanie Nexus CEO Razi Pahlavi said it has taken a head start in exploring the Middle East market with the launch by Amanie Global Technology of a customisable Islamic core banking system, called ALIF, in Libya last week.

He said the system, which is also suitable for conventional banking use, has added a new product to Amanie’s core business of providing Shariah advisory services.

“We see strong interest in our new ALIF system across North Africa, as Islamic banking is emerging in nearly all markets and there is great appeal in an “all-in-one” Islamic core banking solution,” Razi said.

“We have partnered with an Indian based software company that has built a crossplatform information technology (IT) solution for the banking sector and we have launched the new package in Libya.”

The new system is a global innovation in the area of core-banking systems for Islamic Financial institutions and can be adaptable to most existing systems as well as serve as a stand-alone solution for new banks offering Islamic Banking products, Razi said prior to the launch in an exclusive interview with The Malaysian Reserve.

The system will integrate with existing core banking systems as the system understands the language of the old core framework, which gives ALIF is a better allure with a bigger return on investment, thus reducing cost of investments for the banks, Razi said.

Razi said the ALIF solution is also easy to adopt because it does not require banks to overhaul existing systems.

The solution addresses the business and service functionalities in a single and modular system, and will integrate its Islamic risk management module under global Shariah standards within the existing core system, Razi added.

“It is not just a core banking solution, it empowers the core banking system to cover Islamic finance vertically through a completely integrated solution,” he said.

Razi said the bank in Libya for example, does not have to invest in an entire new core banking system but will rather use the modular components that it needs to carry out its Islamic banking operations.

The solution is also in the process of being certified as Shariah-compliant by reputable global Shariah advisors, the company said.

“The standalone will easily integrate with the hub. But the most crucial is that it will include international Shariah practice standards and will include our intellectual property in the system,” Razi said. To realise its objectives, the Amanie group has joined forces with Kerala-based Pace Synergy, which is a software house in India consisting of experienced specialists.

Both companies will act as new entrants in the Islamic banking and finance software provision market. The market has seen, in the recent years, the entrance of a few core banking solutions made for Islamic banks and banks with Islamic window.

The top five core banking software systems are Fidelity Information Service, TEMENOS, Oracle Financial Services Software, Fiserv and Infosys Technologies. Amanie Nexus also offers Shar iah- compliant stock screening, which is an online flexible stock screening system vetted by transparent methodologies.

Amanie is an independent Shariah global financial advisory firm, founded in Malaysia by Dr Mohd Daud Bakar, a globally renowned Shariah scholar. It has offices in eight major cities across the globe and comprises of a team of over 20 global professionals.


BADLISYAH: Is debt trading in sukuk market allowed under Shariah?

We are just a few days before the start of Ramadhan when Muslims all over the world will be fasting to fulfill one of Islam’s five pillars of faith.

As I reflect upon the goodness of Ramadhan, I am reminded that it has always been a good month for sukuk issuance as we have seen more sukuk done in the Ramadhan month than in any other month of the year for the last 23 years. Well, at least in Malaysia.

Talking about sukuk, in 2011, I spoke at an international centre for education in Islamic finance (INCEIF) luncheon talk and was asked the reason why bai al dayn (trading of debt) in the sukuk market at a price other than par value is allowed under Shariah.

This is an old non-issue that many newcomers to Islamic finance keep asking and I thought I should immortalise my answer in this column as future reference or fodder for intellectual discussion.

My answer is simple — there is nothing in the Quran or legitimate Hadith that directly or expressly prohibits its undertaking. Therefore, it is permissible under Shariah ab initio. On top of this, the dissenting argument against such trade is indirect and weak.

As I have always said, Shariah is simple but we human beings always like to complicate it. We should remember that the fundamental workings of the Shariah principle of Muamalat under which Islamic finance is governed provides that EVERYTHING IS ALLOWED UNLESS THERE ARE CLEAR AND DIRECT EXPRESSED PROHIBITIONS (IN QURAN AND LEGITIMATE HADITH) THAT DISALLOWS THEM.

But why then do we still have dissension on bai al dayn at premium or discount under Shariah?

I would say, first and foremost, that the dissent is analogous in nature. The dissenters referred to an indirect Hadith, which says, “gold is to be paid by gold, silver by silver, wheat by wheat, barley by barley, dates by dates, salt by salt — like for like, equal for equal, payment being made on the spot. If the species differ, sell as you wish provided that payment is made on the spot”, to say that it can’t be done as the basis for disallowing it although the Hadith does not mention anything about debt.

I can’t remember its origin but suffice to say that the referred Hadith is a strong legitimate Hadith under which there is an established consensus from qualified Shariah scholars that currency or cash must be traded on spot and at par value if they are traded using the same currency eg US dollar with US dollar. However, to rely on this Hadith, the dissenters are forced to categorise or equate debt as currency or cash.

To me one can by analogy explain the workings of a heart by using a pump but a heart can never be equated as a pump. The two may have partially similar workings but they are not the same. When it comes to debt, I do not think it is even right to apply analogy to explain its workings by using currency or cash. The partial similarity is negligible and irrelevant. Analogising and saying debt is currency or cash is to my mind an exercise of putting a square peg in a round hole and really stretching the imagination.

If we are to follow the dissenting arguments, then all Muslim entrepreneurs in the world will truly be lame ducks in monetising their business in the equity market. The reason for this is that all businesses have among its core assets in the form of debt (ie trade debtors) with some up to 90% of total asset. If debt is considered currency or cash then all Muslim entrepreneurs would be forced to sell the business that they have built for a lifetime only at par value or a potential buyer who is a Muslim can’t buy the business by discounting the asset value to maximise his profit from the purchase.

Aside from analogously equalising debt to currency or cash, the dissenters also opined that such an activity should be disallowed as it does not meet maqasid al shariah (objective of Shariah), which is to do good for all mankind and protect them from harm. I was stumped when I heard this argument (palm smacked on forehead).

Maqasid al shariah does not determine halal (permissible) or haram (impermissible) in Islam. It simply requires that in anything that we do, we do it in a manner that benefits mankind and protects them from harm.

In general, something may not necessarily meet the maqasid al shariah of a society but it is still permissible. An example is smoking cigarettes. There is nothing impermissible about it because there is nothing in Shariah that disallows it specifically but from maqasid al shariah perspective it should not be allowed because it can harm people’s health and economic well being.

Therefore, disallowing it is a matter of policy instead of Shariah per se.

The harm must be caused directly by the subject matter like cigarette smoking. The tobacco in cigarette is not harmful. Cigarette per se is harmful because of its chemical content.

Smoking it is even more harmful as it impacts others. Similarly debt is not harmful.

It is even a recognised component of Shariah. Debt trading is not harmful as it does not impact anyone else other than the traders doing the trading.

However, excessive debt taking may be harmful and this is relative to the capacity of each individual taking the debt.

All in all, many Hadith have directly and clearly expressed the need to avoid excessive debt but there is not one Hadith that directly and expressly prohibits debt trading at premium or discount.

I believe this to be the fact and we must, for the sake of the Ummah, move on from this non-issue. There are too many of us living in poverty, the world over, for us to be continuously distracted by it.

[Badlisyah Abdul Ghani is the ED and CEO of CIMB Islamic Bank Bhd. This column appeared in the 1 July 2013 issue of The Malaysian Reserve]

TMR: Amanie plans sukuk for Australian business

By Kazi Mahmood

Amanie Advisors Australia Pte Ltd, which is part of the Malaysian Amanie Advisors Group, has proposed to integrate Islamic finance into the Australian business environment as the country eyes more business opportunities from the Middle East region.

Amanie founder and group chairman Dr Mohd Daud Bakar said the company has proposed to raise multiple short-term sukuk to cover Australia’s manufacturing ecosystem as part of the strategy to win funds from the Gulf area.

“This is about the funding of the entire process of production from the mining of coal or the growing of seeds for plantation, up to the packaging and the exporting of the end products,” Dr Mohd Daud said.

He said one advantage of sukuk, for example, is that the paper can be created while the coal is being extracted because Islamic finance is based on real economic activities.

“We are looking at tangible assets, high quality of assets to be funded by Shariah-compliant process. In the case of electricity, we want to look beyond the independent power providers,” he said.

Dr Mohd Daud said the structures used in Islamic finance transactions mirror very closely the types of funding that are currently in demand in Australia, particular with respect to real economic activity which include leasing, financing of mining activities and farming.

Amanie Advisors Australia has recently obtained an Australian Financial Services Licence (AFSL) from the Australian Securities and Investment Commission, which is the financial markets regulator.

“We are offering a value proposition of the value chain which involves the entire ecosystem touching the real economic activities and funded by global Islamic investors,” Dr Mohd Daud said, adding that it was time to look at the value chain rather than the end of the road of the product.

The revolutionary idea will be a totally new way of approach in the Islamic finance industry, which seems to have been well accepted in Australia following Amanie’s launch of its Australian arm in the country.

Currently, Islamic finance tends to raise funds for the manufacturing processes in factories and funds projects that deal with the end products rather than the original sourcing of the raw materials and so on.

The idea involves funding from the whole value chain of any business, for examples electricity production. The company said it wanted to find out from where the electricity was being produced or sourced out. Is it from coal, the sun, water or waste products?

“The aim is to get involved from the coal mining process to the transformation of the coal into burn material and shipment of the coal to the buyers,” Dr Mohd Daud explained.

This process alone can be divided into several phases and it involves various funding processes in which Amanie can be involved in the funding through outsourcing from the Islamic finance and banking sector.

Amanie sees opportunities for its advisory services in many parts of the economy, particularly in natural resources investments.

It can obtain financing requirements from investment banks and Islamic banks, create the instrument and enlist the banks to arrange the finance and bring the transaction to the Islamic capital market.

The short-term sukuk will involve the banks in the value chain, reduce the dependency of farmers and producers from conventional or private funds though the risk is quite high but the third party acts as the underwriter.

“In the end, the banks and the Islamic finance agencies have to be more creative to make the structure strong enough to mitigate the risks,” he said.


BADLISYAH: Bringing benefit to mankind by staying true to Shariah in Islamic banking

Last week, Shariah scholars from across Asean congregated in Singapore for the annual “Muzakarah Cendekiawan Shariah Nusantara” organised by the Malaysia-based International Shariah Research Academy for Islamic Finance.

This wonderful annual event brings regional industry players, Shariah scholars and regulators together to exchange views on the practical applications of Shariah in the Islamic financial market.

I thought I should pay homage to the muzakarah in my column by discussing this year’s talking points centred on fees and charges chargeable in Islamic finance. I will focus the discussion here on the most important issue that keeps every industry player awake at night, which is the charging of an Islamic bank’s financial costs to customers.

Currently, any cost that is considered to be financial in nature is not accepted as real or actual cost of the bank, and therefore has not been allowed to be charged to customers by many learned Shariah experts.

It has been said that financial cost in the form of the forced unwinding of hedging and funding arrangements arising from the early termination or default of a fixed rate financing is not an actual cost because many see it as an opportunity loss rather than an actual loss to the bank.

Many make the assumption that every non-consummated fixed rate Islamic financing contract is replaceable with an equivalent transaction immediately. Many say that the hedge is something that the bank has to do anyway as part of prudent business undertaking, so it should not claim from customers. Many forget that the bank had to enter the hedging because the customers demanded an affordable fixed rate, long-term Islamic financing. Without the hedging, the cost of the financing to the customer would be more expensive.

Worse, many seem to have forgotten that Islamic banks do not give loans like conventional banks. An Islamic bank gives financing but it is done by way of a real trade contract. If the trade contract is unreal then it would not have attracted double stamp duty, real property gains tax or other relevant tax to the extent that the Islamic bank requires tax neutrality be provided under law by the government in every tax jurisdiction.

This blinked view of the situation caused many Islamic banks to absorb the losses suffered due to the inability to charge a break funding fee.

I guess this is the true problem statement. This makes Islamic banks totally inefficient and disadvantaged compared to conventional riba-based bank. Globally, this is one reason why Islamic banks’ return on equity is, on average, inferior to conventional banks’ with a few exceptions like Al-Rajhi Bank in Saudi Arabia and CIMB Islamic Bank Bhd in Malaysia.

Islamic banks are licensed to do banking business. Some Islamic banks in Asean do carry a universal banking licence but most are just licensed to do traditional regulated banking activities such as taking deposits and providing financing to customers.

Under such approved activities, the full set of banking business requirements have to be fulfilled by Islamic banks for them to fulfill their obligations under the licence. Any intervention that interrupts this would be detrimental to Islamic banks and causes many to fail the fundamental objective to facilitate financial inclusion and effective distribution of wealth.

Generally, financial costs are real costs of the Islamic banks in doing their function as the mobilisers of funds. Real costs in Islamic banking business can be easily equated with the real costs under non-financial businesses. Although Islamic banking business is purportedly a financial business in nature, it does carry the same financial costs as any normal trade that is non-financial in nature.

An exporter of goods may enter into a hedging contract to mitigate the risk of the sale arising from currency risk, funding risk and so on, in the event of cancellation, early payment or default of the sale contract and to provide best pricing for the buyer. They may also enter a specific funding arrangement just because of the specific purchase by the buyer.

Based on fair trade practice and a willing buyer, willing seller basis, the exporter could charge a break fee to discourage or to incentivise the buyer not to cancel, early pay or default the contract. There is no known Shariah reason to prohibit this, even from an ethics’ perspective.

Financial costs such as break funding costs caused by the unwinding of risk management tool for the trade entered by an Islamic bank are similarly very real under banking business.

Without it, customers will never get access to affordable financial solutions, which is the hallmark of banking as a public good.

We must always remember that Islamic banking with its two-part fund mobilisation system has long been approved as activities consistent with Shariah by many qualified Shariah scholars globally. As long as there is no contradiction with clear express prohibitions in the Quran and legitimate Hadith, any activity under the Islamic banking practice that is a prerequisite business requirement, should not be disallowed and continue to be disallowed.

I believe one cannot invite someone for dinner and then say he can eat the food but cannot drink, or worse, he can chew the food but cannot swallow. Such invitation is incomplete. The same incompleteness exists when allowing a licensed Islamic bank to do Islamic banking business but not allowing it to charge the consequential financial cost it has to incur to make it affordable to the customers.

Having said all of the above, many would still have difficulty accepting the need to allow an Islamic bank to charge financial cost. However, going back to basics, what right does anyone have to deny a seller of goods (in this case Islamic banks) the ability to get the full selling price that has been contracted with the buyer (ie the bank’s customer) if all conditions are met? The answer here is none. I would even go as far as saying it compromises the very basic principle of Muamalat. Of course this does not preclude the bank from giving rebate or discount.

An Islamic bank has the absolute right to the full sale price of a trade contract so the discussion on break funding cost rightly is superfluous in the first instance. However, we are forced to discuss it because people have accused Islamic banks of doing interest-based lending business.

We should never lose the plot of what Islamic banking business is all about. People need to stop this misplaced accusation against Islamic banks when fundamentally it is not and cannot do so under Shariah.

A forced lifting of the veil in the underlying transactions to supposedly expose the purported characteristics of the Islamic banking instruments will only defeat the very purpose of the original application of Shariah principle to provide traditional banking services to principally alleviate poverty among the two billion Muslims globally. If murabahah transaction is stripped off from murabahah financing for example, what is left is the outright lending with the charging of interest, which is unlawful under Shariah.

The net effect might be the same, but financing or monetisation using proper Shariah trade structure is very different from conventional riba-based financing. The former, which is trade, is encouraged under Shariah, while the latter, which is riba, is clearly prohibited.

The confusion between the two is already foreseen in the Quran.

All in all, Islamic banks undertake trade as approved banking activities under financial regulation allowing its customers to own, say a house or a car on fixed term and deferred payment basis. Islamic banks do have flexi rate financing but the issue of financial cost charges is not relevant. The financial cost arising from any hedging or funding arrangement entered to allow an Islamic bank to sell a house or a car on an affordable, fixed-term basis is typically built into the financial obligations of the customer under the underlying Shariah based contracts.

I sincerely hope my hoopla here on the issue of chargeable fees and charges in Islamic finance helps elicit a deeper thought process and brings us back to the reality of the issue. There are many things that we do not know and not sure of but if we stay true to Shariah, we will not lose sight of the ultimate objective of Shariah, which is to bring benefit to all mankind and prevent them from harm.

In the end, not allowing the charges of financial cost within the sale price under a sales contract entered by an Islamic bank with a customer brings more harm to society than good.

Just remember that Shariah has always given the right to the full sale price to a seller of goods to start with but some of us in the context of Islamic banking business seem adamant to change the rule of sale, that has stood for millennia, to the detriment of the Islamic finance industry.

[Badlisyah Abdul Ghani is the ED and CEO of CIMB Islamic Bank Bhd. This column appeared in the 3 June 2013 issue of The Malaysian Reserve]

Experts: Islamic funds more resilient during financial crisis

by Sathish Govind   

The financial crisis has proven the Islamic fund management industry to be far more resilient and much safer for investors then its conventional counterpart due to the lack of exposure to conventional banks, director of Amanie Advisors Sdn Bhd, a leading firm specialising in Islamic Solutions, Baiza Bain told The Malaysian Reserve recently.
Amanie's BAIZA

“As a result during the global financial crisis, almost all Islamic funds outperformed their conventional counterpart which in itself is proof of its sound investment practice,” Baiza said.

He added that the crisis thus has attracted more Muslims and non-Muslims into the industry which now understand the hazards of the conventional financial system.

Chief executive officer and executive director of Asian Islamic Management Sdn Bhd Akmal Hassan agrees and adds that there is sufficient proof that Islamic fund management had shown to be far more resilient especially during the financial crisis.

“As an example, the fund size of Hwang AIIMAN Growth Fund (AGF), a fund launched by Hwang Investment Management Bhd has grown from RM36.128 million in the year 2007 to RM88.32 million as at Jan 31, 2012” “AGF has been consistent in declaring income distributions since its inception on October 2002 and has also proven to be a sound option for investors seeking capital growth and those who have remained since inception have seen capital growth of 244.63%,” Akmal said.

Akmal further adds that there will be exponential growth in the sector especially in the next few years due to an increasing number of high net growth individuals around the world and growing interest from developing and emerging economies.

“Countries such a as Japan, South Korea, Brunei, Indonesia, Australia, Singapore are countries that are looking to expand their offerings, create more value and push for greater transparency from Islamic sources, he added.

At present globally, the Islamic fund management assets represent 4.5% of the total Islamic finance assets. The total estimated assets under management is US$60 billion (RM183 billion). Rate of the industry growth for the past decade has been estimated at 15% per annum.

Enumerating some of the differences and advantages of Islamic fund management compared to the conventional system, Akmal said the Shariah-compliant investments allow for profit sharing through prearranged agreement in sharing risk and returns and prohibits the payment or acceptance of interest fees.

Akmal added that Islamic fund management offers greater transparency, lower risks to promote stability and meets the ethical and faith based needs

On some of the challenges facing the industry, Baiza said that for the industry to grow at a faster rate there is a need of standardisation of the Islamic fund management industry on a global scale as it is now fragmented and focused on a few countries.

On some of the trends in the industry, Akmal said that he foresees more Islamic investment players entering the local market as it is gaining reputation as an Islamic financial hub in the Asean region.

He added this will translate into more diverse and sophisticated Shariah-compliant funds being developed here and exported to the Middle East and emerging regions due to the growing affluence of these nations that calls for better need for wealth management of product and services.

The Securities Commission (SC) had said that under the Capital Masterplan 2, the size of the Malaysian Islamic capital market is projected to expand at an average 10.6% per annum over the next 10 years to RM2.9 trillion by 2020.

The SC added that 2011 continued to be a good year for the Islamic capital market globally, especially the sukuk segment. The total value of sukuk issued globally in 2011 amounted to US$92 billion, representing a 68% increase, year-on-year.

Malaysia remains at the forefront of the sukuk market, accounting for 73% or US$67 billion of the total sukuk issued.

Malaysia is also the domicile for 68% of the US$210 billion total sukuk outstanding globally as at end-2011.


TMR: Malaysia’s sukuk issuances market expected to see new boost in 2013

By Tanu Pandey   

Sukuk, the Islamic equivalent for bonds, has become an option for many when they need stable long-term financing. The instrument that performed extremely well in the last fiscal (2012) is expected to continue the trend this year.

In fact, this year the issuance of sukuk may even pick up after a little slackening trend in the last quarter of 2012, according to CIMB Islamic Bank Bhd executive director and chief executive officer Badlisyah Abdul Ghani.

CIMB, it may be mentioned here, was one of the top sukuk issuers globally in 2012.

In an email interview with The Malaysian Reserve (TMR), Badlisyah points out that the financing needs for the growing infrastructure sector in Malaysia is expected to give a further boost to the sukuk issuance market which may see infrastructure, blue chip companies and financial institutions dominating the sukuk issues this year.

TMR: 2012 was a record year for sukuk issuance. Do you hope to see the same trend in 2013 and which banks or financial institutions do you see leading the way?
Badlisyah: We anticipate another strong year for sukuk in the traditional markets where sukuk is actively pursued, ie, Malaysia and the Middle East (in particular Qatar, Saudi Arabia and the United Arab Emirates).

There was a slowdown of sukuk issuance in the last quarter of 2012 in the Middle East but this should pick up in 2013. We expect plenty of infrastructure and development projects to come on stream in the near- to medium-term and those projects would require long-term and stable funding source. We see a healthy deal pipeline at CIMB and expect to end this year on a high again. I would assume other significant players in the league table would also have a healthy deal pipeline and this bodes well for the market.

TMR: How would you rate the Malaysian market’s appetite for sukuk and Islamic financing and is there a possibility that it could outperform other financial instruments?
Badlisyah: Malaysia will see a lot of infrastructure projects in the coming years and sukuk has become a popular choice for a number of reasons, including a wider investor base (Islamic and conventional investors) which typically translates to better price tension in favour of the issuers; tax incentives that make borrowing cost cheaper and price transparency that makes it attractive to investors.

On a yearly basis since we entered the new millennium, sukuk has outpaced conventional bonds in terms of growth. The same can be said about Islamic financing in the banking sector in Malaysia. I do not see this trend changing especially with the new Securities Commission’s (SC) framework on Shariah-compliant stocks on Bursa Malaysia coming into force this year. To be eligible as a Shariah-compliant stock, the framework requires companies to ensure that the majority of their financing is Shariah-compliant. Being a Shariah-compliant stock allows a company to tap into a wider investor base, thus giving better liquidity to their stocks and better profiling.

TMR: What is the target for Islamic finance in Malaysia for 2013 and is it well on the trend?
Badlisyah: There are no specific targets for the Islamic finance industry on a yearly basis.

There is a 2020 industry target, set under the Financial Market Blueprint, of 40% overall share of market. We foresee that sukuk will continue to dominate the debt capital market space and we expect it to account between 70% and 75% of the total ringgit issuance this year, as seen in the last five years. We will continue to see steady growth in Islamic banking assets and deposits at north of 20% boosted by tax incentives as well as the revised Shariah screening framework by the SC.

TMR: Do you plan to increase sukuk issuance market share this year? Any big issues that you are looking at?
Badlisyah: In 2013, just like in other years before it, we are committed to deliver the best results for our clients in the sukuk market.

We always strive to be a significant player in the market and hopefully, we will land ourselves among the top sukuk arrangers/managers (if not the top) on the league table.

One of our key aims is to meet our clients’ needs through practical solutions and innovative ideas. We believe that our strong and long track record in sukuk as well as our enhanced distribution capabilities will allow us to perform well again this year. We expect to see infrastructure projects, bluechip companies and financial institutions dominating the sukuk issuers profile list this year. However, it is hard to say which deal will be a big issuance in the market.

TMR: What more can be done by the government and financial institutions to promote the growth of the sector?
Badlisyah: The Malaysian government has done more for Islamic finance than any other government in the world. Of course, there will always be room for improvement. The government just needs to continue supporting this growth through effective policies as needed from time to time.

If there is anything more that the government can do now is to undertake more of their own financial transactions through Islamic banking and finance industry. This will naturally boost the growth exponentially.

As far as financial institutions are concerned, they just need to do the business more effectively and efficiently, providing the same if not superior level of delivery and services compared to the conventional offerings.


TMR: AmIslamic Bank confident of achieving 20% growth for FY13

by Ishun Ahmad & Tanu Pandey  

The maiden RM300 million sukuk from DanaInfra Nasional Bhd to partially fund the Klang Valley’s mass rapid transit (MRT) will kick-start retail trading of bonds on Bursa Malaysia and would also likely attract the issuance of private debt securities like conventional bonds and Malaysian Government Securities (MGS) made available to the public.

Bursa Malaysia Bhd chief executive officer (CEO) Datuk Tajuddin Atan said a number of parties have indicated they would issue retail bonds, adding that there should be ample amount of issuance for the successful trading of these bonds on the local exchange.

“The first issuance will be the starting point for further growth as it provides an additional, cost-effective method to raise capital as well as provide both domestic and foreign investors price transparency and flexible access to the stability of bonds and sukuk,” he said in a statement following the launch of the new exchange- traded bond and sukuk (ETBS) on the local bourse.

FIRST MAIDEN ISSUE: (From left, front row) CIMB Group Holdings Bhd chief executive Datuk Seri Nazir Razak exchanging documents with DanaInfra chairman Datuk Mat Noor Nawi as AmBank Group chairman Tan Sri Azman Hashim looks on. Also present are (from left, back row) RHB Investment Bank chairman Datuk Mohamed Khadar Merican, Malayan Banking Bhd president and CEO Datuk Seri Abdul Wahid Omar, Bursa Malaysia chairman Tun Mohamed Dzaiddin Abdullah, Najib, Finance Minister II Datuk Seri Ahmad Husni Mohamad Hanadzlah and MoF’s Treasury secretary general Datuk Seri Dr Mohd Irwan Serigar Abdullah at the launch of DanaInfra’s sukuk on Bursa Malaysia in Kuala Lumpur (pic: Muhd Amin Naharul)

He, however, remained tightlipped about the parties interested and the amount of issuance in the coming months ahead. Prime Minister Datuk Seri Mohd Najib Razak yesterday launched the first tranche of retail ETBS with this maiden issue by DanaInfra, a move aimed at getting more participation from retail investors in bonds used for funding national infrastructure projects.

The total issue by DanaInfra for the current ETBS is RM1.5 billion for the first phase of the MRT Kajang-Sungai Buloh line, of which RM300 million is alloted for retail investors through ETBS. The balance of RM1.2 billion will be for institutional investors.

DanaInfra was established under the Ministry of Finance (MoF) in mid-2010 to facilitate the funding of large infrastructure projects by the government.

Najib said investors who have been buffeted by the financial crisis in Western markets can look to Islamic finance, which offers an alternative growth model, adding that no investment was without risk and this relatively young market will still have the occasional growing pains.

“Malaysia now accounts for three-quarters of the global sukuk market and we are a hub for issuing, trading, regulation, standards, marketing and training…Malaysia is now one of the few places in the world to offer retail investors the chance to participate in this fast-growing, fast-changing market,” he said.

Sukuk, the Shariah-compliant Islamic bonds, has been gaining ground in the field of investment and Malaysia is a leading nation to attract such bond issues and investments.

The RM300 million retail sukuk, with a minimum investment of RM1,000, is guaranteed by the Malaysian government and the first issuance will take place on Feb 8. It will have a tenure of 10 years.

The sukuk will be listed on Bursa Malaysia and gives an opportunity for Malaysians to be a part of the MRT project, which has an estimated cost of RM23 billion.

Maybank Investment Bank Bhd, CIMB Investment Bank Bhd, RHB Investment Bank Bhd and AmInvestment Bank Bhd were appointed last year to handle DanaInfra’s maiden sukuk sale.

The yield for the retail sukuk, however, has yet to be determined. A book-building exercise targeting local investors will begin on the launch date and is expected to close two weeks after.

The government, in the budget last year, announced incentives for companies issuing bonds and sukuk. These include offering companies a double tax deduction for a period of four years for additional expenses incurred in such issuances.


TMR: AmIslamic Bank confident of achieving 20% growth for FY13

by Azli Jamil   

AmIslamic Bank Bhd, the Islamic banking arm of Am- Bank Group, expressed confidence in achieving 20% growth in deposits and financing for financial year ending March 31, 2013 (FY13), helped by many campaigns conducted last year.

“Our growth percentage on financing and deposits are double-digits, on the higher teens, and we hope to touch 20% growth on deposits and financing by financial year ending March 31, 2013,” chief executive officer Datuk Mahdi Murad told the media after the “It’s Gold! Let’s Celebrate” campaign grand final event in Kuala Lumpur yesterday.

The bank embarked on the “It’s Gold! Let’s Celebrate” campaign which commenced on July 23 and ended on Oct 31 last year. The campaign was opened to all new and existing customers and consisted of contests and promotions focused on Islamic products offered ie deposits, personal financing and credit card.

The objectives of the campaign were to reward existing customers and to increase its customer base from the existing more than one million customers.

Mahdi said, without disclosing numbers, that the bank had achieved its internal targets for each of the existing product lines promoted in the campaign.

“We had a specific target for deposits, focusing on a sixmonth term deposit product that did not follow the mudharabah concept but was under wakallah concept where the rate of return was spelt upfront.

“We have achieved the target of RM500 million deposits under the product”, said general manager, retail, markets and capital balance sheet management Mohamad Sabirin Abdul Rahman.

The bank claims to be the fifth largest Islamic bank in the country with about RM22 billion deposits. “AmIslamic total assets is about 25% of the group’s total assets,” said Mahdi.

For its FY13 financials, AmIslamic contributed 18.9% to the AmBank’s revenue, up from 18.4% for the year before. The bank claims to have about 1.2% gross non-impact financing while the net figure is less than 1%.


VICARY: All hands to the pump, walk the talk

I highlighted in my previous blog that the “Winds of Change” were starting to blow.

Following my attendance at the Islamic Financial Services Board (IFSB)/ Islamic Research and Training Institute (IRTI) Roundtable last weekend just passed and the subsequent IFSB General Assembly, I can confirm that very frank discussions, with regard to the future of our industry and taking advantage of the ongoing global financial crisis were held.

Indeed, I would say that there is a growing sense of urgency that the opportunity has to be grasped now. Hence the title of this blog is a call to action.

The challenge, as always, is walking the talk and getting the job done. Simply put, translating the talk into executable actions that will start to make a difference.

This challenge is very real and if I have a concern, it is that while the quality of debate and discussion at the roundtable was generally very good, there was probably insufficient representation from industry practitioners to confirm that the ideas being created by the academics, regulators and standard setters were implementable. We need to look at how this can be redressed.

On a broader note, it was generally agreed that more work has to be done on creating awareness of Islamic finance and explaining the key value propositions or USPs that we, as an industry, have.

Too often does the average business person, as I have mentioned many times in this blog, understand incorrectly, that Islamic finance is just for Muslims only! This misperception just simply must be changed.

Opportunities are continuing to present themselves to get the message across and to change these misperceptions.

Next week there will be a workshop organised by the World Bank and International Centre for Education in Islamic Finance (INCEIF), as a prelude to the International Monetary Fund Spring Meeting, on the topic “Is Islamic Finance a Catalyst for Inclusive Growth and Sustainable Development?”

This is a clear opportunity to start changing some of those misperceptions and a call to action for everyone. We must, if I recall my Latin correctly carpe diem.

As ever, there is much to do and not a moment to lose.

[Daud Vicary Abdullah is president/CEO of INCEIF. This is adapted from his blog posting on April 22, 2013 and appeared in the 6 May 2013 issue of The Malaysian Reserve]

BADLISYAH: Post-election hope for future of Islamic finance in the nation

Today, as Malaysians welcome their newly elected and returned Members of Parliament as well as state assemblymen, I would like to share with you about my hope for the future of Islamic finance in Malaysia. Islamic finance, as I have often said time and time again, has come a long way in Malaysia.

It dominates the primary and secondary debt capital market with 70%-80% market share. It also dominates the equity capital market with close to 90% of the listed stock on Bursa Malaysia being Shariah-compliant stocks.

It is increasingly becoming a force in the banking sector with a 30% market share. Many other components of the Islamic financial market such as takaful, asset management, wealth management, private equity, etc, are also growing by leaps and bounds with increasing market share.

The following are my hopes for the future of the market in Malaysia:

1. I would like to see better recognition and acceptance on the part of everyone involved in the market on the difference between Islamic banking activities, Islamic debt capital activities, Islamic equity capital activities, Islamic asset management activities, Islamic private equity activities and Islamic operating lease activities.

Of course, this is not an exhaustive list of the activities done in the market and people need to learn all of them to have better appreciation of them.

2. I would like to see people having a greater understanding of the difference between a licensed bank, a licensed investment bank, a non-bank financial institution, a licensed fund management company, a private equity firm, a licensed investment company, non-profit organisation undertaking, etc, that are undertaking the myriad of existing Islamic financial activities in the market.

3. I would like for people to stop accusing Islamic financial institutions in general of merely emulating and replicating the products and services of conventional financial institutions. They need to learn that an Islamic bank’s offerings are not dependent on what a conventional bank offers.

In my experience, when it comes to developing and innovating products for the Islamic financial market, I, just like many other bankers in Islamic financial institutions, am only interested in providing financial solutions that are desired and needed by consumers in a manner that is consistent (ie not in contradiction) with Shariah.

If a product turns out to have the same feature or deliver the same economic effect as a conventional financial product, then it is a mere coincidence, considering that both Islamic and conventional banks try to meet the same consumer demands.

4. I would like for people to stop trying to find a distinction between an Islamic bank and a conventional bank undertaking banking activities.

A bank, irrespective of whether it is an Islamic or a conventional bank, exists to intermediate between the haves and have-nots by meeting the differing financial needs of the various customer segments (eg mass market, mass affluent, HNWIs, corporate, institutional investors, etc).

The only difference or distinction between an Islamic and a conventional bank or any type of operating entity doing other Islamic or conventional activities would be the fact that an Islamic bank or institution undertakes its activities purely in a manner consistent with Shariah, while the conventional institutions are not Shariahcompliant.

5. I would like to see the proliferation and inclusion of wakaf in the Islamic financial market. Wakaf is the missing component in the market now.

6. I would like to see the education on the prohibition of riba or usury to be done starting from pre-school up to pre-university in the country’s education syllabus.

Most of us are taught about what is halal and haram in terms of food consumption from the time we were born (just to exaggerate), so it should not be difficult for the same to be done for our financial and economic dealings.

7. I would like to see our Islamic financial institutions become more international in its operation — more Islamic banks to obtain international rating; more of them having the capacity to do cross border financial activities to facilitate intra-trade in a Shariah-compliant manner.

8. I would like to see more Malaysian bankers based in Malaysia, either still serving or retired, being recognised by Malaysians as the global market leaders that they are or were.

Too long have we awarded and recognised foreigners over Malaysians when in fact the architects of the Islamic banking industry, the debt capital market or sukuk market (both local and global), the takaful industry, the Islamic equity capital market, the Islamic asset management and many more are all Malaysians! We should stop being shy of our talent and capacity.

9. I would like to see less confusion on how Islamic finance is governed under Shariah. We should fully embrace the basic principle of Shariah that everything is allowed unless clearly and expressly stipulated as disallowed in the Quran and legitimate Hadith.

The onus is to prove that something is disallowed instead of trying to prove that something is allowed. We need to put our energy in the right place so that the dynamism, robustness and integrity of our market is not lost.

10. I would like to see more Malaysian bankers having Shariah degrees. More Shariah degree holders should aspire to become bankers instead of just religious teachers.

If banks can hire English, agriculture, engineering, law or accountancy graduates, we can definitely hire Shariah graduates as bankers but they must be willing to slug it out just like everybody else.

There are many more things that I hope to see happening in the Malaysian Islamic financial market but suffice for me to stop at a list of 10. I hope the new parliamentarians and state assemblymen will share some of the hopes that I have listed here.

Legislators play a significant role in creating the right platform for a more inclusive Islamic financial market and we have not communicated enough on their roles in making Islamic finance in Malaysia the best in the world all these years.

I wish all of them the best in their new five-year term and look forward to their continuing support of Islamic finance.

[Badlisyah Abdul Ghani is the ED and CEO of CIMB Islamic Bank Bhd. This column appeared in the 6 May 2013 issue of The Malaysian Reserve]