Islamic Finance Asia

France’s First Sukuk Hampered by Debt Crisis

2012-01-27T09:40:00.001-08:00

Jan. 25 (Bloomberg) -- France’s efforts to sell the nation’s first Islamic bonds and attract Shariah investors from the oil-rich Persian Gulf are being hindered by Europe’s debt crisis as borrowing costs rise.

The euro region’s second-biggest economy, which put in place the legal framework to allow banks and other private issuers to sell Islamic bonds in 2009, had its top AAA credit rating cut by Standard & Poor’s on Jan. 13 on concern policy makers are failing to address the effects of the debt crisis. Yields on two-year French government notes have climbed 10 basis points since the one-step reduction, according to data compiled by Bloomberg.

“Just because the legal framework is in place doesn’t mean the economic and financial situation is conducive to an issuance of sukuk in France,” Jawad Ali, the Dubai-based global deputy head of the Islamic finance practice at law firm King & Spalding, said in a Jan. 19 interview. “Investors aren’t looking at Europe and saying there are a lot of opportunities. They are looking at Europe and saying there is a lot of uncertainty.”

The cost to protect France’s debt from default is almost twice that of Germany, the largest economy in the euro area and the only one to retain a stable outlook on its AAA status from, S&P.

[By Khalid Qayum and Dana El Baltaji, Bloomberg]

Fitch:Sukuk demand still outweighs supply

2012-01-27T09:39:00.002-08:00

Jan 23 - Fitch Ratings says plans by sovereigns outside the Middle East and other largely Islamic regions to tap the sukuk market could meet pent-up demand from Islamic institutional investors and banks to diversify their bond holdings, making the sukuk market a useful source of additional funding over time.

The opportunity to buy shariah-compliant debt from investment grade sovereigns that have not yet tapped the market would be likely to generate strong investor appetite.

Supply has got off to a strong start in 2012, with the General Authority for Civil Aviation of Saudi Arabia bringing a government-guaranteed deal that could pave the way for more issuance from the Kingdom, including the sovereign.

Issuers from outside the Islamic world could contribute more eventually to the increase in supply as they diversify their investor base. Sovereigns would be well placed to tap demand, as they are unlikely to have to struggle to find assets that qualify to back shariah-compliant bond issuance. Savings in the oil-exporting countries of the Middle East will continue to grow at current oil prices, supporting greater demand from investors.

South Africa invited banks to pitch for a government sukuk advisory and structuring mandate in December. Bloomberg reported in mid-January that Ireland, which is due to return to the bond market in 2013 under the terms of its EU/IMF assistance package, is considering sukuk issuance.

Sukuk supply from sovereigns outside the Middle East and South-East Asia would be a much-anticipated development. In 2004, the German state of Saxony-Anhalt issued EUR100mn sukuk, and in 2009, France amended its civil code to develop Islamic finance. Anticipated issuance from France, the UK and Luxembourg has not materialized.

The sukuk market is growing rapidly. 2011 issuance was USD84.4bn, a 62% increase on 2010, according to Zawya Sukuk Monitor. But supply is still overwhelmingly from Muslim countries or countries with a Muslim majority population. Malaysian issuers accounted for more than half of 2011's supply by volume. Between them, issuers in Malaysia, Qatar, the UAE, Indonesia and Saudi Arabia provided more than 90%.

Despite the strong year-on-year increase in supply, the sukuk market remains a fraction of the size of the global bond market. The lack of a standardized deal structure has constrained growth, which has not kept pace with demand from Islamic institutional investors and banks.

CIMB Islamic appoints Habibah as director

2012-01-27T09:39:00.001-08:00

CIMB announced the appointment of Habibah Abdul as independent non-executive director of CIMB Islamic Bank Bhd effective Jan 19, 2012. Habibah was previously the group partner of the audit and business advisory division in Ernst & Young.

HeiTech Padu to replace BSN core banking system

2012-01-27T09:34:00.000-08:00

PHOTO CAPTION: HI-TECH BANKING SYSTEM: ICT solutions provider HeiTech Padu Bhd has won a RM63.6m bid to provide a replacement core banking system for government-owned Bank Simpanan Nasional Bhd (BSN). (From left) BSN general manager/chief executive Datuk Adinan Maning, Secretary General of Treasury Tan Sri Dr Wan Abd Aziz Wan Abdullah and HeiTech executive director Safiee Mohammad at the signing ceremony in Kuala Lumpur (pic: Ismail Che Rus)

ICT solutions provider HeiTech Padu Bhd has won a RM63.6 million bid to provide a replacement core banking system for government-owned Bank Simpanan Nasional Bhd (BSN).

The deal will see HeiTech Padu and its partners BML Istisharat Sdn Bhd and Juris Technologies Sdn Bhd undertake the delivery of the core banking and loans origination and collections systems for both the conventional and Islamic banking products as well as their services.

BSN chief executive officer Adinan Maning said it took the bank two years to decide which company to award the contract to, as it was a "difficult" decision.

The change, however, was deemed necessary as the current system in use by the bank was slow in getting products to market, compared to other banks.

"Hopefully in two and a half years' time, maximum, we will be able to have a system that will help us to be very efficient and improve our service level," he told reporters after the signing ceremony in Kuala Lumpur yesterday.

The total amount invested collectively is approximately RM100 million, said HeiTech group CEO Harris Ismail.

The systems will be implemented in all BSN branches nationwide over a period of 24 months and will include a Shariah-compliant module.

Harris said the contributions from the deal would make up approximately 10% of HeiTech's revenue for the current financial year.

"We don't expect to make a profit from this as we consider it to be part of our national service," he said.

Harris said HeiTech expects the system and module to contribute positively to the company's future earnings once the intellectual property patent is obtained, as the system could be implemented in takaful and insurance.

For now, however, the deal with BSN is exclusive, he said.

[By Farah Saad, The Malaysian Reserve; Jan 18, 2012]

CIMB-Principal Islamic established CIMB-Principal Islamic Ireland

2012-01-27T09:30:00.000-08:00

PHOTO CAPTION: Caption (left to right): Dato’ Charon Wardini Mokhzani, Chief Executive Officer, CIMB Investment Bank; Dato’ Sri Nazir Razak, Group Chief Executive, CIMB Group; HRH Crown Prince of Perak, Raja Dato' Dr Nazrin Shah Ibni Sultan Azlan Muhibbuddin Shah, Financial Ambassador of Malaysia International Islamic Finance Centre (MIFC); Tan Sri Zarinah Anwar, Chairman, Securities Commission Malaysia and Jim McCaughan, President and Chief Executive Officer, Principal Financial Group, at the establishment of CIMB-Principal Islamic’s International Funds in Ireland.

CIMB Group Holdings Bhd’s joint venture company, CIMB-Principal Islamic Asset Management Sdn Bhd (CIMB-Principal Islamic), has recently obtained the approval from the Central Bank of Ireland to establish CIMB-Principal Islamic Asset Management (Ireland) Public Ltd.

In a statement by the bank on Jan 16, it said that CIMB-Principal Islamic Ireland, the first Malaysian-based international Islamic funds platform domiciles in Dublin, will act as an investment manager of a Dublin-based Undertakings for Collective Investment in Transferable Securities (UCITS) for Islamic funds.

“Under the newly-launched platform, CIMB-Principal Islamic is registering three new UCITS-compliant equity funds which are the Islamic Global Emerging Markets Fund, the Islamic Asia-Pacific ex-Japan Fund and the Islamic Asean Equity Fund.

“These funds will eventually be registered and distributed in seven jurisdictions, the US, Switzerland, Germany, Saudi Arabia, Bahrain, United Arab Emirates and Singapore. CIMB-Principal Islamic is the investment manager and master distributor for the funds,” it said.

CIMB-Principal Islamic is a 50:50 joint-venture Malaysian-based Islamic global asset management company between CIMB Group Holdings Bhd and Principal Global Investors.

CIMB Investment Bank Bhd chief executive officer Datuk Charon Wardini Mokhzani said institutional and retail investors globally will be able to see CIMB-Principal Islamic’s asset management track record with the new Islamic fund range in Ireland.

“If the funds do well, not only will they attract investment but institutional investors may also appoint CIMB-Principal Islamic to manage their discretionary mandates too.

“This pioneering initiative to internationalise Malaysian Islamic asset management capabilities clearly supports the Malaysia International Islamic Financial Centre’s (MIFC) aspiration to be a global hub for Islamic finance,” he said.

[By Farah Adilla, The Malaysian Reserve; Jan 17, 2012]

Nadhatul Ulama to explore biz opps in Malaysia

2012-01-27T09:25:00.000-08:00

THE world's largest non-governmental organization (NGO) Nadhatul Ulama (NU) of Indonesia has embarked on a journey to explore business opportunities in Malaysia and help forge bilateral economic collaboration with interested Malaysian investors, to foster stronger relationship between the two nations in the long run. 

In a recent visit to Malaysia, NU secretary-general Drs Marsudi Syuhud shared with The Malaysian Reserve that the NGO believes its doctrine of ‘blessings for the whole world’ is also meant to be seen in the economic development extension. 

In the past, NU has played an integral role in the social collaboration between the two countries, said Marsudi, quoting religious students and teachers’ exchanges as a prime example. 

“Now, we are seeking partners in economic development as well. We are also here to rectify the perception Malaysian investors have on the difficulties of initiating and carrying on business in Indonesia,” he said. 

Marsudi said these correction moves would create a new bridge of forging economic and business relationships between Indonesia and other Southeast Asian nations as well. 

Embarking on what it described as the first of many collaborations to come, NU is exploring opportunity in the media business, and sees the Redberry group as a role model to duplicate the business back home. 

For a start, NU and Redberry will join forces to set up a call-centre for the former's ASPEP (Assosiasi Pembedayaan Ekonomi Pesantren or loosely translated as the association for the economic development of Islamic boarding schools) – a wing of NU, representing 22,000 schools in Indonesia.  

NU director for international development Nor Shafizal Sakhuan Husain said the call-centres would create employment opportunities for NU students and help them earn a decent income.
 “A career in tele-sales will also help these students boost their mastery of the English language and help them converse better,” he said. 

Commenting on the collaboration, Redberry Contact Centre Sdn Bhd chief executive officer (CEO) Chandran Perumal said one such function of the call-centres would be to promote telemarketing of life insurance and family takaful products. 
Chandran said the company is projecting an annual revenue of RM20 million to RM30 million from the partnership, which would also comprise sharing of technology, knowledge and skills. 

“We will be able to better ascertain the volume of business after its take-off in the first-quarter of 2012,” he said. 
In this collaboration, Chandran said ASPEP would play the role of human capital feeder system, where NU graduates will be recruited to meet the human resources demand. 

Established on Jan 31, 1926, NU is the oldest and largest Muslim social-religion organisation in Indonesia, with more than 70 million members in Indonesia alone. The NGO commands strong influence in the Indonesian political arena, boasting current President Susilo Bambang Yudhoyono as one of its members. 

NU governmental and private partnerships are represented with offices around the world, including Malaysia, Australia, Europe, the US, the UK and Middle East. Marsudi said with more than 100 sub-organisations under its umbrella, NU focus was now more diversified. “Other than issuing edicts, concentration is also being given to several issues like economic development, healthcare, education and training,” he said. 

In the area of economic development, NU has its hands extended in oil and gas, shipping, mining, banking and finance, and and information and communications technology. 

Redberry has a strategic marketing partnerships with The Malaysian Reserve and The Malay Mail. As the exclusive concession holder for some of Klang Valley's major highways and its major Peninsular Malaysia airports, Redberry’s out-of-home solutions business, which includes Focus Media, Pointcast, MagiqAds and Meru Utama, reaches over 900,000 people every day along with millions of visitors to Malaysia every year.

[By Mohd Rashdan Jamaluddin, The Malaysian Reserve; Jan 16, 2012]

PLUS to issue RM30b sukuk

2012-01-27T09:24:00.000-08:00

HIGHWAY concessionaire Projek Lebuhraya Usahasama Bhd (PLUS) is set to issue RM30.6 billion sukuk on Thursday – touted to be the largest global sukuk and Malaysia’s single largest bond issuance to date. 

In a press release Jan 8, PLUS said the sukuk issuance was a follow-through of the privatisation of Southeast Asia largest toll operator PLUS Expressways Bhd (PEB) and four other highway concessionaires.  

“The proceeds from the sukuk issuance will be utilised to part finance the purchase of assets, liabilities, businesses, undertakings and rights of five toll concessions – Projek Lebuhraya Utara-Selatan Bhd, Expressway Lingkaran Tengah Sdn Bhd, Konsortium Lebuhraya Butterworth-Kulim Sdn Bhd, Linkedua (Malaysia) Bhd and PBSB,” said PLUS, adding that the proceeds will also be utilised to fund capital expenditure, working capital and other general funding requirements.

The proposed sukuk has been accorded a “AAA” rating by the Malaysian Rating Corp Bhd (MARC) with the repayment profile ranging from five to 27 years and the weighted average yield at approximately 5%. 

CIMB Investment Bank Bhd has been identified as the financial adviser, sole principal adviser and lead arranger, and joint lead manager for the transaction. 

Commenting on the transaction, UEM group managing director and chief executive officer Datuk Izzaddin Idris said the sukuk issuance demonstrated PLUS' role in further enhancing Malaysia’s prominence in international Islamic capital markets, in line with the government's aspiration to establish the country as an Islamic financial hub. 

PLUS is a wholly-owned subsidiary of PLUS Malaysia Sdn Bhd, an investment vehicle in which UEM Group Bhd owns a 51% stake and the Employees Provident Fund (EPF) 49%. The government has a “golden share” in PLUS to preserve its rights in strategic matters involving the country's national infrastructure projects. 

In a newsreport last November, PLUS Malaysia was said to have crossed the final hurdle of the proposed acquisition of the expressway operators and has reached a consensus with the government on the revised terms of supplementary toll concession agreements. The revised terms was reported to include five years of a toll freeze effective from 2011 for North-South Expressway (NSE), NSE Central Link (Elite), Malaysia-Singapore Second Crossing (Linkedua), Butterworth-Kulim Expressway (BKE) and Penang Bridge (P1B), and a slower pace of toll rate hike thereafter for all except P1B, the toll rates of which will remain the same through its concession period. 

The new deal also involved the streamlining of the expiry dates for all the concessions to Dec 31, 2038, as well as a waiver of compensation owed by the government (comprising the RM2.9 billion outstanding balance to PEB and up to RM3.6 billion of future monies due from the five-year toll freeze). 

According to EPF, it foresees investment in the toll concession to produce a dividend yield of between 5% and 6% over the concession period. Internal rate of return on its investment, on the converse, would be at least 10% as per the national pension fund manager's guidelines. 

According to PLUS, it will also look into non-toll revenue like billboard advertisements to boost income, besides expecting a conservative traffic growth of 3% per year, for its expressways to generate increasing toll collections. 

“There will also be continuous efforts to control costs to boost PLUS' bottom line, but expenses on the maintenance of expressways, especially in terms of ensuring safety, will not be compromised. The expenses on maintenance are expected to average in excess of RM800 million a year,” PLUS was reported as saying. 

PEB, with a market capitalisation of around RM22.2 billion, was previously ranked among the top 20 largest companies in the local stock market. Its delisting saw the toll concession sector not being represented at all in the FBM KLCI.

[By Mohd Rashdan Jamaluddin, The Malaysian Reserve; Jan 9, 2012]

StanChart Saadiq sees local Islamic banking penetration up 3%

2012-01-27T09:19:00.000-08:00

STANDARD Chartered Group's Islamic banking arm Standard Chartered Saadiq Bhd sees the penetration rate of Islamic banking in Malaysia to rise 3% to 25% this year, parallel to the global trend. 

StanChart global head of Islamic banking Wasim Saifi said Islamic banking is growing rapidly in the international financial markets, and the bank sees the same applies in Malaysia. 

Without disclosing specifics, Wasim said there are several push factors, among which include the perception that Islamic banking has gotten sophisticated by well-discerned banking customers.  He added that Islamic banking have become simpler and widely accessible.

“Islamic banking also projects stability to both Muslims and non-Muslims alike.”  

“We see ample opportunities to help our customers and potential customers worldwide do the switch from conventional banking. The fact that Islamic banking asset represents only 1% of the global conventional banking's, there is vast growth potential, especially with over one billion Muslims worldwide,” he told The Malaysian Reserve in a recent interview. 

Indonesia, for example, has the most Muslim population and yet, its Islamic banking penetration rate was still 3%, he said, quoting Pakistan as another populous Muslim nation with only 9% patronizing Islamic finance. 

“We will definitely see growth momentum in the next two to three years,” said Wasim, adding that the StanChart Saadiq is looking to spread its wings to the African continent. For Malaysia, StanChart sees the progress made in policy framework, comprehensive regulations and product diversification have encouraged the acceptance of and switch to Islamic banking locally. 

To meet the increasing demand, StanChart is looking at opening up more Saadiq branches, with eight in sight in the near-term. According to its website, StanChart claimed to be the first international bank in Malaysia to offer Islamic banking products in 1992, with its Saadiq arm officially launched in 2008. StanChart has footprint in over 70 countries.

[By Mohd Rashdan Jamaluddin, The Malaysian Reserve; Jan 9, 2012]

Malaysian Sukuk to Fuel Record Quarterly Sales

2012-01-27T09:17:00.000-08:00

Malaysia’s record RM30.6 billion ($9.7 billion) corporate sukuk sale from PLUS Bhd. And offerings planned to follow may help carry Islamic bond sales to their best quarter ever in the first three months of 2012, reports Bloomberg.

The highway operator’s offering is more than the $7.3 billion total of Shariah-compliant securities sales from companies worldwide last quarter. Issues from Malaysia’s state-owned power producer Sarawak Energy Bhd. and Albaraka Turk Katilim Bankasi AS, the Turkish unit of Albaraka Banking Group BSC, may push sales past the previous all-time high of $10 billion set in the final quarter of 2007.

Average yields for global sukuk dropped 75 basis points last year to 3.99 percent, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. Malaysian companies are seeking funding as the nation starts a 10-year $444 billion program to build roads, railways and power plants.

“With the record offering from PLUS, it will definitely be a bumper quarter for sukuk sales,” Badlisyah Abdul Ghani, Kuala Lumpur-based chief executive officer of CIMB Islamic Bank Bhd., a unit of CIMB Group Holdings Bhd., said in an interview with Bloomberg on Jan 3. “The relatively low yields and strong demand will ensure that the deal pipeline remains healthy this year, especially in Malaysia.”

Offerings of Islamic bonds in Malaysia, the world’s biggest sukuk market, rose 51 percent last year to RM45 billion, according to data compiled by Bloomberg. Global sales climbed to $26.5 billion in 2011, compared with $17.5 billion the previous year.

Kuala-Lumpur-based CIMB, the top arranger of sukuk in 2011, has some deals this quarter involving refinancing and fresh funds for infrastructure projects that were delayed from the last three months of 2011, Badlisyah said, declining to elaborate. The Southeast Asian nation’s government is pursuing a $444 billion development program to build railways, roads and power plants.

“Given the infrastructure financing under the $444 billion development plan, sales of sukuk in Malaysia will be better in 2012 than last year,” he said.

The difference between average Islamic bond yields and the London interbank offered rate, or Libor, narrowed 16 basis points to 273 in 2011. Offerings from the six-nation Gulf Cooperation Council, which comprises Bahrain, the United Arab Emirates, Kuwait, Saudi Arabia, Oman and Qatar, climbed to $7.3 billion in 2011 from $4.5 billion in 2010.

“Global sales of Islamic bonds will continue given the growth in the GCC,” Mohamed Azahari Kamil, chief executive officer at Kuala Lumpur-based Asian Finance Bank Bhd., said in an interview yesterday. “There’s still a lot of appetite as Middle East fund managers are hungry for Shariah-compliant instruments for their portfolio diversification.”

[By Elffie Chew, Bloomberg, Jan 4, 2012]

KFH Research: Financial market to see 25% rise in global sukuk issuance

2012-01-27T09:12:00.000-08:00

THE global financial market is expected to see strong growth of sukuk issuance for 2012 - about 25% to 30% - based on the momentum registered last year, said the research arm of Kuwait Finance House (KFH).

In the latest publication of its "Global Sukuk Report 2012", KFH Research Ltd said the strong growth will be driven by global economic activities; accommodative monetary policies; continued sovereign fund-raising to support economic growth as well as the revival of private sector projects.

"The International Monetary Fund projects world gross domestic product growth to remain at 4% for 2012, supported by strong growth in Asia, the Middle East and other emerging markets," said KFH Research, highlighting that this will ensure the revival of infrastructure projects on both the conventional and Islamic capital markets.

"More sovereign issuers are anticipated to tap the sukuk market in 2012 as governments will continue to raise funds to support economic growth and fund fiscal deficits," the research house reported, adding that new emerging market players and non-Islamic issuers will likely jump onto the bandwagon as well.

Other traits that will characterised this year's rising sukuk issuance will include, among others, increasing demand and popularity for Shariah-compliant products and structures post-global financial crisis and initiatives taken by various jurisdictions in developing legislative and regulatory frameworks, as part of efforts to attract foreign investments, would allow these new players to explore the sukuk industry for the first time.

KFH Research said a number of new jurisdictions have also shown interest in issuing sukuk, such as Egypt, Senegal and Nigeria; while France, Japan and Hong Kong are expected to continue to make regulatory inroads for future issuances.

"The demand for sukuk was previously limited outside Asia and the GCC (Gulf Cooperation Council) until a few years ago.
"Potential new sukuk markets that will emerge in 2012 include Oman, Thailand and the CIS (Commonwealth of Independent States - former Soviet republics.

"Elsewhere, non-Muslim western financial institutions and corporates in the US, the UK, European Union and Central Europe are also becoming more actively involved in this industry, and are interested to issue sukuk to refinance existing corporate debt or to finance working capital and expansion activities, including acquisitions.

"As in the year 2011, we expect new issuances in 2012 to be dominated by government institutions, and construction and financial services industry," KFH Research concluded.

[By Mohd Rashdan Jamaluddin, The Malaysian Reserve; Jan 9, 2012]

Strong appetite for Islamic finance products in Oman

2011-12-28T00:49:00.000-08:00

MUSCAT: Omani consumers have expressed a strong appetite for Islamic finance with a rapid take-up of banking products expected within the first 12 months of being launched.

These are key findings published yesterday from Oman’s first independent market study, entitled ‘Islamic Finance in Oman – Sizing the retail market’.

The report was independently commissioned and published by IFAAS (Islamic Finance Advisory & Assurance Services), the international Islamic Finance consultancy.

The report, analyses the retail market for Islamic finance in Oman across all sectors of the financial market, including banking, finance and insurance. It examines the current behaviour of consumers and measures future market trends to gauge the real potential of Islamic finance in Oman.

The report fulfils the demand for empirical data that new and existing players need to develop their business plans using robust scientific information. Key findings from the report reveal: About 85 per cent of consumers in Oman expressed an interest in Islamic finance products, of which 59 per cent were very interested and 26 per cent quite interested. (Times News Service, 27 December 2011)

Goldman Follows HSBC, GE to Tap Muslim Wealth

2011-10-26T04:51:00.001-07:00

Goldman Sachs Group Inc. is aiming to follow HSBC Holdings Plc and General Electric Co. to the Islamic bond market as the investment bank seeks to diversify sources of funding, reports Bloomberg (Oct 24, 2011).

Global sales of sukuk, or Islamic bonds, have jumped 48 percent so far this year to $18.8 billion from $12.7 billion in the year-earlier period, data compiled by Bloomberg show. Goldman Sachs’ $2 billion Islamic bond program was approved for listing on the Irish Stock Exchange by the Central Bank of Ireland last week.

"Since you are a new name in the market, everybody is interested, and as a debut issuer your chances of getting the deal done is higher than in currently stressed European or U.S. bond markets," Sergey Dergachev, who helps manage $8.5 billion of emerging-market debt at Union Investment Privatfonds in Frankfurt, said in an e-mailed response to the wire service.

HSBC Bank Middle East Ltd. in May sold $500 million of sukuk, or notes that comply with Islam’s ban on interest, while GE Capital Corp., a unit of General Electric Co., issued $500 million of Islamic bonds in 2009. Malaysia, the world’s largest market for Islamic bonds, and the Middle East are the main centers of the $1 trillion Islamic finance industry, it added.

CIMB Niaga plans to grow Islamic lending

2011-10-26T04:40:00.000-07:00

PT Bank CIMB Niaga Tbk plans to grow its Islamic lending, micro-financing and rahn service and will continue to retain its position as the fifth largest bank in terms of third party deposits ans assets in the country, its president director Arwin Rasyid said in a press release (Oct 24, 2011).

"CIMB Niaga will continue to maintain a sound balance in all aspects to the business – corporate, commercial, retail and Islamic banking. We will invest in our infrastructure to bring quality banking solutions to our customers and stakeholders," he added.

The bank posted a 33% year-on-year in net profit to Rp2.38 trillion or Rp95.1 per share for the third quarter ended Sept 30, 2011 on the back of strong double digit loan growth to the commercial, corporate and retail market in Indonesia.

Network expansion has been aiding the growth in its business as it channel network has grown to 859 as at the end of September from 711 a year ago. Its Islamic banking business has grown to 23 branches from 21 last year as has its ATM network that stands at 1,645 machines as at the end of September. - The Malaysian Reserve (Oct 25, 2011)

5th Islamic Financial Intelligence Summit in KL

2011-10-26T04:31:00.000-07:00

Noor Islamic Bank CEO Hussain Al-Qemzi is slated to be one of the speakers at the one-day fifth annual Islamic Financial Intelligence Summit in Kuala Lumpur on Nov 19. He will speak on 'Cross Border Opportunities in Asia: The Role of the Regulator'.

Participate at the function will get a dig into The Banker magazine's Top 500 Islamic Financial Institutions Report, now running into its fourth year.

The session on 'Harnessing the potential of Islamic funds' will feature three panelists: Amundi Islamic Malaysia MD Mohamad Damshal Awang Damit, Aberdeen Islamic Asset Management MD Gerald Ambrose and Islamic Wealth & Asset Management private consultant John Sandwick.

The event is organised by The Banker Magazine and Financial Times, and hosted by Bank Negara Malaysia (BNM).

Malaysia: No to non-Muslim Syarie lawyers

2011-03-17T10:19:00.000-07:00

By Reena Raj

KUALA LUMPUR: After a 10-month-long battle, a test case bid by a non-Muslim counsel to practise Syariah law came to a halt after it was rejected by the High Court here this morning.

High Court (Appellate and Special Powers) Judge Justice Rohana Yusuf, in dismissing the application by Victoria Jayaseele Martin, 48, said the admission of a Syariah lawyer was conditional upon the rule by the Federal Territory Islamic Religious Council, with the approval of the Yang di-Pertuan Agong.

She said the rules were to be made on procedure, qualifications and fees for admission of a Syariah lawyer.

The judge said Rule Eight of the Federal Constitution did not deprive Victoria of being an advocate and solicitor.

“In my view, the purposive rule of the requirement of a Muslim faith is necessary to ensure the effectiveness of legal representations.”

As the case involved an issue of public interest, Rohana also ruled all parties to bear their own cost.

On May 14 last year, Victoria was allowed to challenge the requirement that a Syariah lawyer in Federal Territory must be a Muslim and to compel the Federal Territory Islamic Religious Council to admit her as a Syariah lawyer.

The High Court (Appellate and Special Powers) judge at that time, Justice Mohd Zawawi Salleh, allowed Victoria’s application after dismissing preliminary objections raised by the Attorney-General’s Chambers through Senior Federal Counsel Nadia Hanim Mohd Tajuddin.

In a statement filed to support her application, Victoria had stated she possessed a Diploma in Syariah Law and Practice from the International Islamic University Malaysia, in addition to a University of London law degree.

She claimed the council, through the Syariah Lawyer Committee, had rejected her application to practise as a Syariah lawyer solely because she was not Muslim.

Victoria had said Section 59(1) of the Syariah Act provided that the council could admit any person having sufficient knowledge of Islamic law to be a Syariah lawyer to represent parties in any proceedings before the Syariah Court.

In her affidavit, she had said she applied to be admitted as a Syariah lawyer in Kuala Lumpur in February, 2006.

She claimed she did not get any response to her first application, causing her to re-apply on Aug 24, last year.

Victoria was represented by Ranjit Singh.

(The Malay Mail, Thursday, March 17th, 2011)

Tokio Marine sells Takaful interests

2011-03-17T10:17:00.000-07:00

Tokio Marine is pulling out of its Takaful joint venture with Malaysian Islamic bank Hong Leong.

The Japanese insurer has gained regulatory approval to sell all of the shares it holds in Malaysia Takaful company, Hong Leong Tokio Marine Takaful Bhd, to Hong Leong Group.

A spokesperson from Tokio Marine said the parting of the ways came about with the realization by both parties that Tokio Marine and Hong Leong's Asian expansion strategies had begun to diverge.

Tokio Marine and Hong Leong "have come to agree amicably to dissolve their business alliance and pave their respective paths of development because of differences between Tokio Marine's Asian strategies and Hong Leong's strategies concentrated on Takaful, life and general insurance business in Malaysia," said Tokio Marine in a statement.

The two companies teamed up in 2006 with Hong Leong being the senior partner in the venture holding 65% of the stock.

A spokesperson from Tokio Marine's Dubai office told The Islamic Globe that he was unable to add anything further. Hong Leong Group did not respond to requests for comment.

(The Islamic Globe, 15 March 2011)

Merger of Al-Khaliji, Qatari bank

2011-03-17T10:16:00.000-07:00

The proposed merger of Al-Khaliji Bank and the International Bank of Qatar is expected to be announced within two to three months, as reported in Qatar's English-language daily, The Peninsula (8 March 2011).

Al-Khaliji chairman and managing director Sheikh Hamad Faisal Thani al Thani told reporters after the bank's annual general meeting (AGM), “A merger is not easy and will take time but hopefully in two to three months we should be able to make an announcement on the merger.”

He said he believes the proposal would yield long-term benefits to shareholders by creating a more competitive, financially stronger and significantly larger organisation.

As soon as all required regulatory approvals are obtained, the proposal will be submitted for approval by shareholders.

Zamani appointed as Bank Islam chairman

2011-03-17T10:14:00.000-07:00

KUALA LUMPUR, Tuesday, [1 March 2011] – Bank Islam Malaysia Berhad (Bank Islam) announced today that former Bank Negara Malaysia (BNM) Deputy Governor Dato’ Zamani Abdul Ghani has been appointed chairman of the Bank effective today. [1 March, 2011].

Dato’ Zamani started his career with the Economics Department of BNM in 1971. He rose through the ranks to the position of among others, Deputy Director in the Treasury Operations Department, Director of the Bank Regulation Department, Director of the Insurance Regulation and Inspection

Department and later as BNM’s Deputy Governor. He was Special Adviser in Bank Negara Malaysia prior to his appointment to Bank Islam.

During his tenure at BNM, he oversaw various departments responsible for the regulation and supervision of financial institutions, units combating abuses in, and of the financial system, as well as the Bank’s corporate, personnel, property, security and related services. The financial institutions he oversaw include both conventional and Islamic banks, insurance entities and development financial institutions.

(Statement dated March 1 from Bank Islam)

BNM sets end-June deadline for new Shariah framework

2011-02-23T17:57:00.000-08:00

By Habhajan Singh & Farah Saad
Some Islamic banks and takaful operators may not meet the end-June deadline to comply with the requirements of the Shariah Governance Framework for the Islamic Financial Institutions, issued by Bank Negara Malaysia (BNM), which took effect on Jan 1.

It is understood that some Islamic financial institutions (IFIs) coming under the ambit of the framework issued in October 2010 are still behind the curve with the full implementation of the framework which includes establishing an "end-to-end Shariahcompliant control mechanism" for all aspects of their business operations to ensure that "all activities are Shariah-compliant".

"The central bank has paid a visit to some local IFIs to check on their preparedness for the framework," one industry source told The Malaysian Reserve.

BNM deputy director for Islamic banking and takaful department Rustam Mohd Idris told a forum discussing the framework in Kuala Lumpur on Monday that "our deadline is our deadline".

The document marks another key milestone in the development of Islamic finance in Malaysia and also 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 bank licensed under Islamic Banking Act 1983 (IBA), takaful and retakaful operators registered under the Takaful Act 1984 (TA), financial institutions licenced under the Banking and Financial Institutions Act 1989 (BAFIA) that participates in the Islamic banking scheme, and development financial institutions prescribed under the Development Financial Institutions Act 2002 (DFIA) that participates in the Islamic banking scheme.

"The new framework is more comprehensive and provide guidance on Shariah audit, Shariah review, Shariah risk management and Shariah research function," said Mohammad Faiz Azmi, who leads the PricewaterhouseCoopers Global Islamic Finance Team and is also the chairman of the Malaysian Accounting Standards Board.

Speaking at the forum on Monday, organised by ZI Shariah Advisory Sdn Bhd which is the Shariah arm of legal firm Zaid Ibrahim & Co, he said the framework also has "stricter requirements" in terms of qualification.

He said paper qualification was not mandatory in the old framework but the new framework requires that the majority of members in the Shariah Committee shall at least hold a bachelor's degree in Shariah from a recognised university.

The new framework replaces Guidelines on the Governance of Shariah Committee for IFIs issued in 2004.

At the same forum, International Shariah Research Academy for Islamic Finance (ISRA) senior researcher Prof Dr Ashraf Md Hashim pointed out that one of the special features of the new framework is the inclusion of a clause for succession planning for Shariah Committee members.

In section four of the framework, it states: "The IFI should develop a succession planning programme for the Shariah Committee members by identifying, hiring and nurturing new members with the view to entrusting them with greater responsibilities as and when appropriate."

The first objective of the new framework is to set out the expectations of BNM on IFIs' Shariah governance structures, processes and arrangements to ensure that all its operations and business activities are in accordance with Shariah.

It also intends to provide a "comprehensive guidance" to the board, Shariah Committee and management of IFIs in discharging its duties in matters relating to Shariah, and outlines the functions relating to Shariah review, Shariah audit, Shariah risk management and Shariah research istitutions are still behind the curve on full implementation of the framework which includes establishing an 'end-to-end Shariah-compliant control mechanism' for all aspects of their business operations.

(This story appeared in The Malaysian Reserve on 16 February 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

New set-up ASAS to assist in Shariah matters soon

2011-02-23T17:55:00.000-08:00

By Farah Saad
A NEWLY-ESTABLISHED Association of Shariah Advisors (ASAS) will begin operations within the next few months to assist Islamic financial institutions (IFIs) to ensure the effective implementation of Bank Negara Malaysia's (BNM) recently released Shariah Governance Framework (SGF).

"We have submitted the application to the Registrar of Societies to make it an official establishment and are now awaiting approval," said Prof Ashraf Md Hashim after a dialogue on the Shariah Governance Framework for Islamic Financial Institutions, in Kuala Lumpur on Monday.
Besides being a source of reference for IFIs on Shariah matters, ASAS will help maintain standards of competence and conduct of the Shariah advisory services in accordance with its code of conduct.

ASAS will also assist regulators and relevant authorities in the appointment of Shariah advisors. Currently, ASAS is operating as a pro-tem committee, chaired by Asst Prof Dr Aznan Hasan, assistant professor in Islamic Law and a member of the Shariah Advisory Council of Bank Negara Malaysia, and Ashraf himself as deputy chairman.
Pending the association's success in Malaysia, Dr Ashraf is optimistic the concept would catch on internationally, with Shariah advisors from around the world joining to form an international version of ASAS.
"We will start in Malaysia, while we are weighing out the pros and cons, before we go international. If it is done properly, other countries will follow," he said.

ASAS is considering a twotiered membership structure, where Shariah scholars can either be full members or associated members, Ashraf said.
He was speaking to The Malaysian Reserve after the dialogue hosted by ZI Shariah Advisory Services Sdn Bhd, the Shariah arm of law firm Zaid Ibrahim & Co's.
The event was held to discuss the on-going implementation of BNM's SGF. IFIs have till end-June months to ensure all their operations are in accordance with the framework.

[The Malaysian Reserve, 16 February 2011]

Launch of the Islamic Globe e-newspaper

2011-02-23T17:35:00.000-08:00

DUBAI: The Islamic Globe, touted to be the world-first Islamic finance e-newspaper, was launched on Feb 16 by global publishing venture called Eaglemont Media.

It is a free weekly e-newspaper delivered to readers on a variety of digital platforms — from the iPad to the iPhone, Blackberry to Kindle, Android to Samsung Tablet as well as PDF.

The new e-newspaper is designed to look like an old fashioned newspaper from the 1950s — complete with yellowing paper and curled edges — to remind readers of a time when quality journalism was the most important part of the reading experience, according to a statement by its publisher.

"Much of the media that has addressed this market in the past has been filled with regurgitated press releases and advertiser-friendly PR (public relations). The Islamic Globe seeks to tell the truth with no bias and no slant," said its founder and editor Paul McNamara.

Anxiety over Qatar: It's 'wait and see' over in Malaysia

2011-02-23T17:32:00.000-08:00

As Qatari markets are still reeling from its central bank's ban on Islamic banking windows, the Islamic finance industry in Malaysia watches the developments unfold with a measure of trepidation.

Earlier this month, Qatar Central Bank (QCB) issued a circular to convent ional banks with Islamic banking arms in the emirate to close their Islamic operations by end-2011.

Although, in general, Malaysian Islamic banks are not directly impacted by Qatar's announcement, the move took most market players by surprise. For now, though, the industry seems to have adopted a wait-and-see stance as the policy is implemented.

"There has not been clarification from QCB at this stage, so the industry will need to wait and see how QCB will implement this," Deloitte Corporate Advisory Services global Islamic finance leader Daud Vicary Abdullah told The Malaysian Reserve in a telephone interview.
He said QCB had earlier flagged a move in the direction, but had initially indicated that a maximum percentage of Islamic finance business was permissible at a conventional institution.
"The directive to shut it down came as a bit of a surprise," he said.

In a report posted on the website of law firm SNR Denton, it said the circular followed an earlier decision in August 2010 by the regulator requiring the assets of Islamic banking operations to be limited to 15% of a conventional bank’s total assets.
QCB's motives, according to the circular, is to ensure that conventional and Islamic banking operations become entirely segregated, in full compliance with Shariah principles.
To this end, a Malaysian-based lawyer believes that the Qatari regulators would have made the decision "upon due considerations".
"Islamic windows within a conventional banking set-up basically create a shadow-banking operation, ie the formation of a bank-within-a-bank, which makes it quite opaque for the regulators to supervise and monitor the bank's operations as well as the risks associated with it," said Madzlan Hussain, a partner and head of Islamic financial services practice at Zaid Ibrahim & Co.

Perhaps this was amongst the issues bothering the regulator's mind, he said.
In implementing the policy, Madzlan sees the year-end deadline given by the regulator for Islamic windows to wind down as 'challenging', as any such radical change requires the market to be adequately prepared with appropriate infrastructures.
"Here we are not only looking at the market readiness in terms of its human capital and financial capacity to adapt to such change, but quite importantly, whether the public themselves are ready to adapt to such change?" he said.

Reports have indicated Qatar's directive is a step towards emulating Malaysia's comprehensive Shariah framework for its Islamic banks.
Malaysia, which has adopted a dual financial system comprising conventional and Islamic systems under its new central bank laws, has in place an established regulatory and supervisory framework for standalone banks and subsidiaries offering Shariah-compliant products.
Most countries practicing Islamic finance do not yet have such legal framework in place. As such, major policy decisions such as the one made by Qatar should be approached cautiously, said one Islamic banker.
"Surely the regulator does not want to shock the market and cause it to destabilise. There is no one-size-fits-all answer to some of these issues; every policy decisions must take into consideration the specificities of each jurisdiction," the banker said.

(This story appeared in The Malaysian Reserve on 21 February 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Qatar banks under pressure

2011-02-13T22:10:00.000-08:00

Qatar's central bank has ordered commercial banks to close Islamic banking operations by the end of 2011. Image Credit: ReutersThe decision by the Qatar Central Bank to order conventional banks in the country to close their Islamic banking operations by the end of the year — without a detailed explanation — may be harmful to the financial services industry in the country and the region, reports Gulf News (February 13, 2011).

Many international and local conventional banks in Qatar have reportedly invested in setting up Islamic finance operations which they may now have to shut-down at some cost. But perhaps of greater concern is that by not immediately providing clear reasons for the step, the central bank has created uncertainty in the financial services industry in the country — which may deter further investment.

The shares of some Islamic-only banks listed in Qatar strengthened on the news of the ban, on the back of speculation that they would be able to pick up assets conventional institutions may be forced to sell cheaply. It is expected that shares in conventional banks in Qatar will remain under pressure until the issue is resolved.

And, although it might seem unfair, given the different national regulatory authorities, the uncertainty is likely to spread to the entire Islamic finance industry, which spans the region and the world. While the Gulf is an important centre for the global Islamic finance industry, those countries in Asia, among others, also trying to win market share, will be quick to take advantage of any regulatory uncertainty that will make investors look for new destinations.

The global financial crisis showed that Islamic banking is as vulnerable to sentiment and the state of the world economy as conventional banks. While it may be within their rights, governments must at all times institute regulations and policies with a restrained hand. Without a clear and stable operating environment, both Islamic and conventional banks will suffer.

Qatar Tells Conventional Lenders To Stop Islamic Ops

2011-02-13T22:06:00.000-08:00

Qatar's central bank-Qatar's central bank has ordered conventional lenders operating in the gas-rich Gulf Arab state to shut down Islamic finance activities by the end of 2011, two bankers familiar with the situation said Sunday, in a move that could curb an important source of income for many banks, reports Zawya Dow Jones (Monday, Feb 07, 2011).The central bank earlier this month sent a memorandum to non-Islamic lenders operating in Qatar asking them to close their Islamic units without providing a reason for the decision, according to two senior banking officials, who reviewed the document. The move is seen to benefit the pure Islamic players such as Masraf Al RayanMasraf Al Rayan and Qatar Islamic Bank (QIB), whose shares rose 10% and 8.4% respectively, the report added.

"We expect banks to convert or restructure Islamic corporate loans into conventional loans, wind down or sell their Islamic loans," the report quoted Jaap Meijer, Dubai-based head of the banking team at AlembicHC research.
A Qatar central bankQatar central bank official, who declined to be named, confirmed that the memorandum was issued but declined to provide further details.

The report added:

Meijer said the biggest impact would be on Qatar National BankQatar National Bank, as 12% of its assets, 16% of its loans and 9% of its profits are derived from Islamic finance. QNBQNB's shares lost nearly 5%. Doha BankDoha Bank and Commercial Bank of Qatar would also be affected by the central bank move, he added.
"QIB could be key beneficiary as it currently has 50% market share in Islamic finance. If it captures just 50% of loans of the big three, this could boost loans by around 35%," Meijer said.
While analysts and bankers are assessing the impact of the central bank's decision, few can offer an explanation of the motive other than that the country's authorities want to separate the product offering of conventional banks and shariah-compliant lenders.
"We don't know the real reason, the picture is still unclear," one of the Qatar-based bankers said.

BNM mulls 5 Shariah advisors for Islamic banks

2010-10-27T00:27:00.002-07:00

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

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

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

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

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

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

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

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

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

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

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

(This story appeared in The Malaysian Reserve on 25 October 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Islamic fund management sector to see global players

2010-10-27T00:27:00.001-07:00

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

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

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

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

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

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

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

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

M’sian Islamic finance education gets int’l demand

2010-10-26T23:47:00.000-07:00

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

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

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

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

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

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

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

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

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

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

(This story appeared in The Malaysian Reserve on 25 October 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

IBFIM inks pact to co-develop Islamic finance in Maldives

2010-10-26T23:46:00.000-07:00

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

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

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

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

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

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

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

Regional mandatory sharia finance body "years away"

2010-10-26T23:04:00.000-07:00

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

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

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

THE REPORT GOES ON:

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

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

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

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

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

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

Distressed Deals Lure Shariah Funds Managing $10 Billion

2010-10-26T22:58:00.001-07:00

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

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

THE REPORT GOES ON:

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

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

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

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

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

Islamic finance industry under regulated, says Deloitte survey

2010-10-26T22:55:00.001-07:00

by Habhajan Singh

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

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

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

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

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

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

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

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

IILM to boost IFI capacity to facilitate cross-border flows

2010-10-26T22:54:00.001-07:00

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

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

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

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

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

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

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

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

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

BNM ruling on Islamic financial products

2010-10-26T22:51:00.001-07:00

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

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

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

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

New licences to boost takaful take-up to 18%

2010-10-26T22:47:00.001-07:00

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

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

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

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

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

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

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

(This story appeared in The Malaysian Reserve on 4 October 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

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

2010-10-26T22:40:00.000-07:00

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

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

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

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

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

2010-10-26T22:28:00.001-07:00

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

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

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

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

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

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

(This story appeared in The Malaysian Reserve on 18 September 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Malaysia to cut taxes on Islamic transactions

2010-10-26T22:24:00.000-07:00

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

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

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

Australia Seeks Tax Changes to Promote Sukuk

2010-10-26T22:23:00.001-07:00

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

The report reads:

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

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

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

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

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

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

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

Indonesia trails Malaysia in sukuk on taxes

2010-10-26T22:20:00.000-07:00

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

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

The report added:

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

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

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

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

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

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

Wan Ariff gets loan for logistics takeover

2010-09-29T23:46:00.000-07:00

By Habhajan Singh

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

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

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

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

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

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

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

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

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

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

(The Malaysian Reserve, 30 September 2010)

Maybank to boost Islamic finance ops in Indonesia

2010-09-29T23:44:00.000-07:00

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

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

THE REPORT GOES ON:

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

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

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

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

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

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

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

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

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

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

30 vie for BNM Islamic finance award

2010-09-29T23:35:00.000-07:00

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

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

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

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

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

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

(The Star, 21 Septemebr 2010)

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

2010-09-29T23:31:00.002-07:00

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

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

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

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

(This story appeared in The Malaysian Reserve on 23 September 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Islamic finance seems overwhelmed by scholar reforms

2010-09-29T23:31:00.001-07:00

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

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

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

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

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

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

MAA Takaful inks collaborative agreement with LIMRA, CERT

2010-09-29T23:18:00.000-07:00

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

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

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

(This story appeared in The Malaysian Reserve on 21 September 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Shariah scholars & Malaysia's SC

2010-09-29T22:50:00.000-07:00

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

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

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

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

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

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

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

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

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

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

HSBC Amanah picks Rafe as chief, awaits BNM nod

2010-09-07T23:26:00.000-07:00

By Habhajan Singh

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

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

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

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

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

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

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

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

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

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

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

(This story appeared in The Malaysian Reserve on 8 September 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Bank Muamalat, Saadiq handle Bernas RM750m sukuk

2010-09-07T23:19:00.001-07:00

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

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

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

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

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

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

Plans for certified syariah experts in Islamic finance

2010-09-07T23:13:00.000-07:00

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

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

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

The report goes on:

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

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

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

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

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

BT: 4 family takaful licences given out

2010-09-07T22:58:00.000-07:00

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

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

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

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

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

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

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

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

BT: Cagamas set to issue another landmark sukuk

2010-09-07T22:53:00.000-07:00

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

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

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

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

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

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

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

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

(Business Times, 6 Sept 2010)

Two Islamic banks looking to hire CEOs

2010-08-23T05:50:00.000-07:00

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

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

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

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

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

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

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

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

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

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

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

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

(This story appeared in The Malaysian Reserve on 23 August 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Global sukuk issuance to reach US$30b in 2010

2010-08-23T05:46:00.002-07:00

By Muin Abdul Majid

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

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

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

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

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

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

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

Committee to enhance its legal framework

2010-08-23T05:46:00.001-07:00

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

The report, authored by Mushtak Parker, goes on:

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

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

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

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

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

Bloomberg: Afghanistan Opening First Shariah-Based Banks

2010-08-23T05:38:00.000-07:00

By Khalid Qayum and Eltaf Najafizada

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

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

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

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

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

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

MAHB to decide on final sukuk proposal in 3 months

2010-08-22T05:58:00.002-07:00

By Bhupinder Singh

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

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

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

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

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

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

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

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

(This story, written by Bhupinder Singh, appeared in The Malaysian Reserve on August 18, 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

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

2010-08-22T05:58:00.001-07:00

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

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

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

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

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

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

2010-08-22T05:52:00.000-07:00

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

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

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

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

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

Bloomberg: Repos for Sukuk Planned to Expand Shariah Market Trading

2010-08-22T05:51:00.000-07:00

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

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

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

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

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

BIMB to swap listing status with Bank Islam

2010-08-15T20:48:00.000-07:00

By Habhajan Singh

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

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

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

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

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

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

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

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

PPZ spearheads pro-active zakat collection

2010-08-15T20:46:00.001-07:00

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

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

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

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

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

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

Aussie Crescent looking for Malaysian Shariah-compliant partners

2010-08-15T20:44:00.002-07:00

By Dalila Abu Bakar

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

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

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

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

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

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

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

Islamic courses to start at University of Bedfordshire

2010-08-15T20:44:00.001-07:00

Two new courses are set to begin at the University of Bedfordshire in recognition of the increased in demand for Islamic financial products and services, reports BBC.

The courses will guide students through the principles of Islamic finance and the theory of Islamic commercial practice which is based on Shariah law

The university says that students choosing these courses, The Master of Science (MSc) in Islamic Banking and Finance and the Master of Laws (LLM) in Islamic Commercial Law, will benefit from growing employment opportunities in the West representing Muslim interests and in Muslim countries.

It quoted Tariq Khan from the university as saying: "We are based just outside London, the financial capital of the world, where there is a large demand for Islamic finance and banking products.

"Our international students, who are often from the Middle East, and who will return home to practise law, have also highlighted a need for a foundation in Islamic banking and finance laws."

Bank of London and the Middle East ‘doing very well’

2010-08-09T01:20:00.002-07:00

BANK of London and the Middle East (BLME) expects its performance for the current financial year ending Dec 31, 2010, will be better than the previous year's.

"Our performance will be much better than last year's. We will be profitable for the whole year," said its chief executive officer Humphrey Percy (picture).

Percy said BLME is performing well and its business has been developing with more products being introduced into the market. Like other financial institutions, he noted BLME was affected by the global economic slowdown. Nevertheless, he said, the bank has been staging a good performance.

"Everybody is affected by the crisis. Because we are part of the financial market, we were affected by the crisis, but we are actually doing very well, our business is also developing," he said at the 7th annual Kuala Lumpur Islamic Finance Forum in Kuala Lumpur, last week.

BLME, the largest Islamic bank in United Kingdom, has five core business offerings — treasury, corporate banking, private banking, asset management and corporate advisory services. Percy said BLME has been developing more real asset funds and had recently launched its electronic foreign exchange platform and internet deposit account.

He said BLME will continue to develop other instruments which are utilised by banks, and corporate banking activities. Percy also said the United Kingdom government is still talking about the launch of a sukuk. "S&P forecast US$20 billion (RM62.9 billion) worth of sukuk issuance this year and expects to see US$130 million of corporate issuance in UK and Europe," he added.

He also said the International Islamic Financial Market (IIFM) has estimated that Shariah compliant assets will reach US$1 trillion in 2010. IIFM is the global standardisation body for the Islamic Capital & Money Market (ICMM) segment of the Islamic Financial Services Industry. It is a nonprofit international development institution supported by the central banks and government agencies of Bahrain, Brunei, Dubai, Indonesia, Malaysia, Saudi Arabia, Sudan, Pakistan as well as a number of regional and international financial institutions. The objective of IIFM is to take part in the establishment, development and promotion of the ICMM.

Commenting on investor sentiment, Percy sees cautious investment in low risk activities with low-medium yields. "There is a move from wealth preservation as an investor driver in 2008-2009 to wealth generation in 2010-2011," he added.

(This story, written by Dalila Abu Bakar, appeared in The Malaysian Reserve on August 9, 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Bahrain Regulator May Limit Scholars’ Role: Bloomberg

2010-08-09T01:20:00.001-07:00

A Bahrain-based agency is proposing new rules for religious scholars involved in the $1 trillion Islamic finance market, aiming to reduce the risk of conflicts of interest or improper disclosure, reports Bloomberg (Aug 9, 2010).

The guidelines may address whether Shariah scholars can own shares in the institutions they serve and how many advisory boards they join, said Mohamad Nedal Alchaar, secretary-general of the Accounting & Auditing Organization for Islamic Financial Institutions, whose standards have been adopted in countries including the United Arab Emirates and Qatar.

“There’s a potential case for conflict of interest, and a case of information leakage or perhaps competition impact,” the newswire quoted Alchaar in a telephone interview in Kuala Lumpur. “We wanted to address the concerns in an unbiased manner. When the guideline is published it will be a bold move and it may cause a stir.”

The proposals underline concern that Islamic financial products, designed to comply with Shariah law to be acceptable to devout Muslims, may be overseen by scholars who have a financial interest in their issuance. Global standards are still developing in the industry, whose assets are forecast by the Kuala Lumpur-based Islamic Financial Services Board to almost triple to $2.8 trillion by 2015, the report added.

Asian Finance Bank looking for Indonesian partner

2010-08-09T01:17:00.000-07:00

Qatar Islamic Bank (QIB), which owns 70% of Kuala Lumpur-based Asian Finance Bank (AFB), is exploring opportunities with a few local parties in Indonesia in a move to increase its presence in South-East Asia.

AFB chief executive officer Datuk Mohamed Azahari Kamil said the Islamic bank, through its representative office in Indonesia, has identified several candidates on behalf of QIB for that purpose.

However, he said, the right candidate for a merger or acquistion has not been finalised to realise the bank's expansion plan in the region. The right candidate, among other criteria, must be a complete Shariah-compliant bank. QIB is the Gulf state's biggest lender which complies with Islamic banking principles.

"We are exploring with potential candidates on behalf of QIB through our representative office in Jakarta. We will conduct the due diligence and then make recommendations to QIB if the fundamentals are right," he told The Malaysian Reserve in recent interview.

One Indonesian Islamic banking source told The Malaysian Reserve that AFB is looking at buying a bank and would later convert it to an Islamic bank.

When met recently in Kuala Lumpur, Bank Indonesia director Mulya E Siregar said to attract international investors and players in the Islamic banking industry, the Indonesian regulator is committed to create a conducive environment to attract new players, promoting strategic alliances with other institutions to improve reach and outreach of Islamic banking services, both domestic and international.

On the search for a partner, Mohamed Azahari said there is no specific target period for the bank to find the suitable candidate and it is an ongoing process. He said the merger or acquisition that would be undertaken by QIB will add value for the bank in Indonesia and will bridge the business relationship between the country and the Middle East.

"We want to add more value to the bank that we want to acquire in Indonesia. We believe we can do that through this strategic collaboration.

"Indonesia is the market that we are looking at to increase our presence in the region. AFB is suitable to supervise and coordinate the operations in Indonesia because of its presence in Kuala Lumpur," he said.

Mohamed Azahari also said AFB's Islamic banking business in Indonesia has been growing encouragingly since its representative office was set up in Jakarta early 2008. "Business has been good. We see a great potential growth in Indonesia with about 200 million Muslim population," Mohamed Azahari added.

He said the role of AFB representative office in Indonesia is to identify business opportunities in the country and the credit assessment process and funding is provided by AFB in Kuala Lumpur. "There are many Malaysian companies with projects in Indonesia. We support them. We are competitive in terms of pricing and structure," he said.

(This story, written by Dalila Abu Bakar, appeared in The Malaysian Reserve on August 9, 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

KLIFF 2010 Essay Competition: The Winners

2010-08-06T05:35:00.000-07:00

KLIFF 2010, one of the largest annual Islamic finance gatherings in the region, had again organised an essay writing competition.

IIUM's Aishath Muneeza and Dr Rusni Hassan took home the first prize with their entry titled 'Take it or Leave it! The Iniquitous Islamic Banking Documents'.

The second place went to Dr M. Shabri Abd. Majid and Dr Salina Binti Hj. Kassim (Islamic Finance & Economic Growth: The Malaysian Experience) while the third spot went to Zulkifli Hasan (The Effect Of Regulatory Framework To Shari’ah Governance Disclosure Practices).

For the full list, go here.

[Picture courtesy of KLIFF website]

MAHB plans RM3b sukuk to fund KLIA2

2010-08-06T05:16:00.000-07:00

Malaysia Airports Holding Bhd (MAHB) has proposed to undertake a sukuk programmes up to RM3.1 billion to part finance the construction of its new terminal (KLIA 2) and to refinance its existing borrowings which were used for Shariah-compliant purposes as well as for MAHB’s Shariah-compliant general corporate purposes.

"The development of the new KLIA-2 is expected to cater for the operational and service needs of the fast growing low-cost carrier airlines in the country and is expected to contribute positively to the future earnings of the MAHB group," it said.

It said KLIA-2 is expected to be completed by the end of the first quarter of 2012.

CIMB Investment Bank Bhd and Citibank Bhd have been appointed as the joint principal advisers, joint lead arrangers and joint lead managers for the proposed sukuk programmes which combined Islamic commercial paper (ICP) programme and Islamic medium term note (IMTN) programme, with a sub-limit of RM1 billion nominal value for the ICP programme.

MAHB said the proposed sukuk programmes are expected to be implemented by the third quarter of this year and it would announce the detailed utilisation of the proceeds where required.

MAHB said the impact of the proposed sukuk programmes on the earnings of the MAHB group will depend on among others, the coupon or profit rate of the Sukuk.
The company said the ICP and the IMTN have been accorded a preliminary short-term rating of P1 and a preliminary long-term rating of AAA with stable outlook,respectively by RAM Rating Services Bhd.

The company added the proposed programmes, when issued, would increase the gearing of the MAHB group unless and to such extent where the proceeds from such issuances are used to refinance existing borrowings/financings.

The proposal is done through its wholly-owned subsidiary, Malaysia Airports Capital Bhd (MACB), a special-purpose vehicle set up as a wholly owned subsidiary of MAHB. MACB's income will be solely derived from the ijarah rental payable by MAHB, which will be used to service the issuer's debt obligations.

MAHB, 60% owned by state-owned investment firm Khazanah Nasional Bhd, is the exclusive 25-year concession holder that operates, manages and maintains Kuala Lumpur International Airport (KLIA).

The group also holds a separate 25-year concession to operate, manage and maintain all other Malaysian airports and short-take-off and landing ports with the exception of Senai International Airport in Johor.

(This story, written by Dalila Abu Bakar, appeared in The Malaysian Reserve on August 6, 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

S Korean, Malaysian firms plan RM3.2b infra project

2010-08-06T05:11:00.000-07:00

A South Korean manufacturing conglomerate and a privately-owned Malaysian firm are in the midst of setting up a joint-venture to build an infrastructure project worth more than US$1 billion for the Malaysian government deploying Islamic funds which will be raised by the Korean party.

The South Korean firm would provide its expertise in manufacturing technology and the funds needed for the project, said South Korean-based Shariah Finance Co Ltd director for overseas operations Robert Jung-Soo Ryu.

"The South Korean firm is not an Islamic based company but the funding for the whole project will be Islamic. The main financial adviser of this project, I believe, is also an Islamic bank. We are trying to partner with them also, to fund the project to distribute the risk between the banks," he said at the 7th Annual Kuala Lumpur Islamic Finance Forum (KLIFF) in Kuala Lumpur, yesterday

Ryu said a special purpose vehicle would undertake the infrastructure project to be built in Malaysia.

He said the Malaysian firm company which owns the project will hold 51% of the SPV while the Korean firm holds the rest.

"The Malaysian company is already in the industry, however, because of lacking of technology to meet the need of the government, they have approached us to find a right partner in Korea.

"One of the conglomerates in Korea is able to pursue it and join them in a consortium. They will be investing funds to create the joint venture and the facility to meet the needs of the Malaysian government. The Korean firm will bring in the manufacturing technology to undertake the project targeted for completion in 2015," he said.

Ryu, however, declined to reveal the identity of the two companies involved in the deal as discussions with Malaysia's high level government officials are currently underway.

He said the project would take off once the letter of intent (LOI) is ready, adding that they had a meeting high level government officials in Malaysia last week.

"We are looking at the LOI to be ready sometime towards end of this year, maybe November," he said.

On Islamic finance, he said it is developing slowly in South Korea which has a Muslim population of about 135,000 only.

However, the Islamic finance sector in the country is getting support from the government and indirectly from the national pension fund which is interested in investing in Islamic products.

He pointed out South Korea does not have an Islamic retail market and there are no plans to open any retail-related Islamic products in the country.
"We feel that it will be good if we can create Islamic products that non-Muslims also can enjoy," he said.

Ryu said South Korea is currently working on its first sukuk to finance the Jeju Island airport project which is expected to materialise between the middle and end of next year.

"We are working very hard with the government to finance this new airport project which has not passed the government level yet. The government has agreed that some of the funds should be raised in sukuk," he said.

He added no decision has been made on the type of sukuk for the Jeju Island project and the South Korean government is working with Kuala Lumpur-based Islamic finance consultants from Amanie Business Solutions Sdn Bhd, led by Dr. Mohd Daud Bakar, on the sukuk.

Dr Daud has been invited by the South Korean government in January 2011 to discuss details on structuring the sukuk and its timing, he added.

(This story, written by Dalila Abu Bakar, appeared in The Malaysian Reserve on August 5, 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Singapore Targets Sukuk as Khazanah Plans Sale - Bloomberg

2010-08-06T05:10:00.000-07:00

Singapore is seeking to develop its Islamic finance market and attract investors as global growth in products that comply with Shariah law tops 20 percent annually, reports Bloomberg (August 03, 2010).

The report read: Islamic services in the island republic are “small and still emerging” and reflect the world trend, according to an e- mail statement on July 27 from the Monetary Authority of Singapore. “Greater depth and liquidity will in turn draw even more participants into using Islamic finance for their funding and investment needs. For the industry to grow further, we need more intermediaries, more products and more investors.”

Khazanah Nasional Bhd., Malaysia’s state investment company, may sell S$1.5 billion ($1.1 billion) of five- and 10-year sukuk, a person familiar with the matter said today. A “few companies” are looking to sell notes in Singapore that adhere to the religion’s ban on interest, the authority known as MAS said, without specifying the names, the report added.

Financial products that meet Shariah guidelines, which are typically backed by assets or cash flows, account for less than 5 percent of the total market worldwide, the MAS said. Globally, about $1 trillion is invested in Islamic products.

The government started a S$200 million sukuk issuance program in January 2009, which was set up to provide “regulatory assets” to institutions offering Islamic services, according to the MAS. Several portions have been sold so far and the debt was offered at similar yields to notes that don’t comply with the ban on interest, the central bank said.

Singapore’s Islamic finance industry “doesn’t have the critical mass but it is heading in the right direction,” Jonathan King, director at Singapore-based AEP Investment Management Ltd., which is 80 percent owned by Saudi Arabia’s Al- Rajhi Group, said in an interview yesterday. “We are encouraged by MAS’ pro-active strategy.”

The city state’s Muslim community is small relative to its Southeast Asian neighbors, accounting for 15 percent of a resident population of about 3.7 million, according to the central bank. In Malaysia, the proportion is 60 percent, the statistic department’s website shows, and 86 percent in Indonesia, according to U.S. government data.

Global sales of Islamic bonds have fallen 29 percent to $6.7 billion so far this year, compared with $20.2 billion in 2009. Malaysia, which accounts for more than 60 percent of the global sukuk market, sold $1.25 billion of notes in May, attracting orders for more than five times the debt initially offered.

MARC affirms KFH Malaysia rating, long term downgraded

2010-08-06T05:04:00.000-07:00

Malaysian Rating Corp Bhd (MARC) affirmed Kuwait Finance House (Malaysia) Bhd (KFHMB) long and short term financial institution ratings at AA+/MARC-1 while outlook on KFH's long term rating downgraded to negative from developing.

Accordingly, it said KFHMB's long-term rating outlook has been revised to negative from developing to reflect that of its parent.

The affirmation of KFHMB’s ratings follows the affirmation of the long-term and short-term financial institution ratings of its parent, Kuwait Finance House K.S.C. at AAA/MARC-1, said MARC in a statement yesterday.

This rating announcement comes two months afyer KFHMB discontinuing in June the rating services by RAM Ratings in what it said was a measure to 'be in line with the rating practices' of its parent in Kuwait and cost rationalisation.

In November 2009, RAM had put a negative outlook on the financial institution ratings of KFH, based on the deterioration in the financial metrics of both the bank and its parents.

Around that time, KFHMB chief executive officer Jamelah Jamaluddin, who was appointed in February, had requested several of its staff to go on leave pending internal investigations into transactions and contractual arrangements undertaken over the years.

In the latest report, MARC said KFHMB’s dependence on parent support has risen as the bank’s intrinsic financial strength has been visibly affected by asset quality challenges.

The near term impact of the bank’s weakened asset quality and operating performance on its capital adequacy was buffered by an injection of additional capital by KFH.

Meanwhile, KFH’s affirmed ratings reflect its systemic importance to the Kuwaiti economy as the second largest bank in the country as well as indirect majority government ownership.

KFH, the parent bank of KFHMB, is the second largest bank in Kuwait in terms of asset and is also one of the largest Islamic banks in the world with an extensive reach across the Middle East and a presence in Southeast Asia through KFHMB.

KFH also experienced asset quality deterioration amidst the global financial crisis with its NPF ratio weakening to 12.6% in FY08 with bulk of the incremental NPF accounted for by credit exposure in the real estate and construction and financial services (mostly investment houses) sectors which were badly affected during the crisis.

Although a marginal improvement in gross NPF was seen in FY09, which resulted in a gross NPF ratio of 11.8%, MARC notes that this was largely a function of an enlarged financing book, as absolute NPF remained relatively unchanged during FY2009.

Although a marginal improvement in gross NPF was seen in FY2009, which resulted in a gross NPF ratio of 11.8%, MARC notes that it was largely a function of an enlarged financing book, as absolute NPF remained relatively unchanged during FY09.

Meanwhile, high loss allowances, coupled with lower financing and investment income, resulted in lower profitability with return on asset (ROA) declining to 0.66% in FY09 from 1.81% in FY2008. At the same time, total capital ratio declined to 15.2% at end-2009 from 21.7% in the previous year.

MARC noted KFH’s capital ratios remain within Kuwaiti banking standards and above minimum regulatory requirements. Noting the pressure on KFH’s stand-alone credit profile, MARC continues to draw comfort from the very high likelihood of sovereign support for the bank.

The absence of a sustained recovery in KFH’s financial performance or a weakening in support from the Kuwaiti government would trigger a downward revision of the parent bank’s ratings.

At the same time, any weakening in support from KFH towards the subsidiary KFHMB may result in a downward revision of the latter’s ratings.

(This story, written by Siti Radziah Hamzah, appeared in The Malaysian Reserve on August 4, 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Khazanah wins Parkway battle with S$3.5b bid

2010-08-06T05:03:00.000-07:00

The two month long tussle between Khazanah Nasional Bhd and Fortis Healthcare Ltd to control Singapore-listed Parkway Holdings Ltd finally came to an end yesterday as Fortis accepted Khazanah's voluntary conditional general cash offer (VGO) and decided to divest all its holdings in Parkway.

The deal, costing the national investment arm S$3.5 billion as it upped the offer price to S$3.95 per share, is seen by some analyts as the higher end of Parkway's valuation, but one worth paying if it could extract value from the healthcare giant with more than 3,400 hospital beds in China, india and Malaysia.

The deal will see Fortis -- controlled by two billionaire Singh brothers, Malvinder Mohan Singh and Shivinder Singh -- walk away with a profit of S$116.7 million.
Yesterday, in a filing with the Singapore Exchange (SGX), Khazanah subsidiary Integrated Healthcare Holdings Ltd (IHH) announced a revision of its offer to a voluntary onditional general cash offer (VGO) for all of the shares in Parkway, topping its May 27 offer by 17 Singapore cents.

"Khazanah will be paying quite a high price earnings ratio of 45 times to 46 times based on her financial year 2010 estimate,” said DMG & Partners Research Lynette Tan on the new offer.

Nomura Securities Singapore analyst Lim Jit Soon said Khazanah is paying the upper end of the price at RM3.95 per share, but it is not a question of overpaying.
“It all depends on how much value the buyer can extract from the the deal,” he said.

(The Malaysian Reserve, July 27, 2010)

AIIMAN to launch sukuk fund for global investors

2010-08-05T00:48:00.002-07:00

Asian Islamic Investment Management (AIIMAN) is working with a 'large investor' from the Middle East to launch a sukuk fund for the global market targeting Southeast Asian investors. AIIMAN chief executive officer Nor' Azamin Salleh said the investor would chip in up to US$20 million (RM64.5 million) in the fund with a total size of US$100 million.

He said the fund is waiting for the seed fund from the investor and that the timing of the fund launch depends on the market scenario in the Middle East.

"Investors today have little appetite for risk, preferring the relative safety of fixed income-type funds that offer relative safety, stability and regular income distributions compared to equity funds in general," he told The Malaysian Reserve in a recent interview. As such, the sukuk will most probably be a fixed income fund and compliant to the Shariah standards of the Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).

"We are working on a few ideas... more or less it will be a fixed income fund. The fund is for those who believe in Shariah principles as well as returns above the benchmark. It is for the global market with a focus on South East Asia," he said.

AIIMAN, 49% owned by Hwang-DBS (Malaysia) Bhd and the rest by Singapore’s DBS Asset Management Ltd, unveiled its first offshore themed fund, the HwangDBS AIIMAN A20 China Access Fund (A20) in March. Its first institutional offering, the HwangDBS AIIMAN Cash Plus Fund, was launched last year.

Nor' Azamin said the company is also busy getting some Middle Eastern investors to distribute its HwangDBS AIIMAN A20 China Access Fund, the world's first Shariahcompliant fund offering direct access into the highly restricted China's Ashares listed on the Shanghai and Shenzhen stock exchanges.

The US dollar-denominated fund will also be distributed to investors in the Asian regions, Middle-East and North South regions. Most of the efforts are focused on marketing the funds to clients in Singapore, Dubai and Bahrain, he said. AIIMAN, launched in November 2008, is currently managing about RM1.2 billion from its discretionary mandates and a total of five funds.

(This story, written by By Dalila Abu Bakar, appeared in The Malaysian Reserve on July 5, 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Maybank Islamic introduces Waqf

2010-08-05T00:48:00.001-07:00

Maybank Islamic with the collaboration of Yayasan Waqaf Malaysia (YWM) launched Waqf, a structured community-giving initiative that allows its customers and the public to contribute to Waqf contribution through its payment channels. A memorandum of understanding between Maybank Islamic Bhd and YWM and the launching of Waqf last Friday puts Maybank Islamic as the first bank in the country to offer such a service.

"We are bringing the Waqf to a new level where we are giving the opportunity to our customers to give back to society and create a continuous charity for the future community," said Maybank Islamic chairman Datuk Seri Ismail Shahuddin. Maybank Islamic CEO Ibrahim Hassan said the Waqf service is open to all customers, Muslims and non-Muslims, who have accounts with Maybank to use available channels to transfer funds to YWM. Non-Maybank account holders can also transfer funds via cash or cheque to YWM via Maybank branches available throughout the country.

"We have about three million customers, and conservatively, we estimate in a range of 5% to 10% of our customers, both individual and business entities, would be interested in using our services to offer charity and donation to the Waqf services," Ibrahim told reporters during the launching ceremony.

On an annual basis, Maybank Islamic estimates RM2 million to RM3 million Wafq fund 'for a start'. After the funds are sent across to YWM account, Maybank Islamic will provide investment advisory services to YWM on how to invest the funds in the best possible manner, and to achieve the best returns.

"Immediately after this launching, we will be undertaking our road show together with YWM throughout the country in the various regions, whereby we will be offering briefing on Waqf to both our individual and business customers. "With this collaboration and the road show that we are undertaking, we are hoping to create a greater awareness and education to the public," he said.

(This story, written by John Gilbert, appeared in The Malaysian Reserve on July 5, 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

BNM asking banks to provide rebate

2010-08-05T00:36:00.000-07:00

By Habhajan Singh

Bank Negara Malaysia (BNM) is now asking banks to provide rebate for early settlement of financing based on Bai Bithaman Ajil (BBA), a move seen to protect the interest of consumers who have in the past been jolted by banks demanding the full price of the financing.

In another move, the central bank's Shariah Advisory Council (SAC) also decided that compensation may be imposed on late payment of financial obligation arising from exchange contracts like the BBA and hire purchase and also interest-free loans known as qard.

The issue of rebate, or ibra in Arabic, would be a welcome relieve for individual and corporations that have made avail the Islamic financing as it was previously left to the discretion of the banks.

"In line with the need to safeguard maslahah (public interest) and to ensure justice to the financiers and customers, Islamic banking institutions are obliged to grant ibra' to customers for early settlement of financing based on buy and sell contracts (such as bai' bithaman ajil or murabahah ).

"In order to eliminate uncertainties pertaining to customers' rights in receiving ibra' from Islamic banking institutions, the granting of ibra' must be included as a clause in the legal documentation of the financing," the SAC decided at its meeting on Jan 28, according to a BNM statement released yesterday.

It said SAC had decided that tawidh (compensation) may be imposed on late payment of financial obligation arising from exchange contracts (such as buy and sell and hire purchase) and qard (loan).

"Nevertheless, ta'widh may only be imposed upon the lapse of the repayment period agreed by both contracting parties. The amount of t a'widh received may be recognised as income by the seller/financier/creditor on the basis that it is imposed as compensation for actual loss incurred by the seller/financier/creditor," it said, adding that the rate will be determined by BNM.

On ibra, the SAC ruled: "In line with the need to safeguard maslahah (public interest) and to ensure justice to the financiers and customers, Islamic banking institutions are obliged to grant ibra' to customers for early settlement of financing based on buy and sell contracts (such as bai' bithaman ajil or murabahah ).

"In order to eliminate uncertainties pertaining to customers' rights in receiving ibra' from Islamic banking institutions, the granting of ibra' must be included as a clause in the legal documentation of the financing . The determination of ibra' formula will be standardised by Bank Negara Malaysia."

On April 19, The Malaysian Reserve reported on a recent High Court judgement that ruling that Islamic banks 'must grant' a rebate even if the BBA contract is silent on the issue when a default occurs.

The judgement, in four BBA cases heard together by High Court Judge Datuk Rohana Yusuf in Bank Islam Malaysia Bhd v Azhar Osman, brought to the fore an issue that has been a bone of contention for consumers making avail of Islamic home financing as Islamic banks deem rebate as discretionary. Consumers, on the other hand, would want more certainty in that matter.

(This story appeared in The Malaysian Reserve on June 28, 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

CIMB Islamic sees more deals to be secured

2010-08-05T00:31:00.001-07:00

The reviving sukuk market augurs well for Islamic banks involved in the debt capital market as more issuances are expected in the second half of the year. With sukuk market conditions improving better and faster in the international market than the conventional bond market, CIMB Islamic, a leading player in the global sukuk market sees more deals to be secured and done in the second half of this year.

Its CEO Badlisyah Abdul Ghani is confident as the bank has managed to secure deals even at the height of the recent sovereign credit crisis.

"The global financial crisis did not directly affect our businesses and has insignificant impact on activities in our domestic markets. Our global businesses were affected a little bit but we managed accordingly based on the situation. In fact, we successfully closed a sovereign sukuk deal for the Government of Malaysia at the height of the crisis," he said.

Despite the slowdown in the first part of the year, CIMB Islamic has to date done 37 sukuk issuances in the Malaysian market alone.

"We are comfortable with how the market is now. We expect more deals coming in the second half. We are confident that we will do well in the sukuk market as we have done in the past.

"In some years, we did less number of deals but bigger ticket size per deal, and in some years, we did more deals but smaller ticket size. So long as we maintain our leadership position in the market, we are quite happy," he told The Malaysian Reserve in an interview.

In sync with the bank's aspiration to become the world's valued global Islamic bank, CIMB Islamic is now enhancing its Islamic consumer banking value proposition not just in Malaysia but also in all markets that CIMB Group has a presence.

"Currently, CIMB is the fastest growing Islamic bank with assets growing at an average growth rate of 100% per annum. Our focus in building our infrastructure to better serve our customers has made us the biggest Islamic bank in the world by branch network with more than 800 branches across South-East Asia.

"Although our competitors have been in the market for far longer, since we started in 2003, we have grown from a very, very small player to become the second largest Islamic consumer bank in Malaysia and the biggest Islamic investment bank in the world,"he said. For the first quarter of this year, he said CIMB Islamic has secured the top position for Islamic financing for nonresidential property and is ranked at No 2 for Islamic financing for residential property.

"We believe our growth is attributable to our principle of meeting our customers' need with the best Shariahcompliant products and services and our intention of course is to be better at what we do in meeting the demands of customers in t he ma rke t s t h at we serve," he said.

Now that Malaysia business is fairly developed, he sees the bank expanding and entrenching itself as a leading Islamic bank across all market segments in South- East Asia in the next five years. This is in line with the overall CIMB Group's vision to be the most valued universal bank in the South-East Asia. In contributing towards this vision, CIMB Islamic has charted a five-year strategy for its overseas expansion so that it could edge its competitors and capture market shares in the markets where CIMB Group has presence.

For the immediate term, the bank wants to focus building up the business in South-East Asia, predominantly in Indonesia and Singapore.

Badlisyah said: "We are focusing in South-East Asia at this moment and although CIMB group has established a joint venture in Bahrain where we are also doing Islamic investment banking activities, the business there is mostly to bridge Middle East investor's foray into South-East Asia."

The Islamic banking group is aiming for a higher contribution from the bank's operations to the group's revenue for the current financial year from the 10% recorded in 2009. However, he said the CIMB group is also growing very fast and hence, the contribution rate from CIMB Islamic may remain at the same level in the short term. As far as revenue contribution by Islamic banking businesses outside of Malaysia is concerned, he said it is still insignificant and will continue to be so due to the relative newness and smallish size of the business.

(This story, written by By Dalila Abu Bakar, appeared in The Malaysian Reserve on June 28, 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Brighter outlook for sukuk market in the second half

2010-08-05T00:30:00.000-07:00

The growth prospect of the sukuk market in Malaysia is expected to be better in the second half of this year compared to the first six months, said chief executive officer of CIMB Islamic Bank Bhd Badlisyah Abdul Ghani.

"In the first half, investors and issuers wanted to be sure of the direction of the market in general before making decisions. I think sanity as well as better colour on the market can be seen now. I see better prospect in the second half compared to the first half," he told The Malaysian Reserve in a recent interview.

Badlisyah said investors and issuers will tap the sukuk market at the right time in the second half of the year. "They (investors and issuers) are fairly cautious but it does not mean that they will not go into the market in the second half. It is always natural for them to take time to understand and appreciate the condition of the market before tapping it," he said.

According to reports, sales of ringgit sukuk have fallen by more than 40% in the past months of this year compared to that of last year due to the smaller number of infrastructure projects that were implemented in Malaysia during the period. "If you compare year-onyear, the first part of the year is weaker.

Although our sukuk market is fairly independent, investors and issuers will have to look at market development as a whole, not just in Malaysia but also what is happening in Europe and Dubai to decide on the appropriate course of action," he said.

Generally, Badlisyah is bullish on the growth prospects of the local sukuk market as the players and issuers are seen to be equally active in the market to meet the demand of the wide sukuk investor base. "We should have about the same level of sukuk issuance as we had last year, if not better," he said.

Badlisyah expects the sales of global Islamic bonds to reach US$25 bi l l ion (RM80.88 billion) this year, up 24% from last year. He said Malaysia will continue to dominate the global market accounting for 60% of the total. Badlisyah who has been at the helm of CIMB Islamic since 2002 said the global Islamic franchise of the CIMB Group hopes to continue as one of the biggest lead managers for sukuk globally as well as in Malaysia.

"CIMB Islamic has been at the top of the global and local sukuk lead manager table since the birth of the Isl ami c c api t a l ma rk e t industry. We want to remain that way and will continue to go the extra mile in bringing quality transactions to the market to achieve it. We have done 37 issuances so far this year. The number looks good and we hope to do more before year-end," he said.

(This story, written by By Dalila Abu Bakar, appeared in The Malaysian Reserve on June 28, 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Gulf states may have single Shariah council by 2013

2010-08-04T23:58:00.000-07:00

Gulf Arab states may have a single Shariah board for the region’s Islamic financial institutions by 2013 to standardise the industry and increase services available to Muslims, a Shariah scholar said, reports Bloomberg (June 13, 2010).

A region-wide Shariah council is "not a far-fetched reality" since there is a pool of experts in the United Arab Emirates, said Hussain Hamed Hassan, head of Dubai Islamic Bank PJSC’s Shariah committee and chairman of the Shariah Coordination Committee of the Islamic Financial Institutions in the UAE. "It will happen, but it’s a question of time," he was quoted by the newswire.

The report added that regulators around the world, including Bahrain and Malaysia, are looking for ways to better evaluate risks of the Islamic banking industry and make products suitable for investors globally. Malaysia’s central bank is preparing a system that would enable cross-border transactions among Islamic financial institutions, Governor Zeti Akhtar Aziz said in May.

Islamic law, or Shariah, restricts investors to transactions based on the exchange of assets rather than money alone because interest payments are banned. Islamic products are reviewed and approved by a board of scholars and, without globally accepted standards, financial institutions and bond issuers rely on rulings by these scholars to offer services to devout Muslims.

"How can an industry progress when a bank in Sharjah cannot buy the sukuk issued by a bank in Dubai? The industry needs to have some stability in order for it to grow," said Hassan, who also serves on the Shariah board of the Bahrain-based Accounting & Auditing Organization for Islamic Financial Institutions, the report added.

Demand for Shariah-compliant products is increasing as the wealth of Muslims rises, spurred by export-led Asian economic growth and crude oil income in the Persian Gulf. Created in the 1970s, the Islamic finance industry’s assets may quadruple to US$2.8 trillion (RM9.2 trillion) by 2015 from about US$700 billion (RM2.3 trillion) in 2005, according to the Kuala Lumpurbased Islamic Financial Services Board.

Bank Islam Brunei signs IT pact with Silverlake sign

2010-08-04T23:46:00.000-07:00

Bank Islam Brunei Darussalam (BIBD) has extended its strategic information technology (IT) partnership with Silverlake Sistem Sdn Bhd to further enhance the bank's operations and customer services through the provision of innovative financial solutions.

BIBD's acting managing director, Javed Ahmad, said the continuous relationship with Silverlake was in line with the bank's vision to introduce state-of-the-art financial services in Brunei.

"Together with Silverlake, we are upgrading our existing IT infrastructure and hope this transformation programme will be completed in 16 months," he told reporters after signing the agreement with Silverlake in Petaling Jaya yesterday.

The agreement involves a major upgrade of BIBD's system from the existing Silverlake Axis Integrated Islamic Banking Solution (SIIBS) Core Version 3 to Version 8.

In addition, the new system would house five new modules involving sale and case management, financing origination, enterprise collection, global payment and corporate banking systems. SIIBS is a suite of banking products designed to facilitate and automate syariahcompliant banking products.

"We want to further grow our business in Brunei by expanding our expertise in multiple areas and developing an innovative Islamic finance products to assist the country in realising its financial potential," Javed said.

Islamic banking currently represents 40% of the total banking sector growth in Brunei and the number is expected to grow to 55-60% over the next three-five years. He said BIBD's immediate target was to strengthen its operation in Brunei before expanding its business in South-East Asia.

"We have an aspiration to be in the region, including Malaysia. But at the moment, we will concentrate to grow our business in Brunei," he said.

BIBD is the largest banking provider in Brunei with a total assets of about RM12 billion. With more than 14 branches and 500 staff, the bank's strong business is in Islamic retail banking, contributing 70 per cent of its total revenue. — Bernama

(This story appeared in The Malaysian Reserve on June 2, 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

CIMB applies for Thai Islamic licence

2010-08-04T23:38:00.001-07:00

The central bank of Thailand has received about 10 applications to set up stand alone Islamic banks in the country, including one from Malaysia, said Islamic Bank of Thailand (IBT) president Dheerasak Suwannayos. The other applications are all from Middle East nations such as Kuwait, Qatar and United Arab Emirates. (The Malaysian Reserve, July 12, 2010, p1)

The Edge’s Ho Kay Tat to join Star Publications

2010-06-14T05:57:00.000-07:00

By Habhajan Singh
The Star, Malaysia’s largest selling English newspaper that is beginning to make inroads into new territories like radio and the Internet, is set to embrace Ho Kay Tat (picture) as the newest member of its senior management team.
The 51-year-old group chief editor of The Edge group may join Star Publications (Malaysia) Bhd as an executive director and chief operating officer, according to an industry source.
"The deal was done last week," said one source.
A source close to the white-haired editor believes that Ho may assume the role of Star’s managing director, a position now assumed by Linda Ngiam Pick Ngoh, who is said to be retiring next year. She is also Star’s CEO.
Since Datuk Seri Dr Chua Soi Lek’s won the MCA presidency in March in a threecornered fight against incumbent Datuk Seri Ong Tee Keat and former president Tan Sri Ong Ka Ting, industry insiders had began speculating it would result in changes at the Star senior management.
The Chinese political party controls the newspaper via its investment arm, Huaren Holdings Bhd, which has a 41.5% stake in the listed publisher.
The grapevine was flushed with various possibilities, with some speculating that the changing of the guard at the political party would lead to the departure of the publisher’s executive deputy chairman Datuk Clement Hii Chii Kok. Clement Hii, 53, came on board as a director on Jan 5, 2009 and later redesignated to the current position days later.
The Sarawakian, himself a former journalist, is also the group managing director of SEG International Bhd. One source said that Ho had met Clement Hii to discuss the possibility of his move ‘many weeks ago’. Ho has been in journalism for 24 years. He spent six years with the News Straits Times Press (Malaysia) Bhd before joining Reuters in 1990 and served as the KL correspondent for the Singapore Business Times in 1994.
He joined The Edge as an editor in August 1996 and later became its editor-in-chief (EIC).
For some years, he had also served as The Edge’s managing director, a role he gave up towards the last quarter of 2009. The Edge’s deputy EIC Dorothy Teoh is expected to take over from Ho. Ho could not be connected at press time.
This is not the first time that an editorial person is being moved into the management role, noted Berita Publishing Sdn Bhd’s group EIC Datuk A Kadir Jasin. "It is not out of the ordinary. If you recall, Star’s previous MD Datuk Steven Tan was also a journalist. He crossed over from journalism to management and went on to become one of the most successful MDs at The Star," said Kadir, a former NSTP group EIC.
In January 2009, Star announced the complete exit of Steven Tan from the company, to pave the way for Clement Hii’s entry. Tan had in June 2008 voluntarily retired as group MD/CEO, to be succeeded by Ngiam.
Online news portal, MalaysiaKini, first went to town on Friday with the story of Ho joining The Star, observing that the top echelon in The Star can expect more drama as Dr Chua tightens his grip on the party-owned media. It said the daily has suffered a setback in terms of reader perception following the MCA presidential elections early this year when the paper was seen to be ‘taking sides’ in the battle for the presidency of the country’s largest Chinese political party.
Following close on its heels, The Malaysian Insider ran a similar story the next day. This news portal added that MCA’s Dr Chua is also set to name the newspaper’s new non-executive chairman, identified as former banker Kuah Han Liang, who was previously with Deutsche Bank Malaysia, contrary, it said, to speculations that the post was going to Royal Selangor International MD Tan Sri Yong Poh Kon.

(This story appeared in The Malaysian Reserve on 17 May 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Aussie overhauling taxation laws for Islamic investments

2010-05-06T20:22:00.000-07:00

by Habhajan Singh

Australia will overhaul sections of its taxation laws to ensure they do not hamper the growth of Islamic finance products, with one of the nation's senators emphasising that the changes could come as early as the end of this year.

In a recent report, Australia Assistant Treasurer senator Nick Sherry told Radio Australia that a number of nations like UK and Malaysia have had changed tax and legal regimes and that "we do have to deal with these legal issues to hopefully draw levels and go past some of these other countries." Sherry was on recent four-day tour of Gulf countries to sell the credentials of Australian financial services companies.

The report noted that the 'reality is Australia is lagging far behind other Asian countries which have for some time facilitated financial products based on Shariah law'.
It noted that Sherry had been consulting experts in Abu Dhabi, Qatar and Bahrain, on changes needed to Australia's taxation and financial regulation laws to accommodate greater Islamic investment.
"I'd be hopeful we can identify where the law needs to be changed by the end of this year and hopefully have some and well we need to have legislative change by next year," he told the radio station, according to transcripts available on its website.
The report noted that it was 'hardly surprising' that Australia, which enjoys a good reputation throughout Asia for funds management, wants to tap into the potential market.

On March 29, The Malaysian Reserve reported that the lack of regulations supportive was one of the challenges when one tries to structure Islamic finance products in Australia, but the situation is slowly changing, according to Crescent Investments Australasia Pty Limited, an investment firm providing Shariah-compliant investment products.
"We face many challenges in Australia, in trying to structure Shariah-compliant products. The laws and regulations were not designed for Shariah compliant products and we have spent significant time, effort (not to mention expense) negotiating our way in the legal system to ensure compliance with the Australia statute and common law as well as Shariah rulings," said its executive chairman Talal Yassine.
However, he noted that the Australian authorities are now paying serious attention to the Shariah compliant market.

In an earlier report on March 19, this newspaper reported Amanie Business Solutions, a Malaysian-inspired Islamic finance consulting firm led and anchored by Shariah scholar Dr Mohd Daud Bakar, was looking to expand its presence in Australia, as well as Europe, to tap the growing business opportunities in those regions.

In the Radio Australia report, it said that senator Sherry was confident as Australian banks and investment funds develop their expertise and understanding of Islamic finance, Indonesia, for one, will welcome their services. "For Australia it's not just about the attraction of investment flowing into Australia it's to assist using Australia as a base to provide products and investments into Indonesiam," he said.

(This story appeared in The Malaysian Reserve on 3 March 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Computer glitch hits Proton delivery system

2010-05-03T19:55:00.000-07:00

By Habhajan Singh & Ishun P Ahmad

Proton cars faced what is probably its worst delivery hick-up when a new central logistics hub meant to improve delivery from the manufacturer to dealers nationwide broke down due to a computer glitch.

With car delivery grinding to a near halt for a good part of April, the national car maker could see a massive drop in the registration of Proton models for the month as most dealers were unable to secure units to deliver to customers. It is understood that Proton Edar Sdn Bhd, the marketing arm of Proton Holdings Bhd, has outsourced the task of managing the logistics hub to public listed Konsortium Logistik Bhd and that the hub was supposed to have commenced on April 1.

Proton Edar general manager for sales Sidik Abd Hamid told The Malaysian Reserve that Proton has reverted to the conventional mode of delivering cars to dealers for the moment as it works to resolve the computer glitch at the new centralised logistics hub at Sijangkang, near Klang.

"There was some system error and it could not capture the barcodes of the cars parked at the hub. The cars started piling up," he said.

Beginning April 1, Proton Edar started utilising the centralised logistics hub in an effort to improve its supply chain. Under the plan, all cars from the Shah Alam manufacturing plant were sent to the Sijangkang yard for a pre-delivery inspection (PDI) and storage before being sent via trucks to dealers nationwide. Cars from Proton's Tanjung Malim plant were sent to a yard within the plant itself.

In a memo dated April 1, Proton Edar told its dealers that the effort was to 'improve its supply chain to meet fast changing business requirements and achieve cus tome r s at i s f ac t ion through speed and quality'. The idea — internally known as 'Class', which is short for centre for logistics, allocation, storage and service — was to 'specifically address the vehicle flow from manufacturing plant up to delivery to end customers'.

The memo stated that each hub would be equipped with facilities to support centralised services such as stock management, vehicle storage maintenance, pre-delivery inspection and repair jobs. Prior to this, car dealers handled areas like the predelivery inspection and repairs before handing the car to customers.

"On paper, the idea is perfect. The logistics hub is to benchmark the qualit y standard for all Proton cars leaving the hub. The hub was supposed to standardise that portion of the job," said Proton Edar Dealers Association Malaysia (PEDA) president Armin Baniaz Pahamin.

Hence, Armin said that customers would benefit in the long term after enduring this short term delay as Proton Edar sorts out the glitches at the logistics hub. Proton Edar is now also looking at back-up plans in the face of the problems at Sijangkang.

"We are devising Plan B and Plan C, should the hub face similar problems. We had done trial runs earlier, and things moved smoothly," said Sidik when asked if the national car maker's distribution arm had done a test run.

As at the end of last week, Sidik said the cars stuck at the Sijangkang hub have been allocated to the respective dealers.

Konsortium, a public listed company that in 2008 earned 27% or RM70.3 million of its revenue from the automotive logistics segment, has yet to revert to queries on the problems at the logistics hub. It is understood that the project comes under the purview of its executive director Che Azizuddin Che Ismail. He is responsible for overseeing the logistics operations of Konsortium, specifically the automotive, oil and gas, container haulage, Westport Distripark, distribution logistics and group human resources, according to the company's most recent annual report available on its website.

[THE MALAYSIAN RESERVE, MON, MAY 3, 2010, PAGE 1]

M'sian takaful firms ‘outperforming’ Middle East ones

2010-04-26T20:29:00.000-07:00

by Habhajan Singh

Malaysian takaful operators have fared better than their Middle East counterparts in terms of returns on equity since 2007 when world economies underwent the global financial crisis stress.

Malaysian takaful companies also came out better than their Gulf Cooperation Council (GCC) counterparts in terms of risk retention, an indication that Malaysia has a more sophisticated operational capability, according to a global study on takaful by Ernst & Young (E&Y).

The study, in E&Y's third annual edition of its World Takaful Report, showed that Malaysian takaful operators also came out better on technical fronts like claims ratio and underwriting income.

On retention, Bank Negara Malaysia's (BNM) Financial Stability and Payment Systems Report 2009 released in March, had noted that the 'consistently high' net retention level of 72.3% for Malaysian general and general takaful business enabled counterparty reinsurance risks to be kept at 'manageable level'.

It added that as a majority of the offshore and foreign reinsurers were reputable and strongly rated companies, it further reduced the extent of counterparty risk during the challenging financial climate in 2009.

Looking at claims ration, the E&Y report said that claims ratio for takaful operators in the GCC - which includes Bahrain, Saudi Arabia, United Arab Emirates (UAE) and Qatar — 'remain significantly higher' than Malaysian takaful operators 'where underwriting practice appears more structured'.

The report also said that underwriting income has consistently contributed to the profitability of the Malaysian operators while the GCC operators traditionally relied on investments.

Among the GCC takaful operators that contributed data to the study's sampling were Bahrain's Takaful International Company and Solidarity Group Holding; Saudi Arabia's Allied Cooperative Insurance Group, Al Ahlia Cooperative Insurance Company and Alahli Takaful Company; UAE's Abu Dhabi National Takaful Company, Dubai Islamic Insurance and Reinsurance Company, Dar Al Takaful; Qatar's Qatar Islamic Insurance Company; and Kuwait's First Takaful Insurance Company, Wethaq Takaful Insurance Company and Gulf Company for Takaful Insurance Malaysia.

Malaysian players involved were CIMB Aviva Takaful Bhd, Hong Leong Tokio Marine Takaful Bhd, Prudential BSN Takaful Bhd, Takaful Ikhlas Sdn Bhd, AIA Takaful International Bhd and Syarikat Takaful Malaysia Bhd. On ROE, the report study showed that both Malaysian and GCC operators were closest in 2007, with GCC operators averaging at 6.2% while Malaysian operators averaged at 5.7%. Before that, GCC players were constantly scoring higher on the ROE score.

However, post-2007 debt debacle and the financial crisis, the Malaysian operators performed better, with an average return of 11.1% in 2008 and 7.6% in 2009, while GCC players were in the negative zone (-5.3% in 2008 and -6.5% in 2009).

When it comes to operating efficiency, the study found that Malaysia has been consistently stronger in its combined ratios to the GCC, 'although the gap is shrinking'. in 2005, Malaysian operators surveyed had averaged at 41.3% to GCC's 130/8%. In 2009, it was Malaysia at 53.3% and GCC at 71.9%.

"Profitability is under unprecedented stress. In the aftermath of the financial crises, takaful operators are coping with depressed capital levels, distressed asset values and difficult capital markets," E&Y said in a statement when the report was released.

(This story appeared in The Malaysian Reserve on 26 April 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Takaful in each region ‘faces unique challenges’

2010-04-26T20:28:00.000-07:00

by Habhajan Singh

Takaful in the Gulf Cooperation Council (GCC) and Malaysia are at very different stages of development with each region facing unique challenges, said a global study on takaful by Ernst & Young (E&Y).

The World Takaful Report report, based on a combination of quantitative data and qualitative comments, had made some observations on areas like on efficiency operations, quality of underwritten business and ensuring investment discipline.

On efficiency operations, the report said most takaful operators have yet to achieve critical business volume, despite incurring substantial establishment costs over the years. Also, players have combined ratio is much higher than conventional peers while service quality remains sub optimal for many operators.

It made some recommendations on lowering cost of operation, which included targeting economies of scale and scope through organic and inorganic growth; articulate cost strategy for customer acquisition, servicing and retention; improve loss ratios through changed business mix and better claims management; and consider shared service arrangement for back office operations.

On risk retention, it noted that Malaysian takaful operators, on the average operators cede between 5%-15% of gross premiums to retakaful entities while retaining a larger proportion of business on their books and converting this into better technical results.
"This strategy requires greater underwriting competence and track record (using historical data) to build a quality book," it noted. On the other hand, GCC operators on average cede between 30%-50% of gross premiums to retakaful companies, which reduces their ability to generate potentially positive underwriting results, and that the broking approach causes excessive reliance on investment returns to generate profitability.
On technical results, Malaysian operators' average claims ratio of between 25%-35% is reflective of stronger underwriting discipline and diversified business.
"Strong underwriting results allow operators to benefit from a larger participants pool and ability to re-distribute surplus, generating strong customer c onfidence. Underwriting results account for the majority of overall profitability," it said.

On the GCC front, the higher average claims ratio of between 40%-60% can be improved through stronger underwriting competence.
"As historical data becomes more readily available, operators should strive to build cleaner books of diversified business. Weak technical results have led operators to become heavily reliant upon investment income, that are volatile, to achieve shareholder expectations," the report noted.
The report noted that global takaful contributions grew 29% in 2008 to reach US$5.3 billion (RM16.9 billion) and remain on course to surpass US$8.9 billion (RM28.38 billion) by 2010.
"Strong growth in health takaful in GCC, and family takaful in Malaysia are two noteworthy trends that have delivered growth for many operators. Government safety nets are being reduced providing new opportunities to offer product solutions in these respective business lines," E&Y said in a press release when announcing the report.
Saudi Arabia, with contributions totalling US$2.9 billion in 2008, and Malaysia with US$900 million are the top two takaful markets in the world. Sudan is the most significant market outside of the GCC and South-East Asia, with contributions totalling US$280 million in 2008, it said.

(This story appeared in The Malaysian Reserve on 26 April 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Bar Council calls for ‘third party’ committee

2010-04-26T20:26:00.000-07:00

The Malaysian Bar Council, which is opposing a Bank Negara initiative to revamp the motor insurance sector, is calling for the central bank to set up a cross-industry working committee to review feedback from all parties before implementing a scheme that would limit the liability of motor insurers to third party claimants to RM2 million.
The move by Bank Negara is in line with the government's aim of ensuring access for motorists to the mandatory third party bodily injury and death insurance coverage that is reportedly a longstanding grouse of motor insurance underwriters. According to reports, citing central bank data, losses from such third party motor policies are estimated at about RM1 billion annually.
Bank Negara was said to be considering the RM2 million cap but had yet to finalise the capping level. Speaking at a media briefing in Kuala Lumpur yesterday, Bar Council president Ragunath Kesavan said the proposals by Bank Negara, which it outlined to the council in a dialogue on Monday (Apr 19), could not be agreed upon by just conducting dialogues with concerned stakeholders.
"There should be proper, true consultations. There has to be a working committee, and not a one-off dialogues, to look at the issues. It seems to be a huge transformation with very little thoughtthrough process, with minimal consultation and it all seems to lead to one direction, profitability of the insurance companies," he said.

Under the scheme being proposed by Bank Negara, a newco would be established to manage the new scheme with the government holding a majority stake in this new entity.
Ragunath said the formation of the newco would be expensive at the onset as there was a need to set up a nationwide infrastructure and network, which would ultimately be paid for by the tax payers.
"What we're saying is to look (and make) use of the current system (in place). The cost of setting up a parallel system will be very high. The solution is to maintain the current system, no caps, and look at where the losses are (occuring) and address those issues.
"If it's inevitable that there is a need to increase premiums, then do it gradually. The tariffs have not been increased since 1978. What has the regulator being doing for the last 30 years? What about periodical reviews? Why hasn't it been done? You don't need a 300% increase in premium, you can do (an annual) 10% increase over the next four years, or look at the comprehensive sector and use it to subsidise the poorer sector," he added.

Asked whether the Bar Council could get Bank Negara to backtrack, Ragunath said, "It's an uphill battle. I don't think it's going to be easy. The only way to resolve this is if there's a public outcry. We need the support of the public otherwise it's an extremely uphill battle."
"We're commited to working with the various indsutry groups, hosting road shows, spoken to members of Parliament and we want to escalate awareness of this issue. We want public participation of this issue. We're committed to ensure that the public interest is protected.
"We can only do what it's right. We will keep pushing and maintain our campaign. It's about time to have transparency in the industry and such issues need to be looked at. We don't this to be a burden to the people. That's the crux of what we're trying to say," he added.

(The Malaysian Reserve, Jan 24, 2010, Page 1)

Affin eyes Islamic finance foray

2010-04-26T20:24:00.000-07:00

Affin Bank Bhd will work with its parent company to convert PT Ina Perdana into a syariah bank once the purchase of the Indonesian lender is concluded, as the group expands into the populous Muslim country, reports Business Times.
"Our holding company is looking at it, it will acquire the bank and then we will work together to convert it into an Islamic bank. It is now a conventional lender," Affin Bank managing director Datuk Zulkiflee Abbas Abdul Hamid told the business section of NST in an interview in Kuala Lumpur.

THE REPORT GOES ON:
The legal and financial due diligence have been done recently.
Affin Holdings Bhd, the bank's parent, in January said it was granted the regulatory approval to start negotiating for a controlling stake in PT Bank Ina Perdana, making Indonesia its first overseas venture.
The group's deputy chairman Tan Sri Lodin Wok Kamaruddin told reporters this month that he hopes the purchase will be concluded by the third quarter this year.
PT Bank Ina Perdana is a tiny lender in Indonesia's fragmented market, which has 121 commercial banks. It operates about 20 branches, most of them in Jakarta.
Despite its small size, Zulkiflee said the bank is profitable with relatively low non-performing loans. Most of PT Bank Ina Perdana's business comes from consumer banking, like car loans, while business banking only takes up a small portion of its portfolio.
The purchase will give Affin Holdings a toehold in Indonesia, and it will slowly grow from there, he added.
"We are of the view that, if we want to go (into Indonesia), this is the time for us to go. There are not too many Islamic banks in Indonesia considering its big population. Islamic finance is still in the early stage of development as compared to Malaysia, so there is vast potential for growth," he said.
With a population of 230 million and a fast growing economy, Indonesian banks have been a highly sought after asset. Global banks in the likes of HSBC plc, have all scrambled to get a slice of the market there.
Malayan Banking Bhd, Malaysia's top lender, had paid hefty premiums to buy Bank Internasional Indonesia two years ago, while CIMB Group Holdings Bhd also has a major presence there through CIMB Niaga. RHB Capital Bhd recently bought into PT Bank Mestika Dharma.
Indonesia aside, Zulkiflee said Affin is not eyeing expansion into other countries yet, and it wants to strengthen its operations back home for now.
"True, people say that the Malaysian market is saturated, but we think there are still pockets of opportunity. The big banks probably must go out, otherwise not sexy. But for us, I don't think we should follow them yet."
He said although the net interest margin (NIM) has been narrowing for Malaysian banks over the years, it is still decent at around 2 per cent to 2.5 per cent. Affin Bank's NIM stood at 2.57 per cent last year, improving slightly from 2.46 per cent in 2008.
This year, Affin Bank will hire more sales people to help grow loans by the targeted 13 per cent to 15 per cent. It is eyeing a deposit growth of 10 per cent this year.
Affin Bank will also beef up the branches to let every walk-in customer feel like a premier guest, no matter how much a customer is banking with it. It plans to put more branches within the city and create some flagship outlets in certain locations, overall adding between five and 10 more to the existing 90 branches.
The bank, which has significantly expanded its business banking in the past two to three years, also wants to increase the number of business centres to cover all the major cities.
Last year, the bank's profit after tax fell 4.1 per cent to RM317.8 million, even as operating profit was 17 per cent higher at RM614.1 million.
"Our business has grown. The profit after tax was lower because we had a lot more (loan) recoveries in the previous year," Zulkiflee explained. Loans grew at 12.7 per cent last year, slightly slower than the 15.8 per cent growth in the previous year.
Net NPL has fallen to 2.36 per cent, from 3.22 per cent at the end in 2008. Its return on equity (ROE), which measures how efficient profits are being reinvested, came in at 11.4 per cent.
This year, he said, the bank is targeting a ROE of 12 per cent to 13 per cent.

High Court says BBA rebates ‘must be granted’

2010-04-18T21:04:00.000-07:00

by Habhajan Singh

Islamic banks 'must grant' a rebate even if the Bai Bithaman Ajil (BBA) contract is silent on the issue when a default occurs, ruled a recent High Court judgment.

The judgment, in four BBA cases heard together by High Court Judge Datuk Rohana Yusuf, brings to the fore an issue that has been a bone of contention for consumers making avail of Islamic home financing as Islamic banks deem rebate, or ibrar as it is known in Arabic, as discretionary. Consumers, on the other hand, would want more certainty in that matter.

"In doing so, the bank should not be allowed to enrich itself with an amount which is not due while at the same time taking cognisance of the customer’s right to redeem his property.

"Therefore where the BBA contract is silent on issue of rebate or the quantum of rebate, by implied term I hold that the bank must grant a rebate and such rebate shall be the amount of unearned profit as practiced by Islamic banks," she wrote in a 29-page judgment dated Jan 28 in Bank Islam Malaysia Bhd v Azhar Bin Osman, and three other cases. She also noted that legal documentations used by Islamic banks in financing should specify a formula for rebate, which at the moment is loosely attached to the principle loan agreement and whose implementation is very much left to bank's discretion.

In the judgment, Rohana touched on the issues of ibrar and the quantum that banks can claim in an event of a default, two areas that have seen some debate and discussion from the Shariah perspective.

"If the documents of the banks had in fact specified a formula of rebate or ibrar, it will demystify the intricacies of a BBA transaction. It will be easily understood by the customer who would then not be put in the dark as to what is ibrar and what would be the amount of ibrar he should be receiving," she said.

The judgment seems to suggest that Rohana has taken a different tack from a recent Court of Appeal decision on a bundle of BBA contract cases which originated from the much publicised April 2008 decision by High Court Judge Datuk Abdul Wahab Patail, while maintaining that she is still within the bounds of what constitutes a binding decision from the higher courts.

"This is quite a departure form some of her earlier judgments," said lawyer Mohamad Illiayas Seyed Ibrahim who has dealt extensively in Islamic finance cases.

Ibrar, one of the two issues at the heart of this judgment, means surrendering one’s right of claim over debt either partially or in full, according to the definition from a published document by Bank Negara Malaysia (BNM) which regulates Islamic finance outfits.

Ibrar had been a bone of contention with consumers as banks generally do not give them a specific guarantee that they are entitled to a rebate should their loan end prematurely, either due to early payment or a default.

The path pursued by Rohana, in this judgment, seems to push local Islamic banks to insert the ibrar clause explicitly into their financing documents, thus bringing about certainty to the issue of rebate and also streamlining the practice with what is already approved by BNM's Shariah Advisory Council (SAC).

Rohana ruled that "when an Islamic bank practices granting of rebate on a premature termination, it creates an implied term and legitimate expectation on the part of the customer. Accordingly it is only proper that such expectation and practice be read into the contract."

The central bank's SAC — which has the last say on matters pertaining to Shariah in Islamic finance as further reinforced in newly promulgated central bank regulations — had resolved in 2002 that 'Islamic banking institution may incorporate the clause on undertaking to provide ibra’ to customers who make early settlement in the Islamic financing agreement on the basis of public interest (maslahah)'.

The four cases in this judgement came from two sets of appeal before the Court of Appeal relating to BBA contracts in Islamic banking. The plaintiff in all the four cases was Bank Islam Malaysia Bhd (BIMB) who were represented by Oommen Koshy from Skrine & Co and Aedyla Bokari from Nassir Hafiz Nazri & Rahim.

In the first set involving 12 cases heard together, the Court of Appeal had decided on Aug 26, 2009 [Bank Islam Malaysia Berhad v Lim Kok Hoe & Anor and Other Appeals] that a BBA contract is valid and enforceable, thus reversing an earlier decision of the High Court in Arab-Malaysian Finance Bhd v Taman Ihsan Jaya Sdn Bhd & Ors.

The Taman Ihsan Jaya case made headlines when Abdul Wahab had ruled that the widely used BBA contracts were contrary to Malaysia’s Islamic banking regulations. The Malaysian Reserve first broke that story on Sept 8, 2008.

(This story appeared in The Malaysian Reserve on 19 April 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Bai Bithaman Ajil contract challenged by High Court

2010-04-18T21:03:00.000-07:00

By Habhajan Singh

The practice of Islamic banks making a claim for the full sale price in an event of a default of a home financing based on Bai Bithaman Ajil (BBA) contract has been challenged in a recent decision of the High Court.

In a collective judgment for four BBA cases, High Court Judge Datuk Rohana Yusuf (picture) noted the arguments by Bank Islam Malaysia Bhd (BIMB), the plaintiff in all four cases, is that a BBA contract gives the bank a legal right to claim for the full sale price as stipulated in the property sale agreement (PSA).

In her judgment, Rohana noted that the bank's first argument is that the court should honour and enforce the clear written terms of the contract and should not interfere with the intention of parties by imputing any other term. Since parties had agreed as to the amount of sale price as stipulated in the PSA, the defendant is under a legal obligation to pay the full sale price, irrespective of when a breach occurs.

Second, by virtue of the doctrine of stare decisis, the court is bound by the decision of the Court of Appeal in Lim Kok Hoe which, according to Oommen, upheld and acknowledged the obligation to pay the full sale price under the PSA.

"After a careful scrutiny of the cases I find that none of the decisions has established the ratio decidendi suggested," she wrote. Stare decisis literally means "to stand by things decided" and is a legal maxim which underlay the basis of the doctrine of binding precedent, with the lower courts having to abide by former precedent by higher courts.

Ratio decidendi of a case can be defined as the principle of law on which the court reaches its decision. On the point of lack of binding precedent, some lawyers contacted by The Malaysian Reserve believe that the argument is not on solid grounds and is open for challenge. In her judgment, Rohana said that there are 'no binding precedent by the Superior Court for me to follow to enforce the sale price under the PSA at all costs'.

"In fact to my mind, it is apparent from Lim Kok Hoe’s decision that the reference made by the Court of Appeal to all these cases is to reinforce its decision in upholding the validity and enforceability of BBA contracts."

This is clear at page 39 of the judgment when the Court of Appeal states that "it is clear that the validity and enforceability of BBA contract had been ruled by the Superior Courts".

"Hence applying the doctrine of stare decisive, it is binding on Court of Appeal in Lim Kok Hoe to follow the Superior Court. I am not able to find any affirmation on the quantum to be enforced in a BBA contract by the Superior Court," she wrote.

Bank Islam Malaysia Berhad v Lim Kok Hoe & Anor and Other Appeals was decided by the Court of Appeal on Aug 26, 2009, reversing an earlier decision of the High Court in Arab-Malaysian Finance Bhd v Taman Ihsan Jaya Sdn Bhd & Ors.

"I must vehemently stress that the purpose of this proceeding is to deal with what would be considered fair and equitable in the circumstances and to lay emphasis on what would be the better and appropriate approach in dealing with the plaintiff’s quantum with particular reference to the manner of its determination while being mindful of the parties’ position," she wrote.

(This story appeared in The Malaysian Reserve on 19 April 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Dubai World to offer 1% interest on restructured loans

2010-04-18T21:02:00.001-07:00

Dubai World, the state-owned holding company restructuring US$24.8 billion (RM79.17 billion) of debt, is offering to pay creditors 1% interest on new loans as part of a restructuring plan, according to a banker familiar with the plan, reports Bloomberg.

Banks are reluctant to accept the new rate presented on March 25 as it is lower than the market rate of about 5% and would force Dubai World’s creditors to book impairment provisions, two bankers said, declining to be identified because the talks are private. Provisions could vary from 5% to 20% of the loan value depending on how the transaction is structured, they said. Reuters reported the 1% interest rate on the new loans earlier yesterday. A spokesman for Dubai World declined to comment. He repeated comments made by Dubai World chief restructuring officer Aidan Birkett in March that the company did not expect the fundamentals of the restructuring proposal to change and that the negotiations could take months.

Malaysia’s Senai-Desaru to Restructure Islamic Bonds

2010-04-18T20:59:00.000-07:00

Malaysia’s Senai-Desaru Expressway Bhd plans to restructure RM1.46 billion (US$457 million) of Shariah-compliant bonds to avoid becoming the country’s biggest Islamic-debt defaulter in more than two years. The toll-road operator may seek to reschedule repayments or refinance, Chief Executive Officer Mustaza Salim said in an interview yesterday in Kuala Lumpur, reports Bloomberg (April 16, 2010).

RAM Holdings Bhd., one of two credit-rating agencies in Malaysia, cut the company’s long- term rating last week to C1 from AA3, citing a “high likelihood of default” when its first principal payment falls due in December 2011. The company is seeking to avoid the country’s biggest sukuk failure since a 2 billion ringgit default by Sistem Lingkaran Lebuhraya Kajang Sdn Bhd in August 2007, the rating company’s data shows. RAM’s report said traffic on the highway, which opened in Malaysia’s southern state of Johor in October 2009, is less than 10 percent of what was projected, it adfded.

"Their traffic volumes are low due to delays in the completion of the highway,” which undermines the company’s ability to generate cash, Yean Ni Ven, a RAM analyst based in Kuala Lumpur told the newswire.

THE REPORT GOES ON:

Senai-Desaru’s June 2015 and December 2020 bonds haven’t traded since 2007, according to Ambank Bhd. in Kuala Lumpur, which said the notes would yield 39 percent and 44 percent, respectively. When last traded in 2007, they yielded 5.91 percent and 6.9 percent, Ambank said.
Senai-Desaru sold the sukuk maturing in six to 15 years in 2005 to help fund a 77-kilometer toll highway, the third-longest in the country after the 848-kilometer North-South Highway and the 169-kilometer East Coast link.
The company will present an initial restructuring proposal to bondholders this month with a final plan to be ready by the end of May, CEO Mustaza said. “At the moment, it’s still too early to talk about details,” he said.
Traffic volume on the expressway has “improved,” Mustaza said, without elaborating. Senai-Desaru is a privately run company 70 percent owned by Rancak Bistari Sdn., with the rest held by YPJ Holdings Bhd.
Shariah-compliant bonds follow Islamic principles, which forbid the payment of interest and stipulate agreements be based on the transfer of goods or services. In Senai-Desaru’s case, the contract is backed by revenue from the toll roads.
Bond Defaults
Islamic bond defaults in Malaysia reached 176 million ringgit in the first four months of this year, 65 percent of the total in 2009 when the country suffered its first recession in a decade. Malaysian Merchant Marine Bhd. and Evermaster Group Bhd. were among the domestic companies that defaulted on Islamic debt this year, stock exchange filings showed.
This won’t deter interest in Shariah-compliant finance, said Badlisyah Abdul Ghani, head of Islamic-banking operations at CIMB Group Holdings Bhd., last year’s top global underwriter for Islamic bonds or sukuks. Global Islamic bond sales may climb 24 percent this year from $20.2 billion in 2009 as the global economy recovers, Kuala Lumpur-based Badlisyah said.
The world’s biggest sukuk defaulter in the past year is Saad Trading, Contracting & Financial Services Co., owned by Saudi billionaire Maan al-Sanea and his family, which missed payments on its $650 million Islamic bonds in November.
“Islamic debt default is a credit issue,” said Zakariya Othman, head of Islamic finance at RAM in Kuala Lumpur. “It’s got nothing to do with the structure. You can’t say, for example, when someone defaults on his mortgage that it’s because of the structure of the loan.”
The toll-road operator issued the bonds in December 2005, which have maturities ranging from six years to 18.5 years, with an annual profit-sharing rate of 3.5 percent.
Kuala Lumpur-listed builder Ranhill Bhd. holds convertible bonds in the toll-road operator that could be exchanged into shares equivalent to a 50 percent stake, according to Senai- Desaru’s bond prospectus. Ranhill’s Chief Financial Officer Amran Awaluddin wasn’t immediately available to comment.
Senai-Desaru holds the concession to operate the 77- kilometer highway for 33 years. It is the third-longest highway project awarded by the Malaysian government, according to the company’s Web site.

Economist: Sukuk it up

2010-04-18T20:55:00.000-07:00

There was a time when proponents of Islamic finance sniffed opportunity in the crisis. The problems of speculative, casino-like Western banks contrasted nicely with the emphasis that sharia-compliant finance places on an ethical, risk-sharing approach. But risk-sharing looks much less appealing when issuers are defaulting, writes The Economist (Apr 15th 2010, print edition).

The report said that Dubai’s debt problems badly shook investors in sukuk, a type of Islamic bond, issued by Nakheel, a troubled property developer.

Although a restructuring deal announced last month should ensure that Nakheel’s bondholders will now be paid back on schedule, the saga is bound to have damaged confidence. Three other sukuk issuers have defaulted in recent months: East Cameron Partners, an American oil and gas producer; Investment Dar, a Kuwaiti investment firm; and Saad Group, a Saudi conglomerate, it said.

THE LONDON-BASED MAGAZINE'S REOPRT GOES ON:

Islamic finance’s fans insist that this does not represent a crisis. They say that the individual issuers are at fault, not the products. Dubai’s state-backed firms ran up too much debt. East Cameron was a poor credit risk from the start, with a CCC+ rating at the time the bond was issued. Investment Dar was too reliant on short-term debt, they argue, and the Saad Group is at the centre of fraud allegations.

Even so, the prospect of losses has forced creditors to think about some of the uncertainties surrounding Islamic default. One issue is enforceability: many sukuk contracts are governed by English law but refer to assets located in the Gulf. Another is the spectre of “sharia risk”. Investment Dar is wrangling over the repayment of a separate type of debt to Blom Bank, a Lebanese bank, on the grounds that the transaction was not sharia-compliant; an English court surprised many by ruling that the firm had an “arguable case”.

Lawyers point out that these problems are, again, not unique to Islamic finance. Enforceability is an issue in any cross-border transaction. The objection that a counterparty lacks the legal capacity to do a deal is not unknown in conventional finance (though defining what is sharia-compliant is a tricky task).

Much more damaging is widespread confusion among sukuk investors about the sorts of risks they were really taking on. A sukuk is structured to avoid the Islamic prohibition on interest payments. It manages this by paying bondholders with the cashflows generated by specific assets, which are put into a special-purpose vehicle (SPV) as part of the deal. Many seem to have thought that the bonds were “asset-backed”, giving them a claim on the assets in the event of a default. Most sukuk, however, are “asset-based”, handing investors ownership of the cashflows but not of the assets themselves. “Many sukuk holders have a perception that they hold a security that is collateralised,” says Anouar Hassoune of Moody’s, a rating agency. “In 90% of cases, that is incorrect.”

A bit more scrutiny could have helped investors work this out for themselves. If assets are not really being sold to the SPV, they do not move off the issuer’s balance-sheet. But lenders will demand greater clarity in future, which points to a bigger problem for Islamic finance than any source of legal uncertainty: it is likely to get more expensive.

The bulk of the sukuk issued so far have not been rated. International investors, at least, are unlikely to stand for that in future, which will make life dearer for issuers that are below investment grade. The illiquidity of the sukuk market will probably incur a greater premium in future. Investors in occasional asset-backed deals will be more focused on where the assets are physically located. Holders of more common, asset-based sukuk are likely to demand a bigger excess spread between the cash flowing into the SPV and the cash flowing out of it to them: the bigger this “reserve account”, the greater the buffer protecting investors. Risk is central to Islamic finance. Now it is going to get properly priced.

EU woes laughable: Islamic finance chief

2010-04-18T20:52:00.001-07:00

BRUSSELS: Muslim nations are “laughing” at European efforts to grapple with a debilitating debt crisis in Greece, which has serious ramifications for the world’s biggest open market, the head of the World Islamic Economic Forum has said.
Former Malaysian deputy prime minister Tun Musa Hitam spoke to AFP in Brussels as European Union plans for a backstop bailout enabling Athens to refinance tens of billions of euros of debt repayments and budget commitments were being thrashed out among eurozone officials.
“Seen from the east, from developing countries, we’re laughing because they’re not doing what they taught us,” Tun Musa said of the EU’s decision to protect Greece rather than sending Athens to the International Monetary Fund.
“You find that a European nation has adopted anything but good practice, which has resulted in a disaster (and) now the name and the prestige of the European Union is at stake, but more importantly, its economies,” he added.
“The normal way of resolving these issues is to go to the IMF. Developing countries do that, but not the EU.
“It’s yes, no, maybe every day,” he said.

Tun Musa was speaking before eurozone finance ministers agreed last Sunday to pump some 30 billion euros (41 billion dollars) into Greece’s coffers this year if necessary — at below-market rates of around five per cent interest.
But in the aftermath of the accord doubts have emerged as to the readiness and scale of the financial aid, with a series of political hurdles still to be crossed before these monies can ever be handed over.
And within no time, new nationwide strikes had pushed Greek borrowing rates back through the pain barrier.
With parallel EU negotiations with the IMF under way on its involvement, and 15 billion euros of loans anticipated in 2010 from Washington, Tun Musa maintained that the Western system where “anything goes in terms of lending and conduct” lay behind the Greek fiscal disaster.
The missing ingredients of “responsibility, transparency and accountability,” glaringly absent throughout fraudulent Greek reporting to the EU, were instead to be found in Islamic finance, he argued.
“The methodology of Islamic banking will become more acceptable, even without being in Islam,” he said.
He cited a surge in the numbers of specialist economic religious ulama, who re-interpret Sharia law for expansion throughout non-Islamic territories.
Sharia prohibits interest on money and re-distributes added value based on goods not paper.
Ironically, Moody’s Investors Service said earlier this month that the Islamic finance industry had a market potential of at least 5.0 trillion dollars — more than five times its actual 2009 value.

Motor insurance needs an overhaul

2010-04-16T03:02:00.000-07:00

By Habhajan Singh

[The Malaysian Reserve on June 15, 2009]

Motor insurance in Malaysia requires a serious overhaul, with the perennially unprofitable third party coverage demanding a separate treatment altogether, says a senior industry executive.

The issue has come to a boil for general insurers and takaful providers active in the motoring sector, with most of them now no longer providing third party motor insurance coverage due to the high claims ratio.

"I'm proposing a rethink of our Road Transport Act 1987 and a review of the motor insurance policy. A new government agency should be set up to handle at least the Act cover, while redesigned insurance policies should only cover one's own damage, leaving third party claims to the agency. An industry pool could provide base underwriting," said Datuk Syed Moheeb Syed Kamarulzaman, the newly appointed chairman of the Malaysian Takaful Association (MTA).

Under this proposal, a new industry pool would be setup to manage third party made compulsory by the Act, commonly referred to as the Act cover.

Here, Syed Moheeb proposes that each vehicle licensed holder should contribute individually to the pool. Currently, third party insurance is pegged to the vehicle, irrespective of the number of drivers nor the name it is insured under. A family car may be insured under the head of the family, when in fact it could be driven by all children. This could result in a situation of inadequate premium against the risks exposed.

The suggestion by the seasoned insurer is for everyone with a valid licence to bear a portion of the risk.
"When you pay for your motor licence, a portion automatically goes to cover third party claims. This way, the third party risk is automatically handled by the new pool," said Syed Moheeb who is also the president and chief executive officer of Takaful Ikhlas Sdn Bhd.

This would also mean insurers and takaful operators will only provide coverage for claims other than those mandated under the Act.
The pool could replace the Malaysian Motor Insurance Pool (MMIP), a high-risk insurance pool run collectively by the industry under orders from the regulators, which acts as the insurer of last resort.
Under the present set-up, when a vehicle owner is unable to get any insurer to provide him liability cover for third party, MMIP would step in to provide the cover, at a rate higher than what insurers are allowed to charge. Industry players have been lobbying for years to change the tariff-driven premium structure for motor insurance, claiming that providing coverage mandatory under the Act is almost a sure loss-making proposition.
The move has not yielded results thus far, industry executives said.
"So far, we have been looking at tweaking insurance premiums rather than changing the whole structure. Perenially, we have a problem of inadequate premiums to pay for the increasing third party claims.
"This year, several insurers have found it difficult to continue writing third party risks. So, if we want different results, we need to do things differently. We need to reengineer. This suggestion, if it happens, will be headed by a new body supported by the government," said Syed Moheeb.
Syed Moheeb, a seasoned insurer with experience in reinsurance, was involved some years ago when the general insurance association, Persatuan Insurans Am Malaysia (Piam), was actively discussing with Bank Negara Malaysia (BNM) suggested changes to the motor insurance premium tariffs.
In the meantime, industry executives said writing third party motor cover had become more and more untenable from the profit standpoint, forcing players to steer clear of the segment.

On May 27, The Malaysian Reserve reported that insurance companies are no longer willing to provide third party motor insurance under their banner, thus sending their customers to the highrisk insurance pool instead.
On June 1, this newspaper also reported that Pacific & Orient Insurance Co Bhd (P&O Insurance), one of the local top guns in motor insurance, was set to pull out completely from the third party motor insurance segment, following the trend of other insurance providers in Malaysia who have stayed clear of the sector.
The general insurer, a subsidiary of listed Pacific & Orient Bhd (P&O), was second only to Kurnia Insurans (M) Bhd for underwriting third party motor insurance covers in 2008.

From latest figures released, Piam said combined loss ratios for the motor insurance business in 2007 and 2008 stood at 114% and 115% respectively. It said insurers have also expressed their concerns over the rapidly increasing claims pay-outs especially for third party bodily injury claims. The claims ratio for third party bodily injury claims skyrocketed to 262% in 2007 and 288% in 2008, it added.
Industry sources estimate that the standalone motor 'Act' insurance, which is the portion compulsory for all motorists, has generated gross premiums of close to RM600 million last year, with Kurnia Insurans and P&O Insurance conducting close to half of the industry's total.
The motor 'Act' insurance policy provides protection against death and injury to third parties. The third party motor insurance also provides protection against other legal liabilities such as damage to the property of a third party (usually somebody else's car or motorcycle or a neighbour's gate) and certain specified legal costs.
Under the third party cover, a policyholder may opt to include protection for loss or damage to his own vehicle due to fire or theft only.

(This story appeared in The Malaysian Reserve on June 15, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur)

Shariah-compliant equity-based financing needed for Islamic home loans

2010-04-08T20:25:00.000-07:00

Islamic home loan consumers stand to lose out to those using conventional equivalents in the event of a default/early settlement and the adoption of Shariah-compliant equity-based financing could be the solution, said an economist from International Islamic University Malaysia (IIUM).
Due to the structure of the Islamic home financing system, in comparison with the conventional equivalent, consumers of such products were at a disadvantage, said Dr Ahamed Kameel Mydin Meera, an associate professor at IIUM department of business administration, kulliyyah of economics and management sciences.
"It's not the problem of Islamic loan concepts like bai bithaman ajil (BBA) but in the way it's implemented in the present monetary system makes it problematic. If you take Islamic financing, in the case of defaults, you will owe more," he said in presentation at the contemporary issues in Islamic home, personal and auto finance conference in Kuala Lumpur last Friday.
Ahamed Kameel had earlier shown that his calculations indicated that, when compared to standard conventional home financing products, users of Islamic home loans stood to pay much more if they defaulted or settled earlier than the previously agreed upon repayment tenure.
"Early settlements are common. Studies have shown that people move from a home to another home within ten years due to a variety of factors. This will mean that you'd want to sell up the house and move on to another one. Those taking Islamic financing, again, will be at a disadvantage because you will owe more than those taking conventional financing," he said.
As a result of the global financial crisis, more and more people are expected to default on their mortgage.
"If you can get hold of banking statistics, I'm sure you can observe this. The statistics will show that more and more people will default simply because there's less money circulating. This is why we need to have some solutions in place before you see a lot of people out there frustrated by the end of the year," he said.

Speaking to reporters later, Ahamed Kameel posed the question if the defaults in Islamic home financing rise gradually.
"The defaults will be both for Islamic and conventional because of the macro-economic system that is imposing on customers. But the issue is those who default on the Islamic system will tend to owe more. The Islamic system is a safe contract, this means that profit is capitalised upfront.
Even if you pay back, say for a 20 year loan, after ten years, the profit for the remaining ten years is still due.
"But, for conventional, the loan balance is always lower than original loan taken because you don't need to pay interest for the remaining ten years," he said.
Asked whether there were already existing guidelines to protect Islamic home financing consumers, Ahamed Kameel said: "Right now, as you know, there are a few cases in the courts and similar things will happen. That is the reason why we're holding this conference, to come out with proper, standard procedures to solve these kinds of issues.
"How to make Islamic home financing attractive then? You need to make it more equitybased. The musharakah mutanaqisah is a very promising alternative but you have to make it exactly as it is, which means you use a rental rate rather than an interest rate. I believe this is the way to go."

(This story appeared in The Malaysian Reserve on 5 April 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Islamic finance players urged to explore equity-based financing

2010-04-08T20:23:00.000-07:00

Islamic finance players should explore opportunities in equity-based financing in making the industry more attractive. Making this call, Bank Negara Malaysia's assistant governor Datuk Muhammad Ibrahim (picture) said through equity-based financing, industry players could move away from mimicking conventional products and operate truly on Shariah compliance.
He said in terms of risk assessment, such transactions will necessary inject greater market discipline among industry players.
"This business model is premised on a few fundamental assumptions. The bank and its staff will have to be good at risk assessment, due diligence, assets valuation, good at project financing and management, a good landlord, skilful in project monitoring and have the necessary expertise on specific areas such as construction, agriculture and manufacturing," he said.
He was speaking at the opening ceremony of a conference in Kuala Lumpur on Friday on contemporary issues in Islamic home, personal and auto financing.

Muhammad said the shift from asset-based financing to equity-based financing however did not mean Islamic banks would operate without any risks.
Islamic banking should be the conduit for the financing model if the business climate is good. If the environment in certain sectors decline significantly, it could adversely impact Islamic finance, he said.
Muhammad also said a shift from debt-based financing to equity-based financial system would not necessarily lead to a better equitable outcome to society. If it is not properly implemented, it could cause uneven benefits to various stakeholders, he explained.
Equity-based financing in Islamic model is based on the sharing of business risks, as well as rewards by the bank and its client. Both parties would have to contribute for the basic ingredients of a business venture such as capital, management, know-how, labour, and other related professional attributes.
Profits are distributed based on an agreed-profit distribution ratio while losses are prorated to each party’s capital participation. Equity financing is cemented by entering in either one of two contracts, namely a partnership contract and a trust financing contract. — Bernama

(The Malaysian Reserve, 5 April, 2010)

Danajamin: The new kid on the block

2010-04-08T20:22:00.000-07:00

Comment: Habhajan Singh

There is discontent among investment bankers when you talk about Danajamin Nasional Bhd. The new kid on the block, they argue, is competing head-on with them.
Instead of boosting the capacity of corporations with a slightly less than desirable financial position to enter the bond market, the financial guarantee insurer is in the fray to capture a slice of the business, themselves.
Investment bankers complaint that Danajamin is talking to corporations with enough financial firepower to go into the bond market unaided. In other words, they claim the new outfit is literraly sweeping clients from under their feet. This was evident looking at Danajamin's first client since it was established on May 15, 2009, with the aim of introducing financial-guarantee insurance, touted as a unique form of credit enhancement for private debt securities in the Malaysian bond market.
Without any fanfare, but a mere press release, Danajamin a fortnight ago revealed that its first credit enhanced debt guarantee went to Kencana Petroleum Bhd for a RM250 million sukuk issuance. Under the agreement, Danajamin will provide an al-kafalah guarantee for Kencana’s seven-year sukuk mudharabah medium term note programme.
The Danajamin backing gave Kencana issue a AAA rating. Anyone with Danajamin's backing would get that. You could hear some investment bankers screaming. How did public-listed Kencana find its way into Dajamanin's list? Surely, they argued, Kencana is able enough to enter the bond market on its steam, or make avail of the other avenues for raising funds.

The very idea of having Danajamin is to help firms who may have some trouble, on their own, to raise bonds one or two notches below.
While investment bankers are every hungry for deals, they have a point here. Does helping companies like Kencana the very reason for Danajamin's birth?
When releasing the 2009 annual report, Bank Negara Malaysia (BNM) had said that easing of monetary policy was complemented by other measures designed to reach specific sectors of the economy.
"Ensuring continued access to financing was a key policy priority," it said in its press release. Here, it said that BNM and the Government had implemented several measures, including the setting up of several special funds for the small and medium enterprises (SMEs) and the establishment of Danajamin to provide financial guarantees for the issuances of PDS and Sukuk by financially viable companies.
In its own words, Danajamin says that its objective is to provide credit enhancement to financially viable companies to help the companies achieve cost savings on overall funding, facilitate their access to bond market, and stimulate investments in the economy.

How does Danajamin's guarantee work? It provides a guarantee on the bond issuance which is an irrevocable and unconditional promise to pay coupon and principal to the bond investors, on behalf of the issuer, in an event of missed payment or default.
In return, the bond issuer will pay Danajamin a fee for the guarantee provided. Bonds that are guaranteed by Danajamin will automatically be upgraded to AAA, the highest rating for bonds. This will enable the bonds to be issued in the current risk adverse environment.
Neat and tidy. But it does raise a question when they make avail the facility to companies that are financially stronger, an area where bankers prowl. The market will watch closely who will be the next recipient of Danajamin's backing.

(The Malaysian Reserve, 5 April, 2010, Page 2)

Kuwait Finance House embarks on 5-year to strenghten ops plan

2010-04-08T20:21:00.002-07:00

By Habhajan Singh

Kuwait Finance House (M) Bhd, which had recently directed a number of its staff to go on leave to pending internal investigations into 'transactions and contractual arrangements that have been undertaken over the years', has embarked on a five-year business plan to strengthen its operations in the country.

KFH Malaysia CEO Jamelah Jamaluddin told reporters yesterday that the plan would allow the Islamic banking unit to enhance its credit quality, lower non-performing financing, strengthen corporate investment banking and equity while looking at opportunities in retail business.

"Our due diligence audit is expected to take at least six weeks," she told a media briefing yesterday, reported Bernama, which acced that the audit aimed to obtain an accurate picture of certain transactions and contractual arrangements that have been undertaken over the years.

On April 29, The Malaysian Reserve reported the KFH Malaysia new boss, who came on board just under two months ago, has directed more than a dozen staff to go on leave pending the internal investigations.

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

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

In the briefing yesterday, Bernama also quoted her as saying: "We expect to experience modest business growth this year, not more than 10%," she said, adding that it registered 8% growth last year.
She said the bank would adopt KFH Kuwait's business model in order to sustain growth in terms of risk management and take full advantage of opportunities in the region, Bernama added.
On Friday, RAM Ratings said it had met with the senior management of KFH Malaysia to seek further clarification on the matter. The rating agency was made to understand that an "internal reorganisation exercise has been put in place to strengthen the Bank’s credit team and processes, with the intention of improving asset quality."

(This story appeared in The Malaysian Reserve on 2 April 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Ibrahim Hussain buys Beukhen

2010-04-08T20:21:00.001-07:00

By Habhajan Singh Ibrahim Hussain, the single biggest shareholder of Modular Techcorp Holdings Bhd which he took private in 2008, recently bought the region's largest debt collection agency, Beukhen International.
Industry sources say that the price tag for the sale was between RM30 million to RM40 million. When contacted, Ibrahim said that the agency, which now has some RM3 billion asset under management, will be transformed from a debt agency to a full-fledged debt acquisition company.
"Essentially, we buy over debts from banks. What this firm is now is very different from what it was just 12 months ago," he told The Malaysian Reserve.
Recently, he said that the agency had bought over some RM1.4 billion debts from financial institutions, which he did not name. When contacted, an owner of another debt collection agency told The Malaysian Reserve that the entry of the new face into the industry shows the keen interest people have in the already 'crowded sector'.
"They are leveraging their banking connections. They see money to be made there," he said. On the local front, some of the larger debt collection outfits, in terms of manpower, are Kudrat & Partners, Zuri Group, PNA Smart Solutions Sdn Bhd, Deblect Sdn Bhd, Global CMC and Galatrack Sdn Bhd.
Beukhen International, which provides receivables management and contact centre outsourcing services with offices in a number of countries including Malaysia, Singapore and Philippines, was founded by Jarnail Singh Gill, one of pioneers on the local debt collection scene. He then moved to New Zealand where he began Flo2Cash Ltd, a provider of payment processing services and solutions.
Check on its Flo2Cash website states that Flo2Cash, 'established in New Zealand in 2003 and is 100% NZ-owned and operated', is a member of the Beukhen International group.
However, it could not confirmed if Ibrahim's scoop of the large debt collection agency also comes with the New Zealand outfit.
Asked why he made the inroads into debt collection, Ibrahim said the recent financial crisis saw the proliferation of debts, bringing with its opportunities.
Information on its website states that Flo2Cash's services enable businesses to streamline their payment processes to improve cash flow and reduce operating expenses. It claims Flo2Cash employs the latest technologies and works with all major banks and credit card issuers to offer 'the greatest variety of payment channels' within New Zealand.
It also provides customers with the means to make payments through a variety of channels, so that bills are 'easily managed and shopping can be done with the full confidence of financial security'. When asked why he made the move on Beukhen International, Ibrahim said: "We see huge debts."
The new owners of Beukhen International will unveil its corporate identity today.

(The Malaysian Reserve, 1 April, 2010)

KFH probing previous contracts, transactions

2010-03-29T02:10:00.000-07:00

By Habhajan Singh

Kuwait Finance House (Malaysia) Bhd new boss, who came on board just under two months ago, has directed more than a dozen staff to go on leave pending internal investigations into 'transactions and contractual arrangements that have been undertaken over the years'.

In an email response to queries from The Malaysian Reserve, KFH Malaysia CEO Jamelah Jamaluddin said the bank is "taking a proactive approach and conducting a due diligence status audit, in light of the different and more challenging economic environment".

She added: "This is aimed at obtaining an accurate picture of certain transactions and contractual arrangements that have been undertaken over the years. Some employees have taken leave to help facilitate the exercise and the Bank will be guided by pragmatism and act accordingly as per the recommendations of the audit team conducting the due diligence status audit."

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

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

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

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

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

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

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

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

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

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

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

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

(This story appeared in The Malaysian Reserve on 29 March 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)