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

by Azli Jamil   

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

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

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

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

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

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

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

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

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

[THE MALAYSIAN RESERVE, 11 JAN 2013]

VICARY: All hands to the pump, walk the talk

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

HUMAYON: New proposal for Islamic investment funds

It is time for Islamic investment funds to start offering some real value addition to investors beyond just Shariah compliancy. Islamic investing so far has by and large been concerned with assurance of Shariah compliancy by screening out forbidden activities (such as gambling, interest-based financial services, liquor, pork and adult entertainment); it also excludes some other activities deemed undesirable for social responsibility or political correctness (like tobacco and arms).

In addition, it also ensures that balance sheets of the companies chosen are in compliance with Shariah. There is, however, a growing need for a detailed set of rules and regulations to be developed to categorise Islamic investment funds into merely Shariah-compliant and purely Islamic funds.

As a starting point in this direction, a fund may be called a Shariah-compliant fund if:

1. It does not invest in the companies involved in production, distribution, marketing and sale of Shariah repugnant goods and services; and

2. It does not get involved in Shariah-repugnant activities to conduct its finances (both in raising and deploying funds).

A fund may be categorised as an Islamic fund if:

1. It is Shariah-compliant in its product offering and in terms of its finances and operations, and;

2. It promotes any or all of the broader objectives of Shariah, which include promotion of the well-being of all mankind in terms of safeguarding faith, life and self-esteem, intellect and human capital, and posterity and wealth.

The term Islamic Shariah funds industry can be used for both Shariah-compliant and Islamic funds.

While a Shariah-compliant fund may not take a political view on its investments, it is important that an Islamic fund ensures that its investment strategy promotes at least one of the objectives of Shariah.

Thus, prohibition of investing in companies that support movements and ideologies against Islam and Muslims may fall under screening of Islamic funds. On a company level, while a stock like Starbucks Corp can be included in a Shariah-compliant fund (if it comes out of the chosen Shariah screens successfully), it must not be included in the portfolio of an Islamic fund, because Starbucks publicly supports an ideology blameworthy for the killing of innocent people including women and children in the West Bank and Palestine.

It is also important for the Islamic financial services industry to start taking a view on the Islamicity of the fund manager.

After all, if an ethical fund manager is not committed to the ethical values, its credibility as an ethical fund manager must be questioned. Similarly, an Islamic fund manager must demonstrate its full commitment to the objectives of Shariah (as outlined above).

The above proposals are not meant to bring a hostile investing culture in the Islamic Shariah funds industry; rather they simply point to the need for developing this industry on the pattern of investors activism.

This is important for the very sustainability of the Islamic financial services industry as a whole.

It is also important to emphasise that the proposed Islamic Shariah funds industry should not be a platform for political Islam. What is being suggested here is that the Islamic fund managers must accommodate the Islamic political views in their investment strategies and processes to win business from the Shariah sensitive investors who have strong political views on some international issues and phenomena that are deemed anti-Islamic.

One may like to argue that this will help the radical Islamic movements. On the contrary, this will provide the Shariah sensitive Islamic investors an opportunity to express their preferences in financial markets to influence some of the phenomena and activities in light of their faith and political views.

At this early stage of development of Islamic banking and finance, it is absolutely important that the Islamic Shariah funds industry remains completely independent of the political movements and parties. Failing to do so may adversely affect the industry in its infancy.

It is critical that the Islamic financial services industry enjoys government support and patronage, in the absence of which it will be almost impossible for it to grow substantially.

Although Islamic banking and finance is a demand-driven phenomenon, it has taken off only in those countries where the governments have supported and promoted it. Malaysia provides the best example in this respect. Needless to say, that the future of Islamic Shariah fund industry and Islamic banking and finance as a whole relies on the government support.

Therefore, the non-political nature of Islamic banking and finance must be retained and further developed. Furthermore, it is definitely the right time to start looking into creating alliances with the Western ethical and socially responsible investments movements to learn effective tools of investors activism and shareholders advocacy in the Islamic Shariah funds industry.

Combining the Shariah principles articulated hitherto as well as garnering the support of governments and alliances with ethical movements will lead to a dynamic and vibrant Islamic funds industry.

[Dr Humayon Dar, chairman of EdBiz Corp Ltd, is also an adjunct professor at International Centre for Education in Islamic Finance. This article appeared in the 15 April 2013 issue of The Malaysian Reserve)

HUMAYON: The correct terms — Islamic banking or banking for Muslims?

Many Islamic bankers tend to believe that Muslims are using Islamic financial services because such services are offered to them; otherwise (according to them) customers are indifferent between Islamic and conventional products. This thinking may be partially true. It is certainly the case where Islamic banking is either non-existent or is insignificant in magnitude and proportion.

Once, Islamic banking gathers a meaningful size (about 10% of the overall banking sector), Muslims choose Islamic banking, even if it happens to be slightly more expensive.

Malaysia has by far come out of the nascent phase of Islamic banking, with Islamic banking representing over 20% of the banking industry. Hence, Muslims in the country demand Islamic banking because it is Islamic first and not just because it is banking that happens to be Shariah-compliant.

Shariah authenticity is central to Islamic banking. If the customers are convinced of Shariah authenticity of the products offered by Islamic banks, they are not much bothered about what rate of return they get on their investment accounts.

The notion of commercial displacement risk (the risk that Muslim depositors will withdraw their funds if Islamic investment accounts offer a return lower than the market rate of return) is a fiction created by conventional bankers managing Islamic banks. This thinking is popularised by conventionally trained, and inclined, Islamic bankers (and their bosses sitting on the conventional side of the fence if the Islamic bank happens to be part of a conventional banking group) to ensure that they do not share profit with the holders of Islamic investment accounts. They are interested in cheaper funds of Islamic customers and do not like sharing profits with them because of the so-called “cost of capital” considerations.

When a regulator — like Bank Negara Malaysia (BNM) — starts emphasising offering restricted investment accounts, the conventional mindset comes into action and the managers of Islamic banks start offering fixed-return accounts based on commodity murabaha or wakala.

There is a need to read the unfolding story in most of the Islamic banks in the country, which are gradually replacing their unrestricted Islamic investment accounts with accounts based on commodity murabaha or wakala.

While there is no denial of the fact that BNM is trying its best to improve Shariah authenticity of Islamic banking in the country, it does not need a foreigner like me to tell the regulator that many Islamic bankers are adamant that the status quo is the best way to move forward.

There is a need to improve perception of Shariah authenticity of Malaysian Islamic banking and finance in the international markets. The new guidelines on the use of bai’ina are an excellent step in the right direction.

In my opinion, no one in the entire world will have problems with bai’ina if it is practised the way it has been prescribed in the new guidelines.

With malpractices in bai’ina being rooted out of Islamic banking and finance and reconsideration of the issue of bai’ dayn, the Malaysian model of Islamic banking and finance will serve as an ideal blueprint for many other countries that are embarking on the task of developing Islamic banking and finance.

The new markets in Africa, Turkey and Central Asia are all looking for a cost-effective way of developing Islamic banking and finance in their respective countries.

Malaysia must grab this opportunity by presenting to the whole world a model of Islamic banking and finance it has developed over a period of three decades.

The Malaysian investment into Islamic banking and finance — with the establishment of International Centre for Education in Islamic Finance (INCEIF), International Shari’ah Research Academy (ISRA), Islamic Financial Services Board (IFSB) and International Islamic liquidity Management Corp (IILM) — must start bringing financial benefits now.

The government should devise a policy framework for exporting Islamic financial advisory and capacity building services to the countries in the Organisation of Islamic Conference.

It may not be a bad idea at all if Malaysia takes a lead role in setting up and hosting what may be called International Islamic Development Bank.

The Jeddah-based Islamic Development Bank has been playing a lead role in the OIC bloc, and now it is time for Kuala Lumpur to play the role of a global leader in Islamic banking and finance. As Malaysia has done it domestically, it can certainly do it globally.

[Dr Humayon Dar, chairman of EdBiz Corp Ltd, is also an adjunct professor at International Centre for Education in Islamic Finance. This article appeared in the 15 April 2013 issue of The Malaysian Reserve)

BADLISYAH: Islamic finance as an economic tool

When I was a young man newly started in the Islamic banking industry, I was asked to join a business trip to Mindanao, the Philippines, sometime in the late 1990s. It was my first major business trip and naturally I was excited. It remained to this day as one of the most memorable, sobering and enriching experiences in my 16-year career.

The purpose of the trip was to explore how Islamic finance could assist in the redevelopment of Southern Philippines.

Early on, I had personally identified that Islamic finance was the natural partner and catalyst to bring about economic and infrastructure development.

It could support the then brokered peace process, after years of guerilla warfare by the majority Muslim locals who were seeking their own rights to govern.

I was also pretty nervous because I thought I was going into a war zone. At least that was what my young inexperienced mind was concocting despite the assurance from my bosses that there was no danger to life or limb. The things I had to do for Islamic finance!

I spent a gruelling 20 hours travelling to Manila — yes it was 20 hours because I had to fly from Labuan to Kuala Lumpur, slept at the airport overnight on the bench (since I was not qualified to stay in the transit hotel then) and flew off to Manila the next day before taking a flight onwards to Mindanao. This was despite Labuan being located next door to Mindanao! I wished there was a direct flight to Mindanao from Labuan or Kota Kinabalu, but I digress.

The flight to Mindanao gave me the impression of how poorly connected it was from major business routes and how isolated it was from the rest of the world at that time, which highlighted the importance of the trip I was on. When we landed, all the nervousness that I was carrying dissipated and was replaced with a sense of excitement. Being the most junior in the entourage, I naturally had to carry the bags and sort out the logistics.

Everything about the trip was looking up until we reached our car and saw the armed guards that will be escorting us throughout our visit. There were a dozen of them armed to the teeth plus outriders. It brought back all the imagined danger to the fore especially when our host explained it was for our safety and we were not to travel alone without at least two guards escorting us.

Since I was already there and didn’t want to be seen like someone really wet behind the ear, I pushed aside my worries and did what was expected of me. Backed by an allocation of funds from various parties including from supranational bodies, we set about to identify viable commercial projects.

We visited the local rebel leaders, local governments and businessmen. We looked at one of the largest fish ports in the world, fish canneries, sugar cane fields and many other potential projects that could be supported by way of Islamic finance.

The whole trip took about a week including the overnight stays in Manila to meet with government officials, i.e. senior Philippines legislators keen to see peace in Southern Philippines. I was involved in all of the discussions since I was tasked with note-taking.

Although I did not fully understand everything that transpired in the discussion, the experience made it clear that Islamic finance was a central tool that could ensure lasting peace in Southern Philippines.

Unfortunately, nothing happened after the visit as the peace process envisaged did not materialise. We could not implement what could have been done under Islamic finance to help make it successful.

Many years have passed and I have fairly put aside any hope of seeing Islamic finance playing a role in the redevelopment of Southern Philippines.

That was until the recent announcement on the signing of the Framework Agreement between the Philippines Government and the Moro Islamic Liberation Front, successfully brokered by Malaysia.

I was excited again at the prospect of Islamic finance catalysing a lasting peace in the area and sat as a keen observer of the new peace process albeit from a distance.

The Lahad Datu incident was unfortunate but it showcased again the need to bring the people in Southern Philippines into the mainstream economic activities. To me, this can be achieved best through Islamic finance. Real peace cannot exist without economic empowerment.

Of course this can only happen if Islamic finance is fully enabled and facilitated to operate on a level playing field with conventional finance in the Philippines.

In fact, considering that Islamic finance has proven to be the best tool for the democratisation of the financial market to promote a truly inclusive society in countries like Malaysia, I would even go so far as to recommend that special incentives be given to Islamic banks to operate at least in the Southern Philippines so that it can truly serve the peace agenda.

At the end of the day, Islamic finance is a public good and an economic tool created to benefit all mankind. Since this is the case, it should be the most natural tool to be employed for the peace process not just in Southern Philippines but anywhere else in the world.

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

HUMAYON: Gold as a currency in Islamic finance?

Dr Humayon Dar

Many advocates of Islamic banking suggest using gold as a replacement for the money created through the interest rate mechanism. This is an interesting proposition, especially in the context of Malaysia where the state of Kelantan has already started using gold and silver coins as a potential replacement for the federally issued legal tender of currency notes and coins.

It is important to assess its economic implications with respect to growth and overall economic activity in the country.

Americans find it difficult, and painful, to revert back to the gold standard for reasons peculiar to the US economy, but these limitations are not relevant to Malaysia.

In Malaysia, the government can experiment with the gold currency by limiting the use of gold and silver coins issued by the state governments for investment purposes only. This will allow people to buy gold and silver coins through paying in ringgit providing an alternative tool for saving on a long-term basis, even if gold and silver coins are not treated as legal tender.

Furthermore, the Malaysian government can use Islamic banking as a tool to introduce gold deposits for customers who would like to save for the long term. In fact, Bank Negara Malaysia (BNM) may continue to issue coins like Kijang Emas bullion coins and distribute them through Islamic banks.

At present, Malayan Banking Bhd (Maybank) designates 32 branches to sell Kijang Emas bullion coins but an extended programme may be rolled out with the help of Islamic banks in the country.

While Islamic banks could be allowed to use gold deposits (by way of selling gold for cash), they must return the depositors’ gold if the latter wish to redeem after a specified time period. Alternatively, the gold deposits must be kept for safe custody, in which case the depositors must be willing to pay a safe custody fee to the banks.

This alternative arrangement will also have a dampening effect on the ability of the Islamic banks to extend credit to their customers as they will not be able to use the depositors’ gold (by selling it for cash) to offer financing to those who may need it. This will, in turn, have implications for economic growth.

If Islamic banks are reluctant to offer gold deposits, the government may use the likes of Lembaga Tabung Haji and similar institutions to allow Muslims to save in gold and silver. It is expected that an overwhelming demand for the proposed gold deposits will compel Islamic banks to start offering such deposits out of market pressure.

If the introduction of gold coins in the states of Kelantan and Perak proves successful (which appears to be the case so far), monetary authorities — ie BNM — may consider using gold coins to bring about monetary reforms in the country. Indeed, advocates of monetary reform have long advocated a return to the gold standard. Some prominent economists, like Nobel laureate sRobert Mundell and James Robertson, have written extensively on the benefits of returning to the gold standard.

In the context of Islamic banking and trade, the likes of the former Prime Minister Malaysia, Tun Dr Mahathir Mohamed and activists like Tarek El Diwani have been influential figures in advocating the introduction of gold dinars and replacing the fractional reserve based banking system.

While it may take some time for BNM to expand its Kijang Emas bullion coins issuance, the increasing demand for Islamic banking in Malaysia (25% of the country’s financial sector’s assets derive from Islamic banking) offers Islamic banks a window of opportunity to exploit the trend by offering bullion-based investments to those who consider gold coins to be more Shariah-compliant than conventional money created through an interest based credit system.

If the gold deposits look like a radical idea, there are some other more acceptable ideas floating around.

James Fierro of Recipco Holdings Ltd has for some time been advocating for an international currency based on the excess capacity the world’s businesses have at any given point in time. This concept has similarities with the gold dinar in the sense that both the currencies are based on the real value of goods and services they represent (gold dinar representing the intrinsic value of the gold, and the Recipco’s proposed currency representing the value of goods and services excessively produced by businesses).

As these ideas are seen as radical by many, including Islamic bankers, it is important that the governments take a proactive role in implementing these proposals. As the government of Malaysia is spearheading an initiative to develop tools for liquidity management for Islamic banks, gold dinar and the issuance of a currency based on excess capacity may not be entirely abstruse concepts.

[Dr Humayon Dar, chairman of EdBiz Corp Ltd, is also an adjunct professor at International Centre for Education in Islamic Finance. This article appeared in the 18 March 2013 issue of The Malaysian Reserve)