Here are some key reports from wire agencies on the Dubai World debacle, as it unraveled.
Dubai says not responsible for Dubai World debt
Nov 30 2009
DUBAI: The Dubai government said on Monday it was not responsible for the debts of Dubai World, dealing a blow to creditors' assumptions that the Arab emirate would guarantee the conglomerate's liabilities. "Creditors need to take part of the responsibility for their decision to lend to the companies," said Abdulrahman al-Saleh, director general of Dubai's Department of Finance. "They think Dubai World is part of the government, which is not correct." In its first statement since the crisis began, Dubai World, the government-controlled holding company at the heart of the storm, said a restructuring would involve $26 billion in debt and mostly affect its property firms, Nakheel and Limitless. Other firms, such as DP World, Jebel Ali Free Zone and Istithmar World would not be included in the restructuring because they were financially stable, it said in a statement released by e-mail late on Monday night. The previously unreleased figure of $26 billion may help markets to grapple with the scope of the crisis following estimates that the restructuring could affect $59 billion or more in liabilities. (Reuters)
Impact of Dubai World on banks manageable: IMF
Dec 4, 2009
DUBAI World's attempt to delay debt repayments, while slowing growth in the United Arab Emirates, was ''contained and manageable'' for banks that lent money to the state-run company, an International Monetary Fund official said yesterday. ''We don't see that that's going to be an issue'' for banks, Masood Ahmed, director of the IMF's Middle East and Central Asia department, said. Because Dubai World had assets abroad such as commercial real estate, ''it may well be that some of these assets will be disposed of'', which ''may lead to some degree of re-evaluation of commercial property more generally'', he said. There had been less ''market uncertainty'' since Dubai clarified investors' questions in recent days, Mr Ahmed said. (Bloomberg)
GCC stocks tumble on Dubai World debt concerns
Dec 8, 2009
Amman - The stock markets of five Gulf Cooperation Council (GCC) member states plummeted on Tuesday on ambiguity surrounding talks between the Dubai World conglomerate and its creditors, financial analysts said. The stock exchanges of Dubai, Abu Dhabi and Saudi Arabia were the main losers among Arab bourses due to sell-off mainly by foreigners who preferred to stay out of the market at this juncture, they added. The all-share price index of the Dubai stock exchange sank 6.12 per cent, bringing the total loss in two days to about 12 per cent. Abu Dhabi's benchmark also moved downward, plunging 3.43 per cent, with a total decline of more than 5 per cent in two days. The decline was led by the real estate sector which tumbled more than 9 per cent on the Dubai stock exchange. (Deutsche Presse-Agentur)
Dubai World Crisis Hits Union Square
Dec 9, 2009
The trendy W Hotel in Manhattan's Union Square was auctioned off yesterday for just $2 million. The purchase price is cheap, but the new owner of the hotel, LEM Mezzaine, will also be responsible for any defaulted loans that are in line ahead of its debt. The hotel was owned by Dubai World's private-equity arm, Istithmar World Capital, which paid $282 million for the property in 2006. This fall the company defaulted on $117 million of its debt. As the WSJ (subs req'd) reports the hotel was "the first major property asset of Dubai World to be foreclosed on since the government-owned fund's problems boiled over in late November."
Nakheel had Dh3bn aid from Dubai World
Dec 09. 2009
ABU DHABI: Nakheel, the Dubai property developer, received Dh3 billion (US$816.8 million) in financial assistance from Dubai World in the first half of 2009 as it dealt with a cash flow shortage and mounting obligations, according to a financial statement released today. Details of the support comes a day after Abdulrahman al Saleh, the director general of the Dubai Department of Finance, said that Dubai World had been lent roughly Dh9bn this year from a fund created to help Dubai companies impacted by the economic downturn. (TheNational.ae)
Dubai Company Bonds Dive as Swaps Show Default Risk
Dec. 9, 2009
DUBAI: The tumble in bonds of Dubai’s state- controlled companies to record lows signals growing concern more borrowers will fall behind on debt payments as Dubai World seeks to restructure $26 billion of obligations. “We are concerned that it’s just not Dubai World that has issues,” said Oliver Bell, the head of Middle East and Africa investment at Pictet Asset Management in London, which has $120 billion under management. “The health of other government- related entities is in question.” Dubai World property unit Nakheel PJSC’s $3.52 billion of Islamic bonds due Dec. 14 dropped 5 percent, extending yesterday’s 10 percent slide, to head for a record-low close at 45 cents on the dollar, according to Citigroup Inc. Bonds sold by Dubai Holdings Commercial Operations Group LLC sank as low as 41.5 cents on the dollar after Moody’s Investors Service cut the credit ratings of six state-run companies. A jump in the cost of DP World Ltd.’s credit-default swaps implied a 35 percent risk that the port operator will renege on debt. Dubai World, a government holding company that owns 80 percent of DP World, said last week it’s in talks with banks to reorganize debt after requesting a creditor “standstill” on Nov. 25. Debt restructurings may almost double to $46.7 billion in the “near term” as more of Dubai’s businesses need help paying debt, according to Morgan Stanley. “The ownership structure in Dubai is like spaghetti,” Pictet’s Bell said. “We’re in the process of sorting that spaghetti out.” (Bloomberg)
Dubai World debacle cancels property expo
Dec 10, 2009
MUMBAI: The Maharashtra Chambers of Housing and Industry that had planned a property exhibition in Dubai today has postponed it indefinitely. The reason is not clear though. While the MCHI say the government of Dubai revoked their permission to conduct the exhibition, market
insiders attribute this sudden change of plans to the Dubai market crash. Strangely a week ago, MCHI's international exhibition co-convener J Augustine had told MiD DAY that they were excited about going to Dubai, as they wanted to tap the emotional Indians who would invest in Mumbai beca-use of the bad market there.
Wednesday, December 9, 2009
Abu Dhabi to aid Dubai on "case by case" basis: Reuters
Nov 28 2009
ABU DHABI: Abu Dhabi, wealthy capital of the United Arab Emirates, will "pick and choose" how to assist debt-laden neighbor Dubai, a senior official said on Saturday, after fears of a Dubai default sent global markets reeling. "We will look at Dubai's commitments and approach them on a case-by-case basis. It does not mean that Abu Dhabi will underwrite all of their debts," the official in the government of the emirate of Abu Dhabi told Reuters by phone. Selective assistance for companies in "Dubai Inc.," a network of quasi-sovereign industries, instead of blanket assistance, would serve a rude awakening to investors who for years assumed that the conservative Abu Dhabi provided a safety net for its racier neighbor. At stake is the $59 billion in debt held by government controlled holding company Dubai World and its property arm Nakheel, builder of palm-shaped islands for wealthy celebrities. Dubai delayed payment on Nakheel debt by six months in a shock announcement, which came on the eve of a long holiday.
Years of chasing business in Dubai's property boom means Abu Dhabi banks have built up an exposure to Dubai-based companies worth at least 30 percent of their loan books, senior bankers in Abu Dhabi said on Friday. In most investors' minds, the question is not whether Abu Dhabi will support Dubai but when and how. Abu Dhabi, which pumps 90 percent of the oil that make the United Arab Emirates the world's third-largest oil exporter, has already provided $15 billion in indirect support for Dubai through the UAE central bank and two private Abu Dhabi banks. How much more support the emirate provides for its cash-strapped neighbor, however, will depend on how Dubai clarifies its stand on unresolved issues. (Reuters)
ABU DHABI: Abu Dhabi, wealthy capital of the United Arab Emirates, will "pick and choose" how to assist debt-laden neighbor Dubai, a senior official said on Saturday, after fears of a Dubai default sent global markets reeling. "We will look at Dubai's commitments and approach them on a case-by-case basis. It does not mean that Abu Dhabi will underwrite all of their debts," the official in the government of the emirate of Abu Dhabi told Reuters by phone. Selective assistance for companies in "Dubai Inc.," a network of quasi-sovereign industries, instead of blanket assistance, would serve a rude awakening to investors who for years assumed that the conservative Abu Dhabi provided a safety net for its racier neighbor. At stake is the $59 billion in debt held by government controlled holding company Dubai World and its property arm Nakheel, builder of palm-shaped islands for wealthy celebrities. Dubai delayed payment on Nakheel debt by six months in a shock announcement, which came on the eve of a long holiday.
Years of chasing business in Dubai's property boom means Abu Dhabi banks have built up an exposure to Dubai-based companies worth at least 30 percent of their loan books, senior bankers in Abu Dhabi said on Friday. In most investors' minds, the question is not whether Abu Dhabi will support Dubai but when and how. Abu Dhabi, which pumps 90 percent of the oil that make the United Arab Emirates the world's third-largest oil exporter, has already provided $15 billion in indirect support for Dubai through the UAE central bank and two private Abu Dhabi banks. How much more support the emirate provides for its cash-strapped neighbor, however, will depend on how Dubai clarifies its stand on unresolved issues. (Reuters)
Dubai 9/11 debacle
Dubai's Nakheel seeks suspension for $5 billion in bonds: Reuters
Dubai's Nakheel asked for three of its listed Islamic bonds worth us$5.25 billion to be suspended pending details of restructuring plans at its parent company, a move likely aimed at dampening speculation on the bonds, reports Reuters (Nov 30 2009).
The request briefly stalled but did not stop trading in the bonds, which are exchanged over the counter and not on the bourse, where the listing is regarded as a technicality. The request also added to confusion that has reigned in the markets since the Dubai government last week said it would seek debt standstill agreements from creditors to Nakheel and Dubai World, briefly sparking fears of a renewed crisis, the report added.
It noted that the three instruments listed on the exchange are a $3.5 billion sukuk due on December 14, a 3.6 billion dirham sukuk ($980.1 million) due on May 13 and a $750 million sukuk due on January 16, 2011.
Nakheel's December bond was trading at 58 on Monday, according to Thomson Reuters data, having traded as high as 110 on Wednesday before the Dubai government's announcement. Its 2011 debt was trading at 55, it added.
THE REPORT GOES ON:
Nakheel, developer of a series of created islands in the shape of palm trees off Dubai's coast, said it had asked Nasdaq Dubai to suspend all three of its listed Islamic bonds, or sukuk, "until it is in a position to fully inform the market."
Nakheel's first bond, the $3.5 billion sukuk, was widely expected by the market to be repaid on time.
SOME OTHER RELATED NEWS TO THE ABOVE PIECE:
Dubai says not responsible for Dubai World debt
Nov 30 2009
Dubai's Nakheel asks for suspension of 3 listed sukuk
Nov 30 2009
UAE moves to counter Dubai fallout but markets wary
Nov 29 2009
Abu Dhabi to aid Dubai on "case by case" basis
Nov 28 2009
Abu Dhabi banks have big Dubai exposure-bank execs
Nov 27 2009
Dubai's Nakheel asked for three of its listed Islamic bonds worth us$5.25 billion to be suspended pending details of restructuring plans at its parent company, a move likely aimed at dampening speculation on the bonds, reports Reuters (Nov 30 2009).
The request briefly stalled but did not stop trading in the bonds, which are exchanged over the counter and not on the bourse, where the listing is regarded as a technicality. The request also added to confusion that has reigned in the markets since the Dubai government last week said it would seek debt standstill agreements from creditors to Nakheel and Dubai World, briefly sparking fears of a renewed crisis, the report added.
It noted that the three instruments listed on the exchange are a $3.5 billion sukuk due on December 14, a 3.6 billion dirham sukuk ($980.1 million) due on May 13 and a $750 million sukuk due on January 16, 2011.
Nakheel's December bond was trading at 58 on Monday, according to Thomson Reuters data, having traded as high as 110 on Wednesday before the Dubai government's announcement. Its 2011 debt was trading at 55, it added.
THE REPORT GOES ON:
Nakheel, developer of a series of created islands in the shape of palm trees off Dubai's coast, said it had asked Nasdaq Dubai to suspend all three of its listed Islamic bonds, or sukuk, "until it is in a position to fully inform the market."
Nakheel's first bond, the $3.5 billion sukuk, was widely expected by the market to be repaid on time.
SOME OTHER RELATED NEWS TO THE ABOVE PIECE:
Dubai says not responsible for Dubai World debt
Nov 30 2009
Dubai's Nakheel asks for suspension of 3 listed sukuk
Nov 30 2009
UAE moves to counter Dubai fallout but markets wary
Nov 29 2009
Abu Dhabi to aid Dubai on "case by case" basis
Nov 28 2009
Abu Dhabi banks have big Dubai exposure-bank execs
Nov 27 2009
Sunday, November 22, 2009
Malaysia's new Central Bank Act strong on Islamic finance
By Habhajan Singh
The strong presence of Islamic finance and the explicit mention of ‘dual banking’ are some of the key changes embedded in the soon-to-be operational Central Bank of Malaysia Act 2009.
An analysis of the new ground rules for Bank Negara Malaysia (BNM), via a copy available at the central bank’s website, shows the strong Islamic finance flavour running through part of the 68-page document, especially in empowering of the Shariah Advisory Council (SAC) which is designated to be the ‘authority for the ascertainment of Islamic law for the purpose of Islamic financial business’.
It now gives the SAC an upper hand over the High Court when it comes to deciding on matters related to Shariah.
The new act, which received the royal assent on Aug 19 and was gazetted on Sept 3, has covered the key bases when it comes to managing Islamic financial institutions, an exciting growth area for Malaysia which today has 17 Islamic banks, two international Islamic banks, eight takaful operators, three retakaful operators, one international takaful operator and four takaful brokers.
"It provides consistency in the application of fatwa across the board. This empowerment is good for the industry," said Affin Islamic Bank Bhd chief executive officer Kamarul Ariffin Mohd Jamil, making specific reference to the SAC, when asked to comment on the new act.
Azrulnizam Abdul Aziz, chief executive Officer and executive director at Standard Chartered Saadiq Bhd, added that the dual banking recognition will ‘further support current legal framework’.
Ernst and Young financial services practices partner Gloria Goh noted that BNM was established under the now-repealed Central Bank of Malaysia Act 1958, to be replaced by the new act.
"This is timely as there has been significant developments in the financial services sector over the past 50 years," she said. Islamic bankers would certainly welcome making SAC the ultimate harbinger on what is Shariah-compliant and what runs foul of the Shariah rules for Islamic banking and takaful products and services.
A High Court judgment by Justice Abdul Wahab Patail in April 2008 had rattled the local Islamic banking fraternity when the court had ruled that widely used Bai Bithaman Ajil (BBA) contracts were contrary to Malaysia’s Islamic banking regulations, putting them on high alert for potential spike in defaults for financing structured around that contract, especially on the home financing front.
On March 31, a three-men bench of the Court of Appeal, chaired by Justice Datuk Md Raus Sharif, had unanimously reversed that decision.
The Court of Appeal judgment brought to closure the much-debated Abdul Wahab’s judgment which probably triggered the central bank into making it mandatory for the courts to refer to the central bank’s SAC when deciding on Shariah matters in Islamic banking and finance cases.
In the past, High Court judges had the option of referring to the SAC for guidance when it was deciding upon Islamic finance matters. But that is no longer the case as the new act has made the Shariah scholar led committee the final arbiter in Shariah matters in view of Section 56.
Entitled ‘Reference to Shariah Advisory Council for ruling from court or arbitrator’, the section states that in ‘any proceedings relating to Islamic financial business before any court or arbitrator any question arises concerning a Shariah matter’, the court or the arbitrator shall take into consideration SAC published rulings or ‘refer such question’ to the SAC ‘for its ruling’.
"While it allows diversity, it sets the grounds rules," added Kamarul Ariffin.
(This story appeared in The Malaysian Reserve on Nov 23, 2009. 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 BNM act seen to introduce ‘dual banking’
by Habhajan Singh
One key area of difference between the old and the new act for Bank Negara Malaysia (BNM) is the reference to the Shariah Advisory Council (SAC), the body set-up under at the central bank itself to bring about order and consistency in the Shariah rulings for Islamic banks and takaful operators operating in Malaysia.
Another key area is the introduction of the 'dual banking' concept. In the old Central Bank of Malaysia Act 1958, Islamic banking comes into play by virtue of Section 16(b) which states that the SAC "shall be the authority for the ascertainment of Islamic law for the purposes of Islamic banking business, takaful business, Islamic financial business, Islamic development financial business, or any other business which is based on Syariah principles and is supervised and regulated by the Bank".
In the new Central Bank of Malaysia Act 2009, which has cleared all hurdles and is set to be underway anytime, a whole new section for Islamic finance has been carved out. Part IV of the new act is entitled 'Islamic financial business' and is broken into two chapters.
Chapter one concerns the SAC while chapter two is about the powers of the central bank in terms of issuing circulars and guidelines on Shariah matters, and also the promotion of Malaysia as an international Islamic financial centre.
On the establishment of SAC, Section 51 (1) of the new act says BNM may establish a SAC on Islamic finance which "shall be the authority for the ascertainment of Islamic law for the purposes of Islamic financial business".
The SAC's functions are outlined in Section 52 (1):
a) to ascertain the Islamic law on any financial matter and issue a ruling upon reference made to it in accordance with this Part;
b) to advise the Bank [read: BNM] on any Shariah issue relating to Islamic financial business, the activities or transactions of the Bank;
c) to provide advice to any Islamic financial institution or any other person as may be provided under any written law; and
d) such other functions as may be determined by the Bank.
In Section 52 (2), it states that "ruling" here means any SAC ruling made for the ascertainment of Islamic law for the purposes of Islamic financial business. Under its interpretation section, the new act defines "Islamic financial business" as any financial business in ringgit or other currency which is subject to the laws enforced by the Bank and consistent with the Shariah, while "Islamic financial institution" means a financial institution carrying on Islamic financial business. The new act also makes explicit mention of dual banking.
A check on the earlier Central Bank of Malaysia Act 1958 shows that the word does not appear anywhere in the regulation. In the new act, Part IV, entitled "Financial stability functions and powers of the bank'" Section 27 states the "financial system in Malaysia shall consist of the conventional financial system and the Islamic financial system'" a direct acknowledgement of the importance of the Islamic banking, along with conventional banking.
With the dual banking underlying thought in the new act, 'financial business' in the act refers collectively to conventional financial business and Islamic financial business.
Ernst and Young financial services practices partner Gloria Goh said the insertion is a reflection that Malaysia now has a dual financial system, the Islamic and conventional financial system, and that the amendments in the new act recognise the role BNM plays in ensuring financial stability in both financial systems.
"Under the Financial Markets Masterplan 2000-2010, Malaysia had planned to develop islamic finance and takaful in tandem with the conventional banking and insurance system.
"As a central bank, BNM is empowered under the Act to supervise the dual financial systems and ensuring financial stability," she said.
The Central Bank of Malaysia Act 2009 is expected to be in operation soon.
In September, BNM governor Tan Sri Dr Zeti Akhtar Aziz had said that the new act will empower the central bank to act decisively in enhancing transparency and accountability.
"The Act will extensively provide greater clarity on the mandates for which we are accountable and provide enhanced powers to undertake these mandates," she said in a Bernama report.
She added it would also provide greater flexibility in monetary policy implementation and allow a diversified range of instruments to be deployed, notig that with the challenges confronting central banks, it must have commensurate capabilities to conduct monetary policy operations to maintain price stability during periods of extreme volatility.
On the local front, among the 17 locally incorporated Islamic banks are Bank Islam Malaysia Bhd, Bank Muamalat Malaysia Bhd, Hong Leong Islamic Bank Bhd, Al Rajhi Banking & Investment Corporation (Malaysia) Bhd and Standard Chartered Saadiq Bhd, while the two international Islamic banks are PT Bank Syariah Muamalat Indonesia Tbk and Unicorn International Islamic Bank Malaysia Bhd.
On the takaful front, the local players include Syarikat Takaful Malaysia Bhd, Etiqa Takaful Bhd and Takaful Ikhlas Sdn Bhd, while retakaful is provided by ACR Retakaful SEA Bhd, MNRB Retakaful Bhd and Munich Re Retakaful. The sole international takaful operator is AIA Takaful International Bhd.
(This story appeared in The Malaysian Reserve on Nov 23, 2009. 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 bonds spur interest in South Korea
Now is the time for Korean companies to tap into the rapidly growing $800-billion Islamic capital market, and Malaysia may be one of the best destinations for such companies hoping to raise capital from Muslim investors, said two top financial regulators from Malaysia, reports JoongAng Daily (Nov 21, 2009).
Dato’ Dr. Nik Ramlah Nik Mahmood, managing director of Malaysia’s Securities Commission, and Dato’ Yusli Yusoff, chief executive of Bursa Malaysia Berhad, Malaysia’s stock market operator, said a growing number of Asian companies, including those in Japan and Korea, are expressing interest in issuing bonds based on Islamic principles, which the two said will open a vast new market for the firms.
The two visited Seoul this week to attend the Islamic Finance Conference, jointly organized by Korea Exchange and Bursa Malaysia to help coordinate more financial cooperation among investors and companies in Korea and in Muslim countries.
“By selling sukuk [Islamic bonds], you will be able to attract not just conventional investors but another group of investors who would not have invested in conventional bonds, because they are required to invest in securities structured in line with Islamic financial principles,” Dato’ Nik Ramlah said in an interview with JoongAng Daily. “You’re not excluding existing investors, but you’re opening up to new groups. That’s a major attraction of Islamic bond issuance.”
Sukuk is an Islamic financial certificate working in a similar way to a bond in Western finance but structured in line with Shariah, Islamic religious law.
Since Shariah prohibits the use of interest-bearing securities, a sukuk issuer sells the certificates to the investors, who then lend the certificates back to the issuer for a predetermined “rental fee.” The issuer then signs a contract to promise to buy back the bonds later at par value.
Oil money
With investors in Western countries still reeling from the recession, a growing number of investors are considering a plunge in the Islamic financial market, which has been hit less severely by the crisis and whose economies still boom with oil.
HSBC recently estimated rising liquidity in Arab regions due to the oil boom would prompt the volume of Islamic bonds issued across the world to jump from about $7 billion this year to $14 billion in 2010.
Dato’ Yusli said he has met with officials from several Korean companies planning to issue sukuk and local stock brokerages trying to take part in the process.
“The companies are quite ready. I’m still waiting for some laws to be changed in Korea, then we will be able to assist them,” he said. “The whole legal, accounting, regulatory and systematic frameworks to issue sukuk are very well established in Malaysia.”
Dato’ Yusli also stressed that the modus operandi of Islamic financial principles offers a fresh antidote to today’s global financial system.
“After the crisis, investors are looking for far safer types of investment, and more of them are allocating funds for companies qualified under the ESG [environmental, social and corporate governance],” he said, referring to the global investment criteria for investing in companies with socially responsible management. “We believe that Islamic financial principles are compatible to these types of criteria, for instance, under Islamic law, investing in gambling, weapons or alcohol is prohibited.”
During the Seoul conference this week, Citigroup said Korean industries like autos, construction, manufacturing, retail, energy, machinery, telecom and transportation will be encouraged to attract Muslim investors.
Around 50 top local companies like Samsung Electronics, GS Caltex, SK Telecom, Lotte Shopping, Posco and Korea Airlines and Hyundai Heavy Industries as such examples.
Dato’ Yusli said he has met with representatives from several companies on the list to discuss possible bond sale deals.
Dato’ Nik Ramlah also echoed the same sentiment, saying the Islamic financial principles, which put more priority in transparency and clarity in financial securities’ underlying assets, will offer more assurance to the global market that learned the lesson through the subprime mortgage crisis.
“In Islamic financial products, every conception or underlying contract should lead to the actual products, so you don’t have products that are derivatives on top of derivatives on top of other derivatives, where you don’t know what’s the real underlying asset,” she said.
Dato’ Dr. Nik Ramlah Nik Mahmood, managing director of Malaysia’s Securities Commission, and Dato’ Yusli Yusoff, chief executive of Bursa Malaysia Berhad, Malaysia’s stock market operator, said a growing number of Asian companies, including those in Japan and Korea, are expressing interest in issuing bonds based on Islamic principles, which the two said will open a vast new market for the firms.
The two visited Seoul this week to attend the Islamic Finance Conference, jointly organized by Korea Exchange and Bursa Malaysia to help coordinate more financial cooperation among investors and companies in Korea and in Muslim countries.
“By selling sukuk [Islamic bonds], you will be able to attract not just conventional investors but another group of investors who would not have invested in conventional bonds, because they are required to invest in securities structured in line with Islamic financial principles,” Dato’ Nik Ramlah said in an interview with JoongAng Daily. “You’re not excluding existing investors, but you’re opening up to new groups. That’s a major attraction of Islamic bond issuance.”
Sukuk is an Islamic financial certificate working in a similar way to a bond in Western finance but structured in line with Shariah, Islamic religious law.
Since Shariah prohibits the use of interest-bearing securities, a sukuk issuer sells the certificates to the investors, who then lend the certificates back to the issuer for a predetermined “rental fee.” The issuer then signs a contract to promise to buy back the bonds later at par value.
Oil money
With investors in Western countries still reeling from the recession, a growing number of investors are considering a plunge in the Islamic financial market, which has been hit less severely by the crisis and whose economies still boom with oil.
HSBC recently estimated rising liquidity in Arab regions due to the oil boom would prompt the volume of Islamic bonds issued across the world to jump from about $7 billion this year to $14 billion in 2010.
Dato’ Yusli said he has met with officials from several Korean companies planning to issue sukuk and local stock brokerages trying to take part in the process.
“The companies are quite ready. I’m still waiting for some laws to be changed in Korea, then we will be able to assist them,” he said. “The whole legal, accounting, regulatory and systematic frameworks to issue sukuk are very well established in Malaysia.”
Dato’ Yusli also stressed that the modus operandi of Islamic financial principles offers a fresh antidote to today’s global financial system.
“After the crisis, investors are looking for far safer types of investment, and more of them are allocating funds for companies qualified under the ESG [environmental, social and corporate governance],” he said, referring to the global investment criteria for investing in companies with socially responsible management. “We believe that Islamic financial principles are compatible to these types of criteria, for instance, under Islamic law, investing in gambling, weapons or alcohol is prohibited.”
During the Seoul conference this week, Citigroup said Korean industries like autos, construction, manufacturing, retail, energy, machinery, telecom and transportation will be encouraged to attract Muslim investors.
Around 50 top local companies like Samsung Electronics, GS Caltex, SK Telecom, Lotte Shopping, Posco and Korea Airlines and Hyundai Heavy Industries as such examples.
Dato’ Yusli said he has met with representatives from several companies on the list to discuss possible bond sale deals.
Dato’ Nik Ramlah also echoed the same sentiment, saying the Islamic financial principles, which put more priority in transparency and clarity in financial securities’ underlying assets, will offer more assurance to the global market that learned the lesson through the subprime mortgage crisis.
“In Islamic financial products, every conception or underlying contract should lead to the actual products, so you don’t have products that are derivatives on top of derivatives on top of other derivatives, where you don’t know what’s the real underlying asset,” she said.
Banks moving away from organised tawarruq
Some Middle Eastern banks are avoiding organised tawarruq after a ruling against the practice, an industry official said, a trend that could signal a shake-up for the $1 trillion Islamic financing sector. Shrugging off criticism of the OIC Fiqh Academy’s controversial decree, the organisation’s secretary-general said some institutions have heeded the call to abandon the popular financing arrangement, reports Reuters (Nov 18, 2009).
The report quoted Abdul Salam Al-Abadi, interviewed on the sidelines of a sharia scholars meeting in Malaysia, as saying: "I have been hearing that some banks have agreed that what they were doing is wrong and they have begun changing the method of their tawarruq transaction,’ Abdul Salam Al-Abadi said in an interview on the sidelines of a sharia scholars meeting in Malaysia. They are trying to do it the way it should be done."
He did not identify the banks, it added.
THE REPORT GOES ON:
The International Council of Fiqh Academy, a powerful group of scholars led by the OIC, rocked the industry in April this year with an order forbidding the use of organised tawarruq, a cornerstone of the sharia banking sector.
With the global tawarruq market estimated at more than $100 billion, practitioners had warned of catastrophic results if the rule were to be implemented strictly.
‘If tawarruq were suddenly withdrawn, this would have a dramatic effect because many Islamic financiers routinely use this instrument as a means of liquidity management and to provide their customers with working capital facilities,’ law firm Denton Wilde Sapte had said in a note.
Tawarruq is widely used as a source of financing. It involves the sale of an asset to a purchaser with deferred payment terms. The purchaser then sells the asset to a third party to get funds.
Organised tawarruq is similar, although the transactions are executed through banks. Some scholars say it is wrong to pre-arrange the parties’ contractual obligations although bankers want this for legal protection and commercial certainty.
Al-Abadi said the Muslim World League’s fiqh academy had similarly prohibited the use of organised tawarruq.
‘After all these discussions, the majority of the scholars say it is forbidden,’ said Al-Abadi, a Syria and Egypt-trained sharia expert and former Jordanian government minister.
‘Our council consists of more than 70 scholars and at the meeting, there were more than 20 experts besides these 70 scholars and the majority said it’s forbidden.’ Several influential sharia scholars have defended the use of tawarruq, although some say the structure needs further refinement.
‘It’s the right of any scholar to say ‘That’s my view, it’s not forbidden,’ Al-Abadi said.
‘We say to the people ‘The way in which you deal is not correct’ and let the people decide in future.’ Some scholars have said organised tawarruq is a mere paper shuffle, without assets actually changing hands, violating the sharia’s rule that financial transactions must involve specific assets.
Islamic banks and their clients rarely, if ever, take delivery of commodities used in tawarruq transactions, as their purpose is to use the assets as fund-raising tools. — Reuters
The report quoted Abdul Salam Al-Abadi, interviewed on the sidelines of a sharia scholars meeting in Malaysia, as saying: "I have been hearing that some banks have agreed that what they were doing is wrong and they have begun changing the method of their tawarruq transaction,’ Abdul Salam Al-Abadi said in an interview on the sidelines of a sharia scholars meeting in Malaysia. They are trying to do it the way it should be done."
He did not identify the banks, it added.
THE REPORT GOES ON:
The International Council of Fiqh Academy, a powerful group of scholars led by the OIC, rocked the industry in April this year with an order forbidding the use of organised tawarruq, a cornerstone of the sharia banking sector.
With the global tawarruq market estimated at more than $100 billion, practitioners had warned of catastrophic results if the rule were to be implemented strictly.
‘If tawarruq were suddenly withdrawn, this would have a dramatic effect because many Islamic financiers routinely use this instrument as a means of liquidity management and to provide their customers with working capital facilities,’ law firm Denton Wilde Sapte had said in a note.
Tawarruq is widely used as a source of financing. It involves the sale of an asset to a purchaser with deferred payment terms. The purchaser then sells the asset to a third party to get funds.
Organised tawarruq is similar, although the transactions are executed through banks. Some scholars say it is wrong to pre-arrange the parties’ contractual obligations although bankers want this for legal protection and commercial certainty.
Al-Abadi said the Muslim World League’s fiqh academy had similarly prohibited the use of organised tawarruq.
‘After all these discussions, the majority of the scholars say it is forbidden,’ said Al-Abadi, a Syria and Egypt-trained sharia expert and former Jordanian government minister.
‘Our council consists of more than 70 scholars and at the meeting, there were more than 20 experts besides these 70 scholars and the majority said it’s forbidden.’ Several influential sharia scholars have defended the use of tawarruq, although some say the structure needs further refinement.
‘It’s the right of any scholar to say ‘That’s my view, it’s not forbidden,’ Al-Abadi said.
‘We say to the people ‘The way in which you deal is not correct’ and let the people decide in future.’ Some scholars have said organised tawarruq is a mere paper shuffle, without assets actually changing hands, violating the sharia’s rule that financial transactions must involve specific assets.
Islamic banks and their clients rarely, if ever, take delivery of commodities used in tawarruq transactions, as their purpose is to use the assets as fund-raising tools. — Reuters
‘Debate on legality of products irrelevant’
Top Islamic banker Badlisyah Abdul Ghani is a contrarian when it comes to the present debate on the Shariah compliance of Islamic bankng products.
The CEO of CIMB Islamic Bank Bhd opines that the ongoing debate on the issue of the legality of products from a Shariah perspective had no real tangible benefits for the industry. "The debate is superfluous and irrelevant," he said, in what seems to challenge conventional wisdom and may even ruffle some feathers. Certainly, we cannot merely brush aside his views, given that in his short three-year stint at the helm of CIMB Islamic, the bank has seen its assets grow to more than RM20 billion from just RM1 billion in 2006. The Malaysian Reserve's Jason Ng speaks to Badlisyah to find out his views on the industry.
TMR : The Islamic finance industry is presently seen as replicating conventional banking products and services. How will the industry move forward beyond replicating into innovation?
Badlisyah: We have to offer what the market wants and the market naturally wants what is available in the conventional market. Where it is possible in Shariah for us to offer the same products, we have to make sure we have all the products because we are here to serve customers' needs. On the overall Malaysian market, I believe we have effectively most of the basic products in the market. For CIMB Islamic, we have gone beyond offering basic products. We have come up with innovative products that even conventional markets do not have in Malaysia. We have gone a long way in coming up with products both replicating and of pure innovation.
TMR : How is CIMB Islamic navigating the different sets of Shariah rules and regulations in different regions as well as countries presently?
Badlisyah: We are not bothered. We provide products based on where we do business. Just like when you are a car manufacturer, you make the car based on the specification and requirements of the laws in the respective markets. So when we market our products in different market, we behave the same way, making sure we meet the requirements of the jurisdiction of the local market we are serving.
TMR : But what about the present ongoing debate on the permissibility of certain products such as bai bithaman ajil (BBA) and derivatives under Shariah laws?
Badlisyah: The debate is superfluous and irrelevant. Shariah works on a jurisdictional basis just like any other laws. So to us, it is wrong to ask for Shariah laws to be an international standard law when other laws in conventional banking are not. You must remember Shariah has been there for more than 1,400 years and operated on a jurisdictional basis. But all of a sudden in the modern era, you want to force Shariah to operate across borders. It is a total waste of time.
TMR : So the current dispute has no benefit to the industry?
Badlisyah: What the industry should be bothered about is making sure their relevant domestic market is properly regulated and supported by the right infrastructure. In this regard, Malaysia has managed Shariah issues in the most efficient manner by having an Islamic Banking Act that says Islamic banking activities are all activities that do not contradict the religion of Islam. What that means is that all Shariah schools of law are applicable. Therefore, we do not waste time debating which one is right and which one is better. We allow market forces to determine which is more popular. Every interpretation based on the Quran and backed by legitimate hadith, is valid and enforcible. That is what Shariah says and Malaysia recognises what the Shariah framework is all about and the principles involved.
TMR : How do you regulate the market when there are elements such as profit sharing, partnership and risk-sharing which exist in Islamic finance?Badlisyah: At the end of the day, we have to identify what exactly we are doing. We are doing financial transactions, so irrespective of the Shariah principles used, it is predominantly a financial transaction. For example, most of our deposit products are under the mudarabah principle. You look at the substance of it and if it is a deposit, then you regulate it as a deposit product. Let's say you have a financing product based on a combination of mudarabah and musyarakah but in substance, if it is a financing product, then you regulate it as a financing activity irrespective of the Shariah principles involved. While a single principle may be applicable for many different activities, you regulate based on the activities undertaken.
TMR : Can you share with us your regional expansion plans?
Badlisyah: CIMB Islamic is present through our franchise across all legal entities within the group in Indonesia, Singapore and Brunei, mostly in the corporate investment banking and asset management segment. From a mere 200 branches selling Islamic products in Indonesia, by the end of the year, we should have more than 500 branches selling Islamic products. We hope to roll that business in the same manner we have grown the business in Malaysia, by adopting a dual banking leverage model, using the same resources and infrastructure that the group has and use some of the successful products that we have in Malaysia. It may be tweaked to fit Indonesian Shariah laws, but we have the intention to export it to Indonesia.
TMR : How do you see the growth of Islamic finance globally?
Badlisyah: It will still be in the double digit growth rate. While we had more than 20% growth year on year for quite a number of years previously, it will now be back to the teens because of the liquidity and credit crunch in the global market. Nevertheless, it will still be a double digit growth and is expected to continue without any slowdown because ultimately new interest shown by many jurisdictions to facilitate the investments and funds coming from many new countries will boost growth.
TMR : With so many other jurisdictions vying to be an Islamic finance hub, what advantage does Malaysia have over the rest?Badlisyah: We have more than 40 years of experience in doing the business. We have the most established legislative, regulatory and Shariah framework. We have put all the necessary infrastructure in place. As a result, we have all sorts of players in the market to spur the activities in the market. Years of existence in the market will result in a high level of awareness among consumers. We have the advantage of a very strong domestic market which would allow it to expand the platform to the international market without really much effort and this differentiates us from other markets.
TMR : Do we have the necessary expertise and skills to support the growth?
Badlisyah: Ever since Malaysia started Tabung Haji, after more than 40 years of developing and doing the business, we have a strong base of people with the necessary skills for all business segments including banking, takaful and the capital market of the Islamic finance industry. The scenario at this moment is that we have an acute shortage of people in the industry because all the relevant educational platforms to address the shortage have just recently been set up. It will take time before they can enter into the market. It's a shortage across the board that creates the core of the industry today. In CIMB, we are undertaking in house programmes to train them in Islamic banking and to be competent in the Islamic banking business. It is a good problem though, because it shows the industry is growing faster than we can cope with.
(This story appeared in The Malaysian Reserve on Nov 17, 2009. 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)
Britain Looks Forward To Partner With Malaysia In Islamic Finance
The British government is looking forward to partner with Malaysia in Islamic finance due to the country's success in the sector.
British Minister of Trade, Investments and Small Business, Lord Mervyn Davies, said as the world's top financial centre, London was keen to join hands with Kuala Lumpur as the two governments could generate more ideas and schemes together, reports Bernama (Nov 3, 2009).
"Hong Kong and Shangai Bank Corporation (HSBC), a globally famous bank, has moved its Islamic finance headquarters from the Middle East to Kuala Lumpur. This shows the confidence that the economy has in the Malaysian market," Davis said.
He said this at a press meet after his one-day official visit to Malaysia Tuesday. Also present was the British High Commissioner Boyd McCleary.
Davis said Malaysia has been included as one of the top 15 high growth markets as not only big companies are interested in Malaysia but also the United Kingdom's small and medium enterprises (SMEs).
"As the trade minister, I always encourage all our 4.8 million SMEs to invest and move further in countries with emerging markets like Malaysia," he said.
Davis also said that the halal industry in Malaysia has a great future in the UK as there is a demand for the industry there.
"All these efforts will be supported by liberalisation of the service sectors carried out by the government recently, which will encourage other foreign investors, especially financial companies, to extend their services in Malaysia," he said.
"This liberalisation will be also exciting as it will indirectly increase more foreign direct investments."
Total exports of goods and services from the UK to Malaysia was 1.64 billion pounds last year while total exports from Malaysia to the UK was 2.04 billion pounds.
Davis said the UK has good representation in all the emerging sectors in Malaysia, including education, Islamic finance, petroleum and retail.
He advised all sectors contributing to the economy to heed Prime Minister Datuk Seri Najib Tun Razak's suggestion to invest in parts of the economy which have huge potential to recover from the current economic downturn.
"This plan is very similar to what we have been doing in the UK for the past two years," he said. - Bernama
British Minister of Trade, Investments and Small Business, Lord Mervyn Davies, said as the world's top financial centre, London was keen to join hands with Kuala Lumpur as the two governments could generate more ideas and schemes together, reports Bernama (Nov 3, 2009).
"Hong Kong and Shangai Bank Corporation (HSBC), a globally famous bank, has moved its Islamic finance headquarters from the Middle East to Kuala Lumpur. This shows the confidence that the economy has in the Malaysian market," Davis said.
He said this at a press meet after his one-day official visit to Malaysia Tuesday. Also present was the British High Commissioner Boyd McCleary.
Davis said Malaysia has been included as one of the top 15 high growth markets as not only big companies are interested in Malaysia but also the United Kingdom's small and medium enterprises (SMEs).
"As the trade minister, I always encourage all our 4.8 million SMEs to invest and move further in countries with emerging markets like Malaysia," he said.
Davis also said that the halal industry in Malaysia has a great future in the UK as there is a demand for the industry there.
"All these efforts will be supported by liberalisation of the service sectors carried out by the government recently, which will encourage other foreign investors, especially financial companies, to extend their services in Malaysia," he said.
"This liberalisation will be also exciting as it will indirectly increase more foreign direct investments."
Total exports of goods and services from the UK to Malaysia was 1.64 billion pounds last year while total exports from Malaysia to the UK was 2.04 billion pounds.
Davis said the UK has good representation in all the emerging sectors in Malaysia, including education, Islamic finance, petroleum and retail.
He advised all sectors contributing to the economy to heed Prime Minister Datuk Seri Najib Tun Razak's suggestion to invest in parts of the economy which have huge potential to recover from the current economic downturn.
"This plan is very similar to what we have been doing in the UK for the past two years," he said. - Bernama
Russia: A Promising Market for Islamic Finance
Following the outbreak of the global financial crisis, the Russian market – in the same manner as other international markets – opened up to Islamic finance, and Vice-Speaker of the upper chamber of the [Russian] Federal Assembly called for effective ties to be established with the Islamic Banking system in order to allow Russia long-term access to Islamic financial resources, reports Asharq Al-Awsat, a pan-Arab daily newspaper,.
Torshen also did not rule out the Central Bank of Russia amending its rules to allow Islamic banks to open in Russia, despite admitting the disparity between the operational mechanism of Islamic finance and the Russian banking system. Russia's largest financial companies are seeking to take advantage of the [financial] liquidity of Islamic banking at a time when there is a lack of financial liquidity in the global financial system, the report said.
This is why FDP Capital, one of the leading financial companies in Russia, is seeking to introduce Islamic financial services in its operations in collaboration with the Liquidity Management House which is affiliated to the Kuwait Finance House, with memorandums of understanding being signed by the two parties to this effect, it added in the article entitled 'Russia: A Promising Market for Islamic Finance'.
Torshen also did not rule out the Central Bank of Russia amending its rules to allow Islamic banks to open in Russia, despite admitting the disparity between the operational mechanism of Islamic finance and the Russian banking system. Russia's largest financial companies are seeking to take advantage of the [financial] liquidity of Islamic banking at a time when there is a lack of financial liquidity in the global financial system, the report said.
This is why FDP Capital, one of the leading financial companies in Russia, is seeking to introduce Islamic financial services in its operations in collaboration with the Liquidity Management House which is affiliated to the Kuwait Finance House, with memorandums of understanding being signed by the two parties to this effect, it added in the article entitled 'Russia: A Promising Market for Islamic Finance'.
Thursday, November 19, 2009
BIMB ends negotiations on Syarikat Takaful stake sale
By Lee Cherng Wee
BIMB Holdings Bhd has ended talks to sell a strategic stake in Syarikat Takaful Malaysia Bhd to Abu Dhabi-Kuwait-Malaysia Strategic Investment Corporation (ADKM Investment).
In an announcement on Nov 16, BIMB said it received a letter from the corporation stating that due to the changes in the current economic conditions, circumstances are no longer conducive for it to continue to pursue the proposal.
The exit of ADKM Investment from the deal is the second time that BIMB has been rejected by a Middle East institution. Early last month, Dubai Financial Group LLC snubbed Bank Islam Malaysia Bhd's issue of Islamic convertible redeemable non-cumulative preference shares (Islamic CRNCPS) aimed at raising RM540 million.
According to Syarikat Takaful's annual report dated June 30, BIMB is the biggest shareholder with a 65.22% stake, followed by Islamic Development Bank with 4.3% and Employee Provident Funds with 3.83%.
On June 19, 2008, BIMB announced that it received approval from Bank Negara Malaysia to commence negotiations with ADKM Investment for the sale of a stake not exceeding 49% in Syarikat Takaful.
It was the second suitor for Syarikat Takaful as BIMB had earlier called off talks with Dubai-based Islamic Arab Insurance Co PJSC (Salama) in December 2008 because it viewed ADKM Investment as a better fit.
At the Bank Islam end, BIMB holds a 51% majority stake in the nation's first Islamic bank followed by Dubai Financial with 40% and Lembaga Tabung Haji with the remaining 9%.
Both BIMB and Tabung Haji have accepted the offer for thei r ent it lement s amounting to RM275.4 million and RM48.6 milllion respectively, raising the country's oldest Islamic bank total's tier-1 capital by an additional RM324 million.
Dubai Financial's portion of RM216 million was then taken up by BIMB and Tabung Haji on a pro-rated basis.
(This story appeared in The Malaysian Reserve on Nov 17, 2009. 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)
Indonesian Pension Fund to start Islamic Unit
PT Jaminan Sosial Tenaga Kerja, Indonesia’s state pension fund, said a joint venture with the Islamic Corporation for the Development of the Private Sector is expected to start operations next year.
The initial paid up capital of the joint-venture will be about 1 trillion rupiah (US$106.2 million [RM357.63 million]), with Jamsostek, as the fund is known, taking majority ownership, Hotbonar Sinaga, its president director, told reporters in Jakarta, reports Bloombergs (Nov 16, 2009).
The report said the company has submitted the proposal to Indonesia’s finance and state enterprise ministers.
It qouted Sinaga as saying: "The new unit is expected to be in operation at the earliest in the first quarter of next year."
Companies like Jamsostek aim to pull more investments from the Middle East to overtake Malaysia as the Asia-Pacific region’s Islamic finance hub, it added.
The Islamic Corporation for the Development of the Private Sector is the investment unit of Saudi Arabia’s Islamic Development Bank.
"The joint venture unit is expected to boost our investments," Sinaga said, without elaborating.
The report added the Jakarta-based pension fund manager plans to shift around 4 trillion rupiah of its funds from bank deposit to bonds to capitalise on the high yield in the corporate and government bonds, Sinaga said.
Jamsostek manages about 75 trillion rupiah of funds as end of August and is seeking to increase the amount to 80 trillion rupiah by the end of this year, Sinaga elaborated. Shariah law bans the payment and receipt of interest, prohibits investment in businesses related to gambling and alcohol, and stresses profit sharing.
The initial paid up capital of the joint-venture will be about 1 trillion rupiah (US$106.2 million [RM357.63 million]), with Jamsostek, as the fund is known, taking majority ownership, Hotbonar Sinaga, its president director, told reporters in Jakarta, reports Bloombergs (Nov 16, 2009).
The report said the company has submitted the proposal to Indonesia’s finance and state enterprise ministers.
It qouted Sinaga as saying: "The new unit is expected to be in operation at the earliest in the first quarter of next year."
Companies like Jamsostek aim to pull more investments from the Middle East to overtake Malaysia as the Asia-Pacific region’s Islamic finance hub, it added.
The Islamic Corporation for the Development of the Private Sector is the investment unit of Saudi Arabia’s Islamic Development Bank.
"The joint venture unit is expected to boost our investments," Sinaga said, without elaborating.
The report added the Jakarta-based pension fund manager plans to shift around 4 trillion rupiah of its funds from bank deposit to bonds to capitalise on the high yield in the corporate and government bonds, Sinaga said.
Jamsostek manages about 75 trillion rupiah of funds as end of August and is seeking to increase the amount to 80 trillion rupiah by the end of this year, Sinaga elaborated. Shariah law bans the payment and receipt of interest, prohibits investment in businesses related to gambling and alcohol, and stresses profit sharing.
Bank Islam targets initial fund size of RM100m for Ziyad NID-i
By T Vignesh
Bank Islam Malaysia Bhd expects a full take up within a month for its newly launched Ziyad NID-i, an investment product structured with an initial fund size of RM100 million, to take advantage of the recovery of Asia's equity markets.
Bank Islam's consumer banking division general manager Khairul Kamarudin (picture) said that this is the bank's second Islamic structured investment product, the first being launched last year.
The minimum investment amount for Ziyad NID-i is RM65,000 and subsequent investments are in multiples of RM5,000.
At the same time, Bank Islam is expecting to launch a deposit based product before the end of its financial year ending June 30, 2010, catered for retail consumers and corporate customers.
Khairul said Bank Islam is awaiting regulatory approvals.
On Ziyad NID-i, he said that it is designed for investors who hold the view that Asia's equity market will recover in the medium-to-long-term. Ziyad IND-i is a five year investment product in the form of Islamic negotiable instruments (INI) with a 100% capital protection upon maturity.
"The product has been structured to offer attractive return structure yet with conservative features to protect clients' interest.
"However, as the Asian economies continue to recover, the stock markets are also expected to perform well, thus providing potential higher yields for the fund," Khairul told reporters at the launch of the Ziyad NID-i product in Kuala Lumpur yesterday.
He said that investors may potentially enjoy a much better return than traditional fixed deposit rates.
Nevertheless, should the Asian economy deteriorate, it is anticipated that Ziyad NID-i investors should receive a minimum profit of 7.35% over the whole investment period or approximately 1.47% per annum if held to maturity. Khairul said that the fund is linked to a basket of stocks deemed to benefit from a massive stimulus plans undertaken by various Asian governments.
The stocks in the basket are China Mobile Ltd (China), CNOOC Ltd (China), Panasonic Corp (Japan), Canon Inc (Japan), BHP Billiton Ltd (Australia) and KKDI Corp (Japan). He said the six stocks chosen are constituents of the Dow Jones Islamic market Titans 100 Index, which consists of the world's largest 100 companies involved in Shariah-compliant businesses.
Khairul said that they were selected based on trading and liquidity considerations as well as analyst recommendations while conforming to geographical and sectoral diversification purpose along the lines of the Asian recovery theme.
In addition, these stocks will be monitored closely throughout the investment period to ensure no infringement of Shariah rules and principles. According to Securities Commission data as at June 30, 2009, four Islamic based funds were launched this year.
They are Am-Recovery Income-Capital Protected, CIMB Islamic Greater China Equity launched by CIMBPrincipal Asset Management Bhd, HwangDBS Aiiman Sukuk fund and AmanahRaya Islamic cash management.
(This story appeared in The Malaysian Reserve on Nov 17, 2009. 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 to invest RM1.5b in halal sector
CIMB Islamic Bank Bhd is prepared to invest RM1.5 billion in a move to help small and medium enterprises (SMEs) in the halal industry.
CIMB Islamic's chief executive officer Badlisyah Abdul Ghani said this was due to the proven success of the segment which started in late 2006 with a zero base.
"From zero base, we are now generating close to RM2 million. This is because of our aggressiveness in helping SMEs," he said. He was speaking to the reporters after launching the CIMB Islamic and Halal Industry Development Corporation (HDC) Financial Advisory Services Programme in Kuala Lumpur.
Also present was HDC's chief executive officer Datuk Seri Jamil Bidin. Asked about the sales target from the collaboration, Badlisyah said the partnership was an ongoing process and for the moment, no specific target had been set.
"But our indirect intention as a bank is to secure SMEs in the halal industry which are not our clients and supporting all the SMEs in the industry at large," he said.
Jamil said most Malaysians have the wrong impression that Malaysia is the number one player in the halal industry globally. Malaysia, he said, is only the leader in the certification and standard process.
"This does not contribute much to the nation's economy as the government wants the SMEs to be one of its key economy drivers, like their counterparts in neighbouring countries," he added. Jamil said the halal food global market is estimated worth US$635 billion (RM2.14 trillion) this year and this is expected to increase to US$642 billion next year. — Bernama
CIMB Islamic's chief executive officer Badlisyah Abdul Ghani said this was due to the proven success of the segment which started in late 2006 with a zero base.
"From zero base, we are now generating close to RM2 million. This is because of our aggressiveness in helping SMEs," he said. He was speaking to the reporters after launching the CIMB Islamic and Halal Industry Development Corporation (HDC) Financial Advisory Services Programme in Kuala Lumpur.
Also present was HDC's chief executive officer Datuk Seri Jamil Bidin. Asked about the sales target from the collaboration, Badlisyah said the partnership was an ongoing process and for the moment, no specific target had been set.
"But our indirect intention as a bank is to secure SMEs in the halal industry which are not our clients and supporting all the SMEs in the industry at large," he said.
Jamil said most Malaysians have the wrong impression that Malaysia is the number one player in the halal industry globally. Malaysia, he said, is only the leader in the certification and standard process.
"This does not contribute much to the nation's economy as the government wants the SMEs to be one of its key economy drivers, like their counterparts in neighbouring countries," he added. Jamil said the halal food global market is estimated worth US$635 billion (RM2.14 trillion) this year and this is expected to increase to US$642 billion next year. — Bernama
Takaful Malaysia to restructure Indonesian ops
By Alfean Hardy
Syarikat Takaful Malaysia Bhd (Takaful Malaysia), which has a general and family takaful presence in Indonesia, is looking to revamp its operations there into a leaner, fitter entity that could best be used to penetrate further into the takaful market in that country, its group managing director Datuk Mohamed Hassan Kamil said.
As of its financial year ended June 30, 2009 (FY09), the Islamic insurance firm holds a 56% stake in holding company PT Syarikat Takaful Indonesia, which in turn holds a 57.42% stake in PT Asuransi Takaful Keluarga and a 52.67% stake in PT Asuransi Umum that between them have more than 30 branches in Indonesia.
The company recently injected RM21 million directly into Ansuransi Takaful Keluarga, which meant it also has a stake in the life insurance operations of Syarikat Takaful Indonesia.
The Indonesian operations contributed about RM6.76 million in FY09.
Speaking to reporters after Takaful Malaysia's AGM in Kuala Lumpur yesterday, Mohamed Hassan said, "We're looking to restructure the holding company in Indonesia. We're in the midst of discussing with our other shareholders as to how we can make the structure leaner without having a holding company structure.
"We will still maintain a majority holding in the operating company because these are the money-generating companies," he added.
Mohamed Hassan said that, with the new strucuture in place, there would be some interest by other parties and Takaful Malaysia was looking to partner with local Indonesian banks that would be interested to take up equities in our takaful companies.
"We are looking and will be talking to local banks there," he said. "If I have a bank as a partner, I can leverage on their branches and distribute my products. That would be the most efficient way to reach out to all parts of Indonesia because setting up branches all across Indonesia can be quite costly due to the geographic spread of that country," he said.
The potential in Indonesia, Mohamed Hassan said, was something that Takaful Malaysia could not ignore.
"We believe that the current leader of the country will be able to grow the country rapidlly and economically forward. As a result, we feel that it's a country that we can't afford to ignore in terms of its potential for business," he added.
Mohamed Hassan said the other shareholders in the Indonesia operations had first right of refusal to take up any new shares or capital that it needed to raise there.
"We have about 12 different entities or individuals who hold shares and they will have preference, depending on their current shareholding amount," he said.
He said negotiations with the various shareholders was expected to begin by yearend and that Takaful Malaysia targeted to complete the exercise over the next 12 months.
(This story appeared in The Malaysian Reserve on Nov 13, 2009. 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)
Syarikat Takaful Malaysia Bhd (Takaful Malaysia), which has a general and family takaful presence in Indonesia, is looking to revamp its operations there into a leaner, fitter entity that could best be used to penetrate further into the takaful market in that country, its group managing director Datuk Mohamed Hassan Kamil said.
As of its financial year ended June 30, 2009 (FY09), the Islamic insurance firm holds a 56% stake in holding company PT Syarikat Takaful Indonesia, which in turn holds a 57.42% stake in PT Asuransi Takaful Keluarga and a 52.67% stake in PT Asuransi Umum that between them have more than 30 branches in Indonesia.
The company recently injected RM21 million directly into Ansuransi Takaful Keluarga, which meant it also has a stake in the life insurance operations of Syarikat Takaful Indonesia.
The Indonesian operations contributed about RM6.76 million in FY09.
Speaking to reporters after Takaful Malaysia's AGM in Kuala Lumpur yesterday, Mohamed Hassan said, "We're looking to restructure the holding company in Indonesia. We're in the midst of discussing with our other shareholders as to how we can make the structure leaner without having a holding company structure.
"We will still maintain a majority holding in the operating company because these are the money-generating companies," he added.
Mohamed Hassan said that, with the new strucuture in place, there would be some interest by other parties and Takaful Malaysia was looking to partner with local Indonesian banks that would be interested to take up equities in our takaful companies.
"We are looking and will be talking to local banks there," he said. "If I have a bank as a partner, I can leverage on their branches and distribute my products. That would be the most efficient way to reach out to all parts of Indonesia because setting up branches all across Indonesia can be quite costly due to the geographic spread of that country," he said.
The potential in Indonesia, Mohamed Hassan said, was something that Takaful Malaysia could not ignore.
"We believe that the current leader of the country will be able to grow the country rapidlly and economically forward. As a result, we feel that it's a country that we can't afford to ignore in terms of its potential for business," he added.
Mohamed Hassan said the other shareholders in the Indonesia operations had first right of refusal to take up any new shares or capital that it needed to raise there.
"We have about 12 different entities or individuals who hold shares and they will have preference, depending on their current shareholding amount," he said.
He said negotiations with the various shareholders was expected to begin by yearend and that Takaful Malaysia targeted to complete the exercise over the next 12 months.
(This story appeared in The Malaysian Reserve on Nov 13, 2009. 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)
Monday, November 16, 2009
Takaful Malaysia eyes initial Middle East foray
by Alfean Hardy
Syarikat Takaful Malaysia Bhd (Takaful Malaysia), which already has a presence in Indonesia, has been invited to provide technical support to a financial institution in the Middle East and is considering the move as a stepping stone into the West Asia region, its group managing director Datuk Mohamed Hassan Kamil said.
The company, which has recently undergone a RM15 million rebranding exercise as part of its 25th Anniversary, currently has about 34 branches in Indonesia and about 56 branches locally. Speaking to reporters after the ceremony to unveil its new brand in Kuala Lumpur yesterday, Mohamed Hassan said that Takaful Malaysia had been looking at the Middle East markets.
"We have been invited by a party in the Middle East, in Qatar, for us to provide technical support in terms of wanting to set up a takaful business," he said. "The Qatar player wants to start a takaful business, so where do they go and learn about takaful? We're the first and the oldest with the depth of knowledge and expertise that we have is much deeper than most other takaful operators," he added.
To a question on whether such partnerships and technical assistance was a way for Takaful Malaysia to make in-roads into the Middle East market, Mohamed Hassan said,
"Like the example I mentioned earlier, we were invited and we will of course bring along our Takaful Malaysia brand to the partner." "Will we make in-roads within the next six months or so? Hopefully within the next one year, I'd say," he added.
Asked if the Middle East market was the one where Takaful Malaysia would be venturing into, Mohamed Hassan said that the company would consider its choices, given market conditions in the various countries there.
"If you look at the market in the Middle East, like Dubai, for instance, it's quite saturated. There're a lot of companies there already," he said. "The growing areas are in Qatar or Abu Dhabi and those are places that we might be looking into, provided we have some partners on the ground who are willing to explore and expand in the business.
Are we looking for partners? Actually, they're looking for us," he added. Asked where else Takaful Malaysia was looking to make in-roads into, Mohamed Hassan said that, in terms of market potential, the most likely venue that it would look at was China and the Far East.
"We're waiting for the Islamic infrastructure to be put in place," he said.
"As you know, Islamic bonds or sukuks are gaining momentum and not just in the Middle East or in Islamic countries. I believe countries like China and Korea have also explored and even successfully raised some money using the Islamic bond concept. "So, with these financial instruments widely available in those countries, we feel that we will be able to leverage on the portfolio because, when you do business in China, for example, you need to invest the money into Shariah-compliant assets. So, we hope that there wi l l be mor e sukuk s launched or raised in those countries," he added.
(This story appeared in The Malaysian Reserve on Nov 11, 2009. 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)
Go East, local Islamic finance players urged
by Alfean Hardy
The Securities Commission (SC), which has inked an agreement with its Hong Kong counterpart to further develop the Islamic capital market and Islamic Collective Investment Schemes (CIS), is calling upon local players to take advantage of the new environment to tap into Hong Kong, China and global Islamic CIS opportunities, its chairman Tan Sri Zarinah Anwar said.
The mutual recognition agreement signed between the local regulator and the Securities and Futures Commission Hong Kong (HKSFC) allows for the fast-tracking approval for Malaysian based capital market intermediaries to offer their retail shariahcompliant funds in the East Asian financial hub and vice versa.
The deal will also see the two regulators working together to develop a common platform for cross-border offerings of Islamic CISs, collaborate in capacity building, and share information and experiences in the development and regulatory framework of Islamic CISs as well as the exchange of regulatory experience in relation to shariah principles.
In a welcoming address at the signing of the agreement in Kuala Lumpur yesterday, Zarinah said Hong Kong was one of Asia's most established international financial centres and could serve as a gateway for Islamic finance into China and other global financial centres.
"The agreement between (both parties) will allow local investment companies to be recognised by the HKSFC while Islamic funds from Malaysia will be deemed to have substantially complied with the Hong Kong code on unit trust (and) the same applies for Hong Kong investment management companies and Islamic funds to be offered in Malaysia.
"It's our hope that, with the signing of the agreement, both local and Hong Kongbased firms will quickly tap into the opportunities for cross-border distribution of Islamic funds," she added. Speaking to reporters later, Zarinah said the agreement would result in the diversification of Islamic finance products in both jurisdictions.
"Not only the products but the unit trust management companies will similarly (be) approved," she said.
"It's very important for our market players and intermediaries to take advantage of the regulatory bridges and alliances that have already been built between the SC and HKSFC. The regulators can only facilitate but the deal-making and issuance as well as distribution of products will have to be undertaken by our intermediaries and market players.
(This story appeared in The Malaysian Reserve on Nov 10, 2009. 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)
Hong Kong invites Islamic finance players to tap opportunities
Hong KONG is calling upon the local Islamic finance community to take advantage of a recently signed mutual cooperation arrangement between the regulatory bodies of both countries to venture into the special administrative region to tap into potential opportunities there and in China.
The Securities Commission (SC) and the Hong Kong Securities and Futures Commission (HKSFC) memorandum of understanding (MOU) would allow for the fast-tracking of local Islamic finance products into the Hong Kong market and viceversa.
In his remarks at the signing of the arrangement in Kuala Lumpur yesterday, HKSFC chairman Dr Eddy C Fong said Islamic finance was one of the initiatives that had been recognised by the Hong Kong government, which was looking to develop the special administrative region into an Islamic finance hub.
"The HKSFC would like to take this opportunity to encourage the Malaysian Islamic finance community to come to us and discuss with us any of their plans to market their Islamic collective investment schemes (CIS) in Hong Kong or use Hong Kong as the spring board to explore investment opportunities in the mainland," he added.
Fong said Hong Kong had already made considerable in-roads into Islamic finance with the authorisation of the first Islamic fund in November 2007 and the introduction of its first sukuk in March 2008 as well as, going forward, it has great potential to be a prominent platform for Islamic finance. "As an international financial centre, it has a deep pool of financial talents.
For the record, 175 international financial firms have chosen Hong Kong as their regional headquarters. (It's also) the gateway for overseas capital to invest in the region.
"Being part of China, Hong Kong plays an important role in the country's development. We're already capturing a steady stream of liquidity from the mainland whose investors are now able to invest overseas (and) we expect the inflow of mainland China's capital to show phenomenal growth in the coming years as mainland investors seek diversification in their investments and use Hong Kong as the platform.
"At the same time, Hong Kong also serves as the conduit for investment capital, including Islamic funds, to make investments within mainland China," he added.
In a separate opening remark, Hong Kong government Financial Services and Treasury Permanent Secretary Au King Chi said Hong Kong's uniqueness lies with its China proxy. She said the special administrative region was the preferred platform for mainland firms listing outside of China and was the only place to have a renminbi bond market.
"Hong Kong is well positioned to bridge the investment needs involving liquidity of the Middle East with the investment opportunities within China. Indeed, the potential requirement for capital in the mainland, especially infrastructure development projects, lend themselves well to shariah-compliant financial structures. This is the market niche that we're eyeing," she added. — by Alfean Hardy
(This story appeared in The Malaysian Reserve on Nov 10, 2009. 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)
The Securities Commission (SC) and the Hong Kong Securities and Futures Commission (HKSFC) memorandum of understanding (MOU) would allow for the fast-tracking of local Islamic finance products into the Hong Kong market and viceversa.
In his remarks at the signing of the arrangement in Kuala Lumpur yesterday, HKSFC chairman Dr Eddy C Fong said Islamic finance was one of the initiatives that had been recognised by the Hong Kong government, which was looking to develop the special administrative region into an Islamic finance hub.
"The HKSFC would like to take this opportunity to encourage the Malaysian Islamic finance community to come to us and discuss with us any of their plans to market their Islamic collective investment schemes (CIS) in Hong Kong or use Hong Kong as the spring board to explore investment opportunities in the mainland," he added.
Fong said Hong Kong had already made considerable in-roads into Islamic finance with the authorisation of the first Islamic fund in November 2007 and the introduction of its first sukuk in March 2008 as well as, going forward, it has great potential to be a prominent platform for Islamic finance. "As an international financial centre, it has a deep pool of financial talents.
For the record, 175 international financial firms have chosen Hong Kong as their regional headquarters. (It's also) the gateway for overseas capital to invest in the region.
"Being part of China, Hong Kong plays an important role in the country's development. We're already capturing a steady stream of liquidity from the mainland whose investors are now able to invest overseas (and) we expect the inflow of mainland China's capital to show phenomenal growth in the coming years as mainland investors seek diversification in their investments and use Hong Kong as the platform.
"At the same time, Hong Kong also serves as the conduit for investment capital, including Islamic funds, to make investments within mainland China," he added.
In a separate opening remark, Hong Kong government Financial Services and Treasury Permanent Secretary Au King Chi said Hong Kong's uniqueness lies with its China proxy. She said the special administrative region was the preferred platform for mainland firms listing outside of China and was the only place to have a renminbi bond market.
"Hong Kong is well positioned to bridge the investment needs involving liquidity of the Middle East with the investment opportunities within China. Indeed, the potential requirement for capital in the mainland, especially infrastructure development projects, lend themselves well to shariah-compliant financial structures. This is the market niche that we're eyeing," she added. — by Alfean Hardy
(This story appeared in The Malaysian Reserve on Nov 10, 2009. 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 sector must evolve’
by Alfean Hardy
The government has called upon the global takaful and retakaful sector, which has weathered the global financial crisis relatively well, to embrace pragmatism, new developments and to pursue non-traditional opportunities in order to ensure the growth of the industry, Deputy Finance Minister Datuk Dr Awang Adek Hussin said.
In a keynote and opening address at the 5th International Convention on Takaful and Retakaful (ICTR) in Kuala Lumpur yesterday, Awang Adek said, in spite of the vestiges of the financial tsunami and the global contraction in insurance premiums as of end-2008, interest in the takaful sector remained strong.
"This is driven by demand for its services and international insurers in search of new avenues for revenues and market diversification. Between 2004 and 2007, average annual growth rate of the industry was estimated at 25% compared to traditional insurance at 10.3% and I strongly believe that this trend will continue to be strong over the next few years," he added.
However, Awang Adek said that there were several essential aspects that the industry needed to take on-board in order to contribute towards the growth of a viable and orderly takaful industry.
"Firstly, there must be mutual recognition and acceptance of diversity in Shariah interpretations.
"Malaysia has upheld the view that diversity in Shariah thoughts in itself is a strength and catalyst for innovations rather than rest raint s. Progress must be made. Stagnation, skepticism, fault-finding cannot be allowed to rule the day to the point of inaction and condemnation towards other who want to progress.
"We have also adopted the stance that any rulings on Shariah relating to Islamic finance, if delivered by a recognised body or authority, will be accepted as a valid and accepted ruling.
"We hope that this mutual recognition concept will accelerate the expansion of Islamic thoughts in the area of Islamic banking and finance. If more countries are willing to adopt this stance, it would radically transform the way the industry is developing," he said.
Another step that needed to put the industry on a sustainable growth trajectory, Awang Adek said, was placing emphasis on applied research in the areas of Shariah with the view to enlarge the existing operating boundaries within the global Islamic financial sector.
"Much needs to be done in the area of Shariah-applied research on critical areas impacting on the industry, like solvency, governance and financial reporting. We also need to expand further the boundaries of our takaful industry and venture into new areas including non-traditional areas," he said. Awang Adek said two areas that the takaful sector could venture into were in the areas of medical and health coverage, and microtakaful.
PIX: Malaysian Takaful Association chairman Datuk Syed Moheeb Syed Kamarulzaman (right) and Awang Adek (2nd right) with participants at KLIFF 2009
(This story appeared in The Malaysian Reserve on Nov 6, 2009. 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)
MAA Takaful wins product award
MAA Takaful Bhd won the "Most Outstanding Takaful Product" for the MAA Takafulink product at the 6th KLIFF Islamic Finance Awards Ceremony 2009 held in Kuala Lumpur.
Winning the award is a significant achievement for MAA Takaful, being the youngest player in the takaful industry, the takaful operator said in a statement.
"We are glad to receive this award which is a result of the combined efforts of our dedicated staff and consultants who are instrumental in the development of takaful in Malaysia," said MAA Takaful chief executive officer En Salim Majid Zain.
He said it was the collaboration, co-operation and support of each one of them that has led us to the award.
"MAA Takaful has been and will always be at the forefront of Shariah-based innovations to accomplish our mission to enrich the lives of our customers through takaful solutions that provide peace of mind and solid financial security," he said. He also attributed the company's success to its choice of products as they are specifically designed to cater to current market needs. The award winning product, MAA Takafulink, was launched in July 2007. It is an investment-linked product, features complete and ideal takaful solutions to Malaysians who need takaful protection whilst enjoying the upside potential of the underlying investment. MAA Takafulink was also designed with the spirit of 1 Malaysia at heart and is well accepted by the public with more than 80,000 policies to date.
Winning the award is a significant achievement for MAA Takaful, being the youngest player in the takaful industry, the takaful operator said in a statement.
"We are glad to receive this award which is a result of the combined efforts of our dedicated staff and consultants who are instrumental in the development of takaful in Malaysia," said MAA Takaful chief executive officer En Salim Majid Zain.
He said it was the collaboration, co-operation and support of each one of them that has led us to the award.
"MAA Takaful has been and will always be at the forefront of Shariah-based innovations to accomplish our mission to enrich the lives of our customers through takaful solutions that provide peace of mind and solid financial security," he said. He also attributed the company's success to its choice of products as they are specifically designed to cater to current market needs. The award winning product, MAA Takafulink, was launched in July 2007. It is an investment-linked product, features complete and ideal takaful solutions to Malaysians who need takaful protection whilst enjoying the upside potential of the underlying investment. MAA Takafulink was also designed with the spirit of 1 Malaysia at heart and is well accepted by the public with more than 80,000 policies to date.
Al Rajhi Bank Malaysia targets RM6b in balance sheet items
Al Rajhi Bank Malaysia has target RM6 billion in balance sheets items this year, as compared to RM2 billion in 2007. Its chief executive officer Ahmed Rehman said the bank is aggressive on growth despite the challenges in the global economic environment.
"We will manage our growth carefully. Our key focus this year has been in executing a well thought thorough alternate banking channel strategy that covers ATMs, internet banking and mobile banking," he told reporters after the launch of Al Rajhi Bank's participation in the Malaysian Electronic Payment System or MEPS shared ATM network.
After three years of operations in Malaysia, Al Rajhi has become the first foreign bank to join the MEPS. Ahmed said the global economic crisis, has had some indirect impact on Al Rajhi's business, particulary in relation to markets that are directly exposed to the impact of the global economic meltdown.
He however said it does not affect Al Rajhi's expansion in Malaysia. As for next year, the bank is looking at opening up another four to five branches in Malaysia, subject to approval from the authorities. Al Rajhi Bank Malaysia has at present 19 branches and 17 offsite ATMs and is constantly looking at growing its customer reach.
According to Ahmed, the bank's participation in the MEPS will provide its customers with the convenience of making interbank cash withdrawals and balance inquiries at approximately 9,000 ATMs nationwide.
Meanwhile, the group managing director of MEPS, Mohd Suhail Amar Suresh said it is likely that two more foreign banks would join the MEPS next year.
"Kuwait Finance has in fact, already confirmed its participation while another foreign bank is in discusssions," Mohd Suhail said.
Mohd Suhail said the MEPS has registered more than 11 million ATMs transactions monthly. Mohd Suhail also expects more ATM transactions next year with the imposition of the RM50 annual service tax on credit cards as it will spur spending on cash.
Incorporated in 1997, MEPS is wholly-owned by local financial institutions and is the only interbank payment network service provider in Malaysia. The chairman of the MEPS Board of Directors, Datuk Seri Abdul Wahid Omar said from a regional point of view, the facility had also expanded the use of local ATM cards regionally.
This he explained, was done through the establishment of cross border links with counterparts in neighbouring countries namely, Indonesia, Thailand, Singapore and China.
"This allows Malaysian ATM cardholders travelling to these countries to withdraw cash at the ATM's of participating banks and vice versa at a more competitive transaction fee," he added.
Abdul Wahid said Al-Rajhi will also collaborate with MEPS to form strategic partnerships in the Gulf Cooperation Council (GCC) countries. "We are confident that MEPS and its member banks will soon be able to provide Malaysians travelling to the GCC countries, access to their funds via ATMs," he added. — Bernama
‘Islamic finance must strengthen to grow’
by Alfean Hardy
The Securities Commission sees the opportunities provided to the global Islamic financial sector as a result of the global financial crisis but necessary steps have to be taken by the industry if it is looking to become a viable alternative to its conventional financial counterpart, its managing director Datuk Dr Nik Ramlah Nik Mahmood said.
In her keynote presentation at the 6th Kuala Lumpur Islamic Finance Forum (KLIFF) in Kuala Lumpur yesterday, Nik Ramlah said that Islamic finance had been given the unique opportunity for renewal and universal acceptance given the levels of disenchantment with the current financial system.
"Islamic finance is shaping into a potential candidate to provide the system architecture that can constrain the excesses inherent in the current global financial model. Its rapid growth signifies that is has moved past the pioneering stage and established shahriah-compliant financing instruments as a commercially viable and effective tool for mobilising investment assets to finance productive economic activities," she said.
Nik Ramlah said that, in the light of these successes, it was only natural that gaps would appear and that these hurdles need to be continuously addressed. She said that the industry needed to be humble and take heed of the lessons brought about by the global financial crisis.
"No system is completely insulated from asset bubbles and contagion. In restrospect, the nature of the contracts and other Shariah-compliant requirements did provide Islamic finance some degree of insulation (but) we must ensure that there's a speedy and reliable dispute resolution process. "While the application of the Shariah alone is sufficient for ensuring that the form of transactions are compliant, issues could arise if the contracts under which they're structured don't address clearly the rights or obligations of parties," she added.
Nik Ramlah said the industry had placed great emphasis on transplanting substantive norms from the classical Shariah practices.
"It's also now evident that similar emphasis needs to be placed on ensuring sufficient interface with the process of developing new legal contracts to minimise the risk of unresolved issues. Conceptual clarity without legal certainty is clearly insufficient.
"We recognise how the Islamic financial system of the past had operated in an efficient,organised and ethical culture.
However, that implicit institutional arrangement that had developed and allowed the system to flourish were not formalised, conventions and practices were not codified, roles and responsibilities not clearly defined, and contracts were enforced through self-intellective discipline.
There were no stewards to sustain this arrangement for the longer term," she added. "In order for Islamic finance to respond to current global needs, the industry needed a renewal and tightening in its practices.
"History doesn't often offer the same people the same opportunity twice. However, we're fortunate and should not miss this opportunity to establish a strong regulatory and institutional foundation for more than just Islamic finance. We must learn from the past and continue to improve ourselves and our capabilities.
"The industry must also be prepared in totality to meet global needs in terms of documentation and dispute resolution. The legal and regulatory framework, particularly, need to be revisited to address cross-border issues and various other systemic risks," she concluded.
(This story appeared in The Malaysian Reserve on Nov 5, 2009. 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)
Organised tawarruq not a perfect structure, says cleric
Organised tawarruq as it is currently practised is not ideal from the Shariah's viewpoint, a Malaysian religious expert said on Monday, casting doubt on the use of the controversial Islamic financing structure, reports Reuters (Nov 4, 2009).
In its basic form, tawarruq is an asset sale to a purchaser with deferred payment terms. The purchaser then sells the asset to a third party to get funds. Organised tawarruq is similar although the transactions are executed through banks.
Organised tawarruq should avoid specifying beforehand the parties' obligations under the contract although this protects their legal rights, Shariah adviser Rusni Hassan said, backing a divisive Fiqh Academy ruling that had thrown the industry into turmoil, the report said.
"The one tawarruq that is not good is the one that is prearranged," Rusni, who advises HSBC Amanah Malaysia, told Reuters on the sidelines of a Shariah scholars conference. "(The objection is) because two contracts are in one, they should be independent," she said.
In its basic form, tawarruq is an asset sale to a purchaser with deferred payment terms. The purchaser then sells the asset to a third party to get funds. Organised tawarruq is similar although the transactions are executed through banks.
Organised tawarruq should avoid specifying beforehand the parties' obligations under the contract although this protects their legal rights, Shariah adviser Rusni Hassan said, backing a divisive Fiqh Academy ruling that had thrown the industry into turmoil, the report said.
"The one tawarruq that is not good is the one that is prearranged," Rusni, who advises HSBC Amanah Malaysia, told Reuters on the sidelines of a Shariah scholars conference. "(The objection is) because two contracts are in one, they should be independent," she said.
Wednesday, November 4, 2009
‘Fiqh Academy must make thorough study of issues’
By Habhajan Singh
The International Council of Fiqh Academy has to relook at its internal processes in coming out with pronouncements related to Islamic finance and other matters, said a much-sought after Shariah scholar.
In a blunt statement, Bahrain-born Shariah scholar Sheikh Nizam Yaquby said that the academy has to retain its past practice of a thorough and meticulous decision making process.
"My concern is not just the tawarruq fatwa of the Fiqh Academy. My concern is with the entire process by which the Fiqh Academy is going about now," he told The Malaysian Reserve yesterday.
In May, the academy made news within the Islamic finance fraternity when it slapped a ban on organised tawarruq, a decision which led to an initial spate of debate and discussion, but was eventually ignored by a majority of the market players. Tawarruq is a Shariah concept widely used in the Middle East, particularly for cash financing.
The contract began picking up steam in Malaysia in the last few years, with local Islamic banks using it to structure new products to make them acceptable beyond Malaysian shores. Tawarruq means purchasing a commodity on a deferred price, and later selling it to a third party with the objective of obtaining cash, according to a definition by Bank Negara Malaysia (BNM).
This is not the first time that Nizam had publicly expressed his disssatisfaction with the manner in which the Fiqh Academy went about the tawarruq fatwa which was announced after a five-day session which ended on April 30 in Sharjah, United Arab Emirates.
"If the Fiqh Academy wants to be respected, as it was, it has to go back to the due process that it used to do. To the due diligence on each sensitive matter, whether it was biomedicine, social, political or economics," he said.
It is not clear if the issue indicates potential tension between the Fiqh Academy and the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), a standard setting body for Islamic finance institutions based in Bahrain.
The Fiqh Academy, an initiative of the Organisation of Islamic Conferences (OIC), is an influential international Islamic organisation. In the Islamic finance fraternity, though, the organisation commanding wider respect is the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), a standard setting body for Islamic finance institutions based in Bahrain.
Nizam, who is attending the Kuala Lumpur Internat ional Islamic Finance (KLIFF) 2009 conference, which began with the Islamic finance Shariah scholars’ muzakarah, sits on the Shariah supervisory board of AAOIFI. Locally, he sits on the CIMB Islamic Bank Bhd’s Shariah committee.
Fiqh Academy Meeting Nizam, who sits on Shariah boards of more than 40 banks globally, was present at the Sharjah meeting.
It resolved that it is not permissible to execute both tawarruq (organised and reversed) because simultaneous transactions occur between the financier and the mustawriq, whether it is done explicitly or implicitly or based on common practice, in exchange for a financial obligation. This was done after the council reviewed research papers on tawarruq, its meaning and its type (classical applications and organised tawarruq), it had said.
Nizam viewed it differently, arguing that research on crucial matters, whether related to biotechnology, politics, social or Islamic finance, require time.
"If a research paper, written hastily and introduced one hour before the session, how can people read it? There were 17 papers on tawarruq presented to the Fiqh Academy.
"I have reviewed them now. Most of them say tawarruq is permissable. They are not against it. But there was no time to read and review it [during the session].
"Researchers were not even given time to explain. Those who wanted to discuss or debate the papers, they were not even given one minute each. "How can we reach a decision and bind the entire ummah, almost 1.5 billion people, on such a hasty decision?" he said.
He added that the Fiqh Academy used to convene specialised conferences on each subject, allowing experts to give their views and suggestions, before issuing any decree. When asked about AAOIFI, Nizam said its standards go through a rigorous research.
Elaborating the process, he said it begins with the preparation of a written research paper which is discussed at research committees. It is followed by a draft standard which goes to its 15-member Shariah council.
"They study it carefully. It then goes back to public hearing. Each standard takes two to three years. This is the right way to do research," he said.
(This story appeared in The Malaysian Reserve on Nov 3, 2009. 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)
AAOIFI rule seen with lasting impact on sukuk market
Asset-based sukuk mudaraba and musharaka will fall out of favour as it is hard to accommodate a ruling on repurchase pledges, a sharia expert said, indicating the market would be permanently affected by the decree, reports Reuters (Nov 3, 2009).
Bankers and lawyers have been seeking ways to structure bonds that comply with a 2008 ruling by industry body AAOIFI which forbids borrowers in sukuk mudaraba and musharaka from promising upfront to pay back their face value at maturity. This follows a rule that parties must share risks under these structures but the industry had been concerned it would make Islamic bonds less palatable to investors.
Issuance of sukuk musharaka and mudaraba fell 83 percent and 68 percent respectively last year, Moody's has said.
But bankers and lawyers had said it was too early to tell if the AAOIFI ruling would have a lasting impact on the $107 billion sukuk market as they tried to find ways to accommodate the prohibition, the report said.
Sharia adviser Mohd Daud Bakar said it would be tough to do so, with Reuters quoting him as saying: "It's very difficult because it goes against the very essence of mudaraba and musharaka because you cannot guarantee the capital in equity-based contracts."
Daud said the AAOIFI ruling has yet to be tested as recent sukuk issuance such as that by Malaysian state oil firm Petronas did not use the mudaraba and musharaka structures.
THE REPORT GOES ON:
Some lawyers have said sukuk mudaraba and musharaka can be structured to ensure that investors receive their capital at maturity through careful scrutiny of the assets used although this could be a difficult task. Daud said asset-backed sukuk mudaraba and musharaka would not face the same hurdle. "For asset-backed you are issuing sukuk to invite investors to invest in a particular asset which could give you a very steady income stream where there is no recourse to the originator," he said. Most sukuk have been structured as asset-based instruments, rather than asset-backed securitisation where investors have a claim on the specific underlying asset. AAOIFI's ruling would force the industry to innovate and find alternative sukuk structures, Daud said.
Bankers and lawyers have been seeking ways to structure bonds that comply with a 2008 ruling by industry body AAOIFI which forbids borrowers in sukuk mudaraba and musharaka from promising upfront to pay back their face value at maturity. This follows a rule that parties must share risks under these structures but the industry had been concerned it would make Islamic bonds less palatable to investors.
Issuance of sukuk musharaka and mudaraba fell 83 percent and 68 percent respectively last year, Moody's has said.
But bankers and lawyers had said it was too early to tell if the AAOIFI ruling would have a lasting impact on the $107 billion sukuk market as they tried to find ways to accommodate the prohibition, the report said.
Sharia adviser Mohd Daud Bakar said it would be tough to do so, with Reuters quoting him as saying: "It's very difficult because it goes against the very essence of mudaraba and musharaka because you cannot guarantee the capital in equity-based contracts."
Daud said the AAOIFI ruling has yet to be tested as recent sukuk issuance such as that by Malaysian state oil firm Petronas did not use the mudaraba and musharaka structures.
THE REPORT GOES ON:
Some lawyers have said sukuk mudaraba and musharaka can be structured to ensure that investors receive their capital at maturity through careful scrutiny of the assets used although this could be a difficult task. Daud said asset-backed sukuk mudaraba and musharaka would not face the same hurdle. "For asset-backed you are issuing sukuk to invite investors to invest in a particular asset which could give you a very steady income stream where there is no recourse to the originator," he said. Most sukuk have been structured as asset-based instruments, rather than asset-backed securitisation where investors have a claim on the specific underlying asset. AAOIFI's ruling would force the industry to innovate and find alternative sukuk structures, Daud said.
Islamic banking market share target of 20% close
By Lee Cherng Wee
Malaysia is close on the heels of meeting Bank Negara Malaysia's (BNM) target for Islamic banking assets to carve a 20% market share of the banking industry in 2010, after achieving 19% at end-June this year.
Prime Minister Datuk Seri Mohd Najib Razak said by the end of the second quarter this year, the Islamic financial service sector accounted for close to 19% of total banking assets.
"I believe Islamic finance is a strategically vital element of the world's recovery from a financial crisis that has shaken both our finances and our faith in banking institutions.
"With conventional financial institutions still reeling from huge losses, the fast growing sector of Islamic finance is attracting growing global attention," Mohd Najib said in his opening speech at the 6th Annual Kuala Lumpur Islamic Finance Forum in Kuala Lumpur yesterday.
In its Financial Sector Master Plan outlined in 2004, BNM targeted to grow Islamic banking assets to 20% of the total banking assets in the country by 2010.
Mohd Najib added that total Islamic financing of RM115 billion currently constitutes 15.5% of the total financing portfolio of the banking industry while net non-performing financing remains low at 2.4%.
"Malaysia's Islamic capital market reached RM803 billion as at end-August, representing 54% of Bursa Malaysia's market capitalisation," he said.
Sukuk, he added, has maintained its dominance in the Malaysian bond market, accounting for 58% of the total bond market, while the takaful sector saw a 19% growth in fund assets within the first half of this year.
On the Malaysian economy, Mohd Najib said the outlook for positive growth within the third quarter appears to be bright, following the slowdown in economic contraction to -3.9% in second quarter from -6.2% in the first quarter.
The government’s fiscal stimulus package totaling RM67 billion, representing almost 10% of gross domestic product, has helped the economy through a global recession and generated much-needed economic activity to make up for a slowdown in the private sector demand, he said.
(This story appeared in The Malaysian Reserve on Nov 4, 2009. 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 derivative contract seen by early 2010
The first template for over-the-counter Islamic derivative contract will be launched this year or early next, one of the institutions involved in its creation said. The contract is expected to pave the way for quicker and cheaper Islamic risk management and more frequent cross-currency transactions, reports Reuters (Nov 4, 2009).
The template had initially been expected to be launched early this year but Ijlal Ahmed Alvi, chief executive officer of the International Islamic Financial Market (IIFM), said there were issues to be ironed out.
"It's a completely new instrument. That's why we have to go through the whole exercise," Alvi told Reuters on the sidelines of an Islamic finance conference in Kuala Lumpur. "We have done the consultative work. Now what we are waiting for is the sharia meeting... some time in December," Alvi added.
Ijlal is attending the 6th Kuala Lumpur Islamic Finance Forum (KLIFF) organised by CERT.
In the report, Reuters said Islamic scholars at the meeting have to sign off on the contract before it can be launched. Scholars are split on the legitimacy of derivatives; some see them as permissible instruments to hedge risks but others dismiss them as speculative transactions, which Islam forbids.
The IIFM, an industry body backed by the central banks of several Muslim countries, has been working with the International Swaps and Derivatives Association (ISDA) on the contract. Once in place, the new Islamic derivatives contract is expected to initially attract at least 150 players, it added.
"We have huge demand, at least 150 institutions and many more are basically silent prospects," Alvi said.
The template had initially been expected to be launched early this year but Ijlal Ahmed Alvi, chief executive officer of the International Islamic Financial Market (IIFM), said there were issues to be ironed out.
"It's a completely new instrument. That's why we have to go through the whole exercise," Alvi told Reuters on the sidelines of an Islamic finance conference in Kuala Lumpur. "We have done the consultative work. Now what we are waiting for is the sharia meeting... some time in December," Alvi added.
Ijlal is attending the 6th Kuala Lumpur Islamic Finance Forum (KLIFF) organised by CERT.
In the report, Reuters said Islamic scholars at the meeting have to sign off on the contract before it can be launched. Scholars are split on the legitimacy of derivatives; some see them as permissible instruments to hedge risks but others dismiss them as speculative transactions, which Islam forbids.
The IIFM, an industry body backed by the central banks of several Muslim countries, has been working with the International Swaps and Derivatives Association (ISDA) on the contract. Once in place, the new Islamic derivatives contract is expected to initially attract at least 150 players, it added.
"We have huge demand, at least 150 institutions and many more are basically silent prospects," Alvi said.
Maybank interested in partnering Bank Asya, but rules out equity participation
By Lee Cherng Wee
Malayan Banking Bhd (Maybank) has expressed interest to collaborate with Turkey's Bank Asya but has ruled out any equity participation.
"We are open to collaboration in terms of products. Collaboration does not have to be in the form of equity. It is not our intention to look at any equity investment in Turkey.
"Our focus remains within South-East Asia and South Asia, to some extent," president/CEO Datuk Seri Abdul Wahid Omar told reporters at the 6th Annual Kuala Lumpur Islamic Finance Forum yesterday.
On Monday, Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah said Bank Asya has expressed its intention to form ties with Malaysian banks in order to establish its Islamic banking sector, particularly with Maybank and CIMB.
"We will get in touch with the minister's office to find out a bit more. Turkey is a large economy. The size of the Turkish economy is US$750 billion (RM2.57 trillion), which is half of the Asean economy," said Abdul Wahid.
Abdul Wahid added that Maybank's possible collaboration with Bank Asya could be in the form of trade financing.
"We are not looking at expanding into Turkey but it's more along the lines of encouraging trade. We are looking into trade finance opportunit ie s ava i l able for Malaysian companies doing business with their Turkish counterparts," he said.
"We are looking at how we can help Malaysian companies in making more investments and trade with Turkish entities. "We have seen MAHB develop the airport in Turkey, thus we hope Malaysian companies will do more business here," said Abdul Wahid.
(This story appeared in The Malaysian Reserve on Nov 4, 2009. 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 to double assets by end-2009
By Jason Ng
CIMB Islamic Bank Bhd, the Islamic banking arm of CIMB Group Holdings Bhd, expects to double its total assets by this year-end from RM18.65 billion recorded at the end of 2008. Such a 'big growth' is not new, as CIMB Islamic's assets have grown 87% in 2007 and 107.5% in 2008, according to its CEO Badlisyah Abdul Ghani, anticipating the same rate by the end of this year as the division grew locally and internationally.
"We expect the same pace this year as the momentum focus now, thanks to the problems within conventional banking, resulting in the demand for Islamic banking facilities," he told The Malaysian Reserve in an interview recently.
The Islamic finance industry which is estimated to be worth more than US$1 trillion (RM3.41 trillion) is presently mainly dominated by the issuance of sukuk, or Islamic bonds.
CIMB Islamic is the world's top arranger presently commanding one-fifth of the market share in terms of the issuance amount. CIMB Islamic anticipates that it would surpass the US$2.6 billion worth of deals arranged in 2008 by this year end.
"(We have) several more exciting deals in the pipeline (to be concluded) before the year's end," Badlisyah said.
He declined to name the clients CIMB Islamic is talking to. CIMB Islamic has already secured 62 deals worth US$2.3 billion as of August 2009, according to the Bloomberg Global Sukuk Lead Manager League Table.
With Islamic law forbidding elements of interest (riba) paid by conventional bonds, sukuk are asset-based securities generating profit to be distributed to investors.
The industry itself is expected to grow at a double digit rate globally and plough through without a slowdown, Badlisyah said, as new interest from new jurisdictions vying for a share of the Islamic finance would propel the industry ahead. On the local front, government incentives in the form of a 20% stamp duty exemption from all Islamic transactions pushed consumers to demand for Islamic finance spur r ing new growth, Badlisyah said.
"Since every player in the market is spending money on marketing material, consumers are bombarded by marketing material, creating an awareness for Islamic finance within the market over the last few years. "The cumulative effect from the marketing exercise from the last two years is creating an impact now for the growth of CIMB Islamic's business," he said.
(This story appeared in The Malaysian Reserve on Nov 2, 2009. 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)
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