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)

HK plans tax rule changes to spur sukuk market

Hong Kong plans to change its tax rules to spur the development of an Islamic bond market in the city, the government's financial services chief said.
"We want to signal to the market that we are ready. The administration is putting in place tax neutrality measures to facilitate the development of Islamic finance," said Secretary for Financial Services and the Treasury, K C Chan at a conference in Hong Kong, reports Bloomberg.
The government is consulting with bankers and investors on required changes, Chan said, without giving a time frame for the regulatory revisions.
Hong Kong Chief Executive Donald Tsang in 2007 pledged to develop Hong Kong as a hub for Islamic finance, vying with rivals including Singapore and Japan for Muslim wealth, the report said.
Global sales of Islamic bonds, known as sukuk, soared 72% to US$31 billion (RM111.53 billion) in 2007 as Asian export earnings and Arab oil wealth boosted investor demand for the securities, according to data compiled by Bloomberg. Sales plunged to US$13.6 billion last year as the global credit crisis curbed appetite for all but the safest debt, the data show.
Sukuk are based on assets and pay a profit rate to investors instead of interest, which is banned by Shariah law, the report added.
In another repot, Dow Jones noted that Chan said the global financial crisis will slow the planned development of an Islamic bond market in the city, but said the government remains committed to the plan. "Given the contagious effects of the global financial crisis, it seems unavoidable that Islamic finance would slow its pace of development in the near term," Chan said at a forum in Hong Kong on Islamic finance.
"This notwithstanding, our commitment and confidence in developing Islamic finance remain strong," it qouted him as saying. Chan said the government is putting in place measures to address the tax disadvantages related to the issuance and transactions of Islamic bonds, or sukuk, to facilitate the development of Islamic finance in Hong Kong.
Dow Jones said Chan didn't elaborate, but the Financial Services and the Treasury Bureau said last year it planned to make Islamic bonds exempt from profits tax. Hong Kong doesn't impose tax on interest payments, but charges tax for profits earned, which would put Islamic bonds at a disadvantage, it added.

(This story appeared in The Malaysian Reserve on Feb 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)

Airport Authority HK revives Islamic bond plan

Airport Authority Hong Kong, which runs Asia's third-busiest airfield, is reviving plans to sell Islamic bonds after the global credit crisis battered investors and curbed demand for Shariah compliant debt, reports Bloomberg.
"Unfortunately we were held back by market conditions," Treasurer Sam Kwok said at a conference in Hong Kong on Feb 18. "We are looking at embarking on another round of expansion and we will be needing some money. We hope to do something in this arena as soon as possible."
The report added that the authority planned to sell as much as US$1 billion of Islamic bonds with help from Citigroup Inc and HSBC Holdings Plc in Hong Kong's first sale of the securities, known as sukuk, the South China Morning Post reported in June.

Hong Kong tax laws come under review

By Habhajan Singh
A review of tax laws is currently underway in Hong Kong to facilitate the launch of more Shariah-compliant products and put in place a level playing field for sukuk vis-a-vis conventional bonds, said a top executive.
"Islamic finance is a natural extension of our role as a global financial centre. We possess the necessary credentials, such as a transparent regulatory regime, a sound financial infrastructure and a large pool of professionals to make it work," said Hong Kong chief executive Donald Tsang at the opening of the Asian Financial Forum on Monday.
In a copy of his speech received in Kuala Lumpur, the Hong Kong leader noted that Islamic finance is an "exciting area for us" and it is making good progress in establishing a platform for Islamic finance. The financial jurisdiction has made known its intention to become an international hub for the fast-growing sector, joining the likes of Kuala Lumpur, Dubai and Singapore.
Apart from tax related issues, an international Islamic finance conference in Kuala Lumpur last November highlighted the fact that there is concern in Hong Kong in relation to the cost of retaining a Shariah scholar and also the cost of a regular compliance.
Amirali Nasir, a Hong Kong based lawyer who took part in the Second Global Islamic Finance Conference (GIFC) 2008, had said that another jurisprudence challenge facing the sector in Hong Kong is the perception that Shariah is a single code, which is interpreted and accepted consistently by all Muslims.
Delegates are confused when they hear about the various schools of law and the varying interpretations applied, the lawyer added.
In his latest speech, Tsang said his trip to the Middle East last year "to help promote Hong Kong's potential for Shariahcompliant products" has brought about a number of results, including the signing of an agreement with the Dubai International Financial Centre (DIFC) Authority and the Dubai Financial Services Authority (DFSA).
He added that Hong Kong has also seen the launch of a variety of Islamic financial products, such as the Islamic banking window and indexes, with an exchangeable sukuk now already listed on the local stock market.
(This story appeared in The Malaysian Reserve on Jan 19, 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)

GIFC08: Costs weigh on Hong Kong’s bid to be Islamic finance hub

By Habhajan Singh
There is concern in Hong Kong on the cost of retaining a Shariah scholar and also the cost of regular compliance, an international Islamic finance conference was told.
This was listed as one of the challenges facing the advance of Islamic finance in Hong Kong, a jurisdcition that has made known its intention to become an international hub for the fast-growing sector.
Amirali Nasir, a Hong Kong based lawyer, said another jurisprudence challenge facing the sector in Hong Kong is the perception that Shariah is a single code, which is interpreted and accepted consistently by all Muslims.
"Delegates are confused when they hear about the various schools of law and the varying interpretations applied," he told the Second Global Islamic Finance Conference (GIFC) 2008 in Kuala Lumpur last week.
The two-day conference, organised by GlobalPro Consulting Sdn Bhd in affiliation with the Institute of Bankers Malaysia (IBBM), was opened by Minister in the Prime Minister's Department Datuk Seri Dr Ahmad Zahid Hamidi. The Malaysian Reserve was the event's media partner.
Amirali also highlighted that there is a strong belief that many corporations go out "Shariah scholar shopping". This is refers to Islamic financial institutions looking for Shariah scholars whom they deem would interpret the Shariah favourably to their aims and objectives, though many corporations in the past have found that this may not be the case, as there are certain underlying Shariah principles which are sacrosant.
Amirali also said Hong Kong lacks legal advisors and auditors familiar with Islamic finance. "There is concern that legal advisors who are advising are simply mimicking conventional documentations with adjustments for restrictions," he said.
In a presentation on derivatives, Bursa Malaysia Bhd's Norfadelizan Abd Rahman noted that as long as the principles of Islamic commercial law are well observed, the possibility of allowing derivatives is highly anticipated. For the time being, it is noted that modern jurists have come out with various derivatives instruments and the decisions on their "Islamicity" varies from one jurisdiction to another.
"However, it must be stressed that more and more efforts are needed in advancing some other financial products that are needed for the smooth running of modern Islamic banking and finance, especially in the area of financing engineering, where financial derivatives can be used to manage risk," said Norfadelizan, who heads product development at Bursa Malaysia's Islamic capital market department.
Derivatives are instruments generally used for hedging, speculation and investment. Though Islamic laws view derivatives as sometimes inevitable, she said the decision whether a particular derivative product is Shariah-compliant or otherwise depends largely on various issues, including its purpose, contract used and settlement mechanism. (By Habhajan Singh, The Malaysian Reserve, Nov 3, 2008, Page 32)