TMR: BNM SAC given 90-day deadline to revert

By Habhajan Singh

Bank Negara Malaysia (BNM) has given itself a 90-day deadline to revert to the courts or arbitrators when asked to provide Shariah advice on Islamic financial matters.



This is mentioned in the recently published manual for courts and arbitrators on how to refer to the Shariah Advisory Council in Islamic Finance (SAC) of the central bank which is available on the BNM website.



In the document dated Feb 10, the SAC takes note its task was only to ascertain the Islamic law relating to issues raised by the courts or the arbitrators.



“The SAC does not have the jurisdiction to make findings of fact or to apply a law on the facts and make a decision, whether on a certain issue or for the case at hand because those matters are within the jurisdiction of the court or arbitrator,” it says.



This is in line with the Central Bank ofMalaysia Act 2009. Section 51 (1) of the act states the central bank ‘may establish a Shariah Advisory Council on Islamic Finance which shall be the authority for the ascertainment of Islamic law for the purposes of Islamic financial business’.



One of the functions of the SAC is, as per Section 52 (1), to ’ascertain the Islamic law on any financial matter and issue a ruling upon reference made to it’.



The recent manual lays out the processes for referral from the courts of law or abitration as provided under Section 56 of the same act.



Section 56 (1) states: ‘Wherein any proceedings relating to Islamic financial business before any court or arbitrator any question arises concerning a Shariah matter, the court or the arbitrator, as the case may be, shall — (a) take into consideration any published rulings of the Shariah Advisory Council; or (b) refer such question to the Shariah Advisory Council for its ruling’.



The manual says when referring a Shariah matter to the SAC, the court or the arbitrator is first required to refer to its published decisions.

They can also contact the SAC secretariat on their initial enquries or to get further information on the earlier decisions.



The manual also provides guidance as to the kind of matters that can be referred to the SAC.



It states, in point No 5, that only Shariah-related matters arising in a court proceeding related to Islamic finance business should be referred to the SAC.



In the next point, the document deals with what constitutes Shariah, falling back to a definition decided at the SAC meeting on Oct 19, 2011. It states: “Questions on Islamic law for matters related to Islamic finance that involves subjects that have or have yet to be ruled on by the SAC. Those questions include, but are not limited to, Islamic finance business aspects like business structure, products or services, implementation or operations, terms and conditions or documentation.”



The above is a translation of the original document which is in Malay, with the English version yet to be published.



On the effects of the Shariah rulings, Section 57 of the same act above states that SAC rulings made in reference of the courts or the arbitrators ‘shall be binding on the Islamic financial institutions’.

[THE MALAYSIAN RESERVE, 31 March 2014]

Pakistan tightens rules on Islamic banking windows

Pakistan's central bank has issued new rules for the operation of Islamic banking windows, aiming to strengthen their role in the world's second-most populous Muslim nation, reports Reuters (28 March 2014).

The new requirements come at a time when Pakistan is stepping up efforts to develop Islamic finance, prompting several banks to expand their operations in the sector.

 Bank will have to obtain written approval from the State Bank of Pakistan before opening each Islamic window, as well as providing the regulator with additional details on staffing, training and marketing arrangements, the report adds.

THE REPORT GOES ON:

Islamic windows allow conventional lenders to offer Islamic financial services, provided client money is segregated from the rest of the bank.

As of December, Pakistan's full-fledged Islamic banks had a combined network of 767 branches while conventional banks had 441 Islamic branches and 96 sub-branches, the central bank said.

Different approaches to the Islamic window format have emerged over the years: In Oman windows are allowed only through standalone branches, while in 2011 Qatar banned Islamic windows outright.

The rules could help consumers better distinguish Islamic financial products from conventional ones, improving the industry's perception and overall uptake.

Regulators in Pakistan hope to expand the industry's branch network and bring Islamic banking' s market share to 15 percent of the system by 2018.

As of December, Islamic banks held assets worth 1 trillion rupees ($10 billion), a 21.1 percent increase from a year earlier and representing 11.2 percent of total banking assets.

Some conventional lenders are also opting to convert their operations into full-fledged Islamic banks.

Last week, the majority shareholder of Karachi-based Faysal Bank said it would convert the bank into a full-fledged Islamic unit in the next two to three years.

Last year, Summit Bank said it would convert itself into a full-fledged Islamic bank over a three- to five-year period. It opened its first Islamic banking branch earlier this month. 

Bank of Korea joins Islamic finance body IFSB

South Korea's central bank has joined the Islamic Financial Services Board (IFSB), one of the main standard-setting bodies for Islamic finance, as regulators across Asia build closer ties to the growing industry, reports Reuters (28 March 2014).

Guidelines issued by the Kuala Lumpur-based IFSB are gaining prominence as the industry takes a greater share of the banking sector in several majority-Muslim countries and expands into new markets.

The Bank of Korea is the 59th regulatory body to join the IFSB, bringing total membership to 184, joining the likes of the central banks of Luxembourg and Japan and the monetary authorities of Hong Kong and Singapore.

The move could augur stronger links between South Korea and Islamic finance hubs in southeast Asia, the report added.

SEE IFB STATEMENT HERE.

THE REPORT GOES ON:

South Korea's Export-Import Bank of Korea already has a bond programme in Malaysia that can issue Islamic bonds, or sukuk, although it has yet to tap the market.

This week, Hong Kong lawmakers passed a bill that will allow the AAA-rated government to raise around $500 million via sukuk, or Islamic bonds.

In a separate statement, the IFSB also adopted a revised guideline on the supervision of Islamic finance institutions, helping tighten regulatory oversight of industry practices.

The latest update complements stricter Basel rules, agreed globally to make banks safer after the 2007-09 credit crisis.

In the past two years, the IFSB has issued separate guidelines on liquidity risk management, stress testing and capital adequacy.

TMR: New rulings on Islamic banking raise concern

 

By Habhajan Singh

Islamic banks and takaful operators in Malaysia are now in the middle of its largest product migration to comply with a new set of legislation passed last year, with some quarters fearing there may be a flight of capital to the conventional banking side.

There is concern on the ground that some customers may return to conventional banking products if they are not comfortable with the new products to be released by the Islamic banks to comply with the requirements of the Islamic Financial Services Act (IFSA) 2013 [pdf version here].

A key focus for Islamic bankers at the moment is Bank Negara Malaysia’s (BNM) “restrictive” proposed guidelines for Shariah contracts used to structure savings, the mainstay of banks as they pool savings from customers and mobilise them for other productive purposes.

The specific concern, according to Islamic bankers who spoke to The Malaysian Reserve, is the ability for the banks to pay hibah, or gift, to holders of savings accounts structured under the Shariah principle of wadiah (custodian).

“The industry is still exploring the various options. Some changes to the proposed guidelines are required.

We will have to wait and see how this pans out. Until then, there is no real solution for the savings products,” said HSBC Amanah Malaysia Bhd CEO Rafe Haneef (picture).

Without the ability to pay hibah, the savings accounts may no longer be attractive to customers, unlike the savings accounts on the conventional side which promises them a certain amount of return.

CIMB Islamic Bank Bhd CEO Badlisyah Abdul Ghani said Shariah allows for the giving of gifts at the full discretion of the bank including under wadiah.

“Gifts are made by all Islamic banks in charity works, for staff welfares, for customer loyalty and for many other things. Wadiah with deposit customers is just one of many areas that we provide gifts or hibah.

“We are working with the regulator on the new exposure draft on wadiah and hibah to ensure that, for wadiah deposit products, they still function as they do now,” he said.

“Wadiah has been there for many years and has proven to be the best structure for an Islamic savings product. There will be enhancements to it, but I don’t think the hibah framework will be disallowed.”

Wadiah contract is a mechanism that enables a person to entrust his asset to another person for the purpose of safe keeping, according to the BNM ShariahResolution in Islamic Finance (2nd edition, 2010).

As a reward and token of appreciation for the utilisation of the deposit, the Islamic banking institution, at its discretion, may give hibah to the customer, it added. However, that may see some changes under a new draft exposure and its related guidelines now under review.

The central bank may provide some clarity on the issue when it releases the BNM Annual Report for 2013, scheduled for Wednesday.

On the fears of capital flight to the conventional side, industry sources acknowledge that there was a possibility, but do not expect it to be an issue of major concern. “If replacement of products is in place, then there should be no concern (for capital flight),” said Badlisyah.

It is understood that the central bank is also keeping an eye on the possibility of the capital flight, either among Islamic banks itself, or between the Islamic banking and the conventional banking systems, as Islamic banks start introducing their new products.

“At the moment, there is nothing significant,” said an industry source.

Under the leadership of BNM governor Tan Sri Dr Zeti Akhtar Aziz, the central bank has pushed forward for some major changes in the regulatory landscape of the nation’s financial system.

Aside from IFSA, the other major legislation is the introduction of the Financial Services Act 2013. Earlier, Parliament had also passed the Central Bank of Malaysia Act 2009, which had instituted some significant regulatory changes to the Islamic finance landscape in the country.

Shariah experts in the field of Islamic finance attest to the major changes that are happening, especially with the advent of the IFSA.

“It’s a big shift from what it was to what it’s going to be,” said Dr Mohamad Akram Laldin, the ED of International Shariah Research Academy for Islamic Finance, which was set up by BNM six years ago. He said investment products, for example, are going to behave differently from how it was in the past.

“Take mudarabah products. In the past, such investment products come with a guarantee on the capital. In future, under IFSA, that will no longer be the case. Capital will no longer be guaranteed. Investors must be willing to take the risk that they may lose their capital,” he said.

[THE MALAYSIAN RESERVE, 17 March 2014]

TMR: Widening scope for Shariah-compliant financial tools

By Kazi Mahmood

The Islamic banking sector has enlarged its scope of business, covering a wider range of commercial needs for working capital and trade financing among others, said a report published by the Malaysian International Islamic Financial Centre (MIFC).

“Shariah-compliant financial solutions now range from working capital, trade financing, re-financing and capital expenditure needs as well as the household and the retail sector,” the report entitled "Shariah compliance in all matters, the priority of a robust Islamic finance ecosystem" said.

The report indicated the retail sector is well covered with Islamic financing products that meet their asset financing needs, such as home financing or car financing, personal financial and other retail liquidity needs.

In addition, the government and government-related entities have been actively tapping into the Islamic finance sector to raise funds to support their fiscal, revenue and infrastructure expenditures, it said.

The report offered an insight on the progress of the Islamic banking and financial sector in Malaysia in 2013.

As at the end of 2013, Malaysia’s Islamic banking sector held over US$130 billion (RM98.34 billion) in assets and the country has the largest and most liquid sukuk market with amounts outstanding over US$158 billion.

The sukuk market in Malaysia represents over 58% of the global sukuk outstanding.

Furthermore, Malaysia also has the largest Islamic funds sector (in terms of number of funds domiciled) with over US$16.3 billion of assets under management while it has the second-largest takaful market with total gross contributions estimated at over US$2.2 billion.

The Malaysian Islamic finance sector also provides lucrative investment opportunities to investors globally seeking healthy and ethical returns and over the years, the sector has attracted substantial inflows of funds from global investors, particularly from the Middle East.

Since the inception of the Islamic finance industry in Malaysia three decades ago, the country has successfully embarked on a number of strategies and initiatives to develop the industry.
Among these include the robust and sound development of a comprehensive Islamic finance ecosystem that guide the country’s
Islamic financial institutions in effectively managing the Shariah compliance of the operations.

“These have been critical in substantially attracting Islamic finance business in the country from both domestic and global stakeholders,” the report indicated.

To date, Malaysia has the world’s most progressive Islamic finance marketplace, leveraging on the country’s long track record of over 30 years of experience in building a successful domestic Islamic financial industry, the MIFC said in the report published in late February 2014.

“Rapid liberalisation in the Islamic finance industry, coupled with facultative business environment have encouraged foreign financial institutions to make Malaysia their destination of choice to conduct Islamic banking business,” the report added.

[THE MALAYSIAN RESERVE, 17 March 2014]

TMR: Takaful Ikhlas targets 10% rise in policy holders

By P Vijian

Takaful Ikhlas Sdn Bhd expects its certificate holders’ base to expand by nearly 10% this financial year, from 1.8 million to two million.

Its president/CEO Abdul Latiff Abu Bakar (left in photo above) said the company’s products, both general and family takaful schemes, are well received by Malaysians, prompting the company to target good growth this year in terms of revenue and policy holders.

“We will be able to touch the two million mark this financial year and we are also expecting a very good financial result. We will surpass last year’s numbers in terms of gross revenue,” Abdul Latiff told the media in Kuala Lumpur last Friday.

The company recorded RM747 million in revenue in 2013.

Currently, Takaful Ikhlas which is the Islamic insurance unit of MRRB Holdings Bhd, has seen its market share touched 12% based on gross contribution and ranked third among the 12 companies in Malaysia. It is behind market leaders Etiqa Takaful Bhd and Prudential BSN Takaful Bhd.

Last year Takaful Ikhlas launched three new products — Ikhlas Capital Investment- Linked Takaful Plus, Ikhlas Premier Investment-Linked Takaful Plus and Ikhlas “ChoicePlus” Individual Medical Rider. The company offers 83 products in Malaysia.

For the fourth consecutive year, Takaful Ikhlas was awarded “The Best Takaful House” by Euromoney, a monthly business and finance magazine. The award ceremony was held in London in February.

Regional head for Asia Marcus H Langston said Malaysia’s Takaful Ikhlas is setting growth pace in Islamic finance industry.

“They are pushing new innovations and cross-border tie ups. There is a large growth potential….There is no close competition against Malaysia in the Asia region, particularly in terms of innovation,” Langston said after he presented the award to Latiff at the company’s headquarters.

[THE MALAYSIAN RESERVE, 11 March 2014]

REUTERS: Dubai Islamic Bank eyes Kenya, Indonesia for expansion

Dubai Islamic Bank plans to expand its operations into Indonesia, Kenya and other African countries as it emerges from a period of consolidation, the bank's chief executive said. The emirate's largest sharia-compliant lender, which currently makes some 95 percent of its revenue within the United Arab Emirates, says it is entering a growth phase domestically and internationally, reports Reuters (13 March 2014).

"We are exploring opportunities in Indonesia, Kenya and surrounding countries in Africa, the Indian subcontinent and the GCC (Gulf Cooperation Council)," Adnan Chilwan (photo, courtesy of DIB) told the newswire. "We could acquire, set up a JV, establish a finance company or start a greenfield operation as long as we keep management control and operate under our brand."

THE REPORT ADDS:

Chilwan, who was promoted to CEO in July last year, described Africa as virgin territory for Islamic finance. In Kenya, most estimates put the number of Muslims at only about 15 percent of the population of 40 million, but the financial regulator is preparing a ten-year capital markets development strategy that includes Islamic finance.

"Both consumer and wholesale opportunities are there, especially in the countries we are targeting and while the initial investments are not too intensive, the returns are extremely decent and more than acceptable in our line of work," Chilwan said, without giving details of his plans for Africa.

TMR: Sumitomo Mitsui starts Islamic finance in Malaysia

By Sathish Govind

Sumitomo Mitsui Banking Corp (SMBC) said its wholly owned subsidiary Sumitomo Mitsui Corp Malaysia Bhd will dispense Islamic financial services as part of the initiative to strengthen SMBC’s operations in the Asia-Pacific region.

The ability of SMBC Malaysia to offer Islamic finance services in Malaysia, the key market in Asian Islamic finance, will translate into better services to meet client needs, contributing to the development of the financial markets in Malaysia, the bank said in a statement issued on Tuesday.

With the approval from Malaysian authorities on Feb 10, 2014, secured, SMBC Malaysia became the second entity in the SMBC group to offer Islamic finance services. The first was Sumitomo Mitsui Banking Corp Europe Ltd, the bank said.

SMBC Malaysia’s total assets as at Dec 31, 2013, stood at RM3.33 billion. The bank recorded pretax profit of RM23.5 million for the nine months ended Dec 31, 2013.

The bank said it foresees the growth of the Malaysian banking industry to remain stable for the coming years. For the financial year ending March 31, 2014, the bank will continue to offer basic commercial banking services such as loan, deposit, foreign-exchange, derivatives and cash management services to both Japanese and non-Japanese clients.

Total assets at Dec 31, 2013, stood at RM3.33 million, RM743.4 million higher compared to March 31, 2013.

Loans, advances and financing recorded an increase of RM275.8 million, followed by increases in deposits and placements with banks and other financial institutions of RM261.1 million, and cash and short term funds at RM206.4 million.

The Islamic finance market is continuing to expand mainly driven by the high economic growth of Muslim states, particularly in Malaysia which launched International Islamic Finance Centre Initiative in August 2006 and is playing a leading role in the development of Asian Islamic finance market as a major business hub.

[THE MALAYSIAN RESERVE, 13 March 2014]

PAKISTAN: Govt committed to nurturing Islamic finance

Federal Minister for Finance Mohammad Ishaq Dar said the government believed in the supremacy and utility of Islamic finance for inclusive development and socio-economic well-being of the masses, reports Pakistan newspaper Daily Times.

“We are fully committed and determined to nurture the Islamic finance industry on sound foundations”, he said while addressing the inauguration ceremony of second Global Forum on Islamic Finance at Lahore campus of COMSATS Institute of Information and Technology.

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Dar said a steering committee on promotion of Islamic banking had been formed with representation from all key stakeholders for formulating a comprehensive framework to address challenges and hurdles, which were adversely affecting the growth momentum of industry. 

The committee would also suggest a roadmap and timeframe for progression of various phases of the Islamic banking in the country, he said and added that the government had also formed a steering committee on Qarz-e-Hasna. 

“The government is, thus, fully committed to facilitate and nurture development of Islamic finance industry on sound footings through an enabling policy and regulatory environment,” he added.

Ishaq Dar said the efforts of this Forum in disseminating scholarship on Islamic economic system to cope with the current financial challenges were admirable. 

He hoped that the Centre of Islamic Finance would perform research, impart training and strengthen the syllabi of Islamic finance and, thus, play an instrumental role in bridging the gap between academia and industry.  

He said the Islamic finance industry constituted over 10 percent of the country’s financial system and maintained strong growth momentum, but it, however, was below the huge potential. 

“We are a country of over 180 million people, predominantly Muslims, with a significantly large population excluded from the financial system due to, among others, faith sensitivities of the masses; a large agricultural base which meets its financial services needs largely from informal players as only 20 percent of the farmers have access to the formal financial system; and just 5 to 6 percent of SMEs having access to bank financing,” added the minister.

He said the country’s banking system had taken the initiative to develop financial instruments, in keeping with the spirit of the Islamic economic system. 

He said Islam provided a complete code of conduct and gave solutions for all spheres of life. “Adherence to Shariah principles will not only help us in achieving financial system stability and broad-based welfare of the masses, but will also help us in pleasing Allah,” he added. 

Australian Centre for Islamic Finance sets up sharia advisory board

The Australian Centre for Islamic Finance (AUSCIF) has set up an advisory board to help local businesses conduct sharia-compliant transactions, including developing financing options such as Islamic bonds, the centre's director told Reuters (4 March 2014).

The three-member board is the latest sign the industry is making headway despite Australia's lack of regulation catering to Islamic finance, which follows religious principles such as bans on interest and pure monetary speculation, according to the newswire.

The centre's sharia board members might not have the global name recognition as some of their Gulf-based peers, but familiarity with Australian law would appeal to local firms, said Almir Colan, director of the centre, an education and training body.

"We need people who will be able to apply classical fiqh (Islamic jurisprudence) principles within a modern context - the increased complexity of financial products and commercial transactions needs specialists," the newswire quotes him.

AusCIF aims to facilitate knowledge transfer and thought leadership within the Islamic financial sector and raise the awareness of Islamic finance in Australia by developing comprehensive and educational programs and research capabilities, according to information on its website.