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)

Call to review interest in court judgements

By Habhajan Singh
The provision for High Court judges to grant interest upon judgment needs to be looked into as far as Islamic finance is concerned, a former senior Malaysian judge told an international conference. Interest is highly frowned upon in Islamic law as it is deemed to be riba, an element considered haram in Islam.
In Malaysia, the Rules of Court allows the court to make an order of interest of up to 8% from the date of judgment until the date of full payment. This also involves Islamic finance, banking and takaful cases adjudicated by the same set of courts as with conventional banking and insurance matters.
"This provision was made long before the existence of Islamic banking in Malaysia. It was meant for all judgments. No amendment has been made until today, for application to Islamic banking cases," said former chief of justice Tun Abdul Hamid Mohamad when presenting a paper at the Islamic Financial Services Industry Legal Forum 2009.
The two-day forum, which ended on Sept 29, was organised by the International Financial Services board (IFSB), the Kuala Lumpur-based international standard-setting body. IFSB aims to promote and enhance the soundness and stability of the Islamic financial services industry by issuing global prudential standards and guiding principles for the industry, broadly defined to include banking, capital markets and insurance sectors. Abdul Hamid was a speaker at one of the session together with Taylor Wessing UAE partner Hasan Rizvi and UK’s Bird & Bird partner Dr Charles Proctor. It was chaired by Roberta Calares who is Dubai Financial Services Authority’s (DFSA) legislative counsel and director in policy and legal services division.

Discussing the issue, Abdul Hamid recollected that at a seminar four or five years ago, a bank officer complained that the civil court was giving interest in Islamic banking cases.
"My reply was: If you don’t want it, don’t ask for it. Don’t blame the court for giving it when you ask for it. The rules allow the court to give it, you ask for it, on what ground is the court going to refuse it?"
"But, that is not the problem, really. The real problem is this: so long as the provision is there, when the court makes an order, it is in the form of interest, which is prohibited. "If it is not asked for or is refused by the court, it may encourage the judgment debtor to delay payment of Islamic banking or a takaful judgment sum, because whether he pays it now or ten years later, he still pays the same amount," he said in his paper entitled
"Interlink/interface between civil law system and Shariah rules and principles and effective dispute resolution mechanism’.
He noted that on May 26, 2005, and Aug 24, 2006, the Shariah Advisory Council (SAC) of Bank Negara Malaysia (BNM) had made a ruling that it is permissible for the Islamic banking institutions to get an order of compensation of up to 8% of the judgment sum.
However, it may only take for itself an amount equivalent to the actual loss, which is calculated based on the annual average for overnight weighted rate of the Islamic money market of the preceding year. The rest should be given to charity.
"This should be made a rule of court. After all, the Central Bank of Malaysia Act 2009 has now formally recognised the dual financial system that Malaysia has been having over 40 years. It’s about time that other laws and procedures follow suit," he said. On another matter, Abdul Hamid noted that there is no effective alternative dispute resolution mechanism for Islamic banking, Islamic finance and takaful cases in Malaysia, but the civil court system remains relevant.
"But, I do not think that it really matters. I think that the present system is workable under the present circumstances and within the ambit of the existing constitutional provisions. "In fact, in my view, the civil court system remains relevant, indeed irreplaceable.
"This is more so, when we consider the various remedies that only the civil court can offer to enforce the judgments, e.g, bankruptcy, winding-up, order for sale and others. Civil court judges are familiar in this area of laws," he said.
He also said that he does not see the necessity to call for the amendment of the Constitution, "another popular response but, quite often, without really understanding the problems to be solved and what solutions to offer".

(This story appeared in The Malaysian Reserve on Oct 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)

SC streamlines registration of Shariah advisers

The Securities Commission Malaysia (SC) has issued the Registration of Shariah Advisers Guidelines (Guidelines) which will make it easier for individuals and corporations providing advise on Islamic capital market products and services.
The guidelines will take effect on Aug 10, 2009.
Under the Guidelines, Shariah advisers can now, through a single registration, provide advice on all Shariah-based products and services regulated by the SC.
Prior to this, Shariah advisers have to register separately for each products and services based on the respective guidelines. The guidelines will supersede the various provisions on the eligibility and registration criteria outlined in other SC guidelines covering various Islamic products and services. They include guidelines of Unit Trust Funds and guidelines on the Offering of Islamic Securities.
The guidelines, among others, stipulate the criteria and procedures for registration and renewal, matters pertaining to registration and de-registration and continual professional development. (The Malaysian Reserve, Aug 11, 2009, p9)

Aussie Maddock: Malaysia as bridge between Gulf, Australia

By Habhajan Singh
As an Islamic financial hub, Malaysia is best placed to act as a bridge between the capital in the Gulf and the financing opportunities in Australia, said Shahriar Mofakhami, a partner with Australian legal firm Maddocks. Shahriar, who was appointed a partner with the Maddocks Tax & Revenue team in July, was one of the members during a recent Australian trade delegation to Malaysia.
Australian minister for trade Simon Crean and his Malaysian counterpart, along with representatives of large domestic Australian banks and Malaysia's investment banks, Bank Negara Malaysia (BNM) and Malaysian Securities Commission (SC), met in Kuala Lumpur on Oct 7, to explore opportunities to expand Australia's financial services trade, the legal firm said in a statement.
It added that Shahriar and Tina Savona from Maddocks Tax & Revenue group were invited to attend the 14th Australia-Malaysia joint trade committee meeting as part of the Australian delegation. At the request of the Australian government, Shahriar presented on Shariah compliant investment and financing structures for investment in Australia alongside representatives of the Kuwait Finance House (Australia) and the Muslim Community Cooperative (Australia) Ltd, it said.
In a recent article, The Australian Financial Review reported that the combination of the crisis in credit markets and the vast oil-fuelled wealth being accumulated in the Middle East has Maddocks sensing an opportunity — creating investment structures compliant with rules of Islamic finance. In its statement, Maddocks said with a strong background in structuring crossborder (inbound and outbound) transactions, Shahriar has established a dedicated Islamic finance practice at the legal firm.
"In essence, Islamic finance is a trade-based mode of financing. In the course of advising on particular transactions, our views were sought in relation to structuring Shariah compliant investment platforms within the existing 'conventional' Australian financing and tax framework.
"This provided us with an opportunity for in depth consideration as to how Shariahcompliant financing structures can fit within the existing legal framework in Australia," said Shahriar.
Although still relatively uncommon in Australia, the firm said the global Islamic finance industry has recently shown significant growth and maturity in Europe, Asia and the Middle East.
In March 2008, it was reported that pure Islamic banks, along with Islamic subsidiaries and "windows"' of conventional banks, controlled close to US$400 billion (RM1.41 trillion) in assets globally compared with US$100 billion in assets in 2000.
With an estimated global worth in the hundreds of billions of dollars and an anticipated growth rate of 15%-25% per annum over the next five years, global assets managed according to Islamic (Shariah) principles are tipped to exceed US$1 trillion, according to Boston Consulting Group, April 2008 data.
A major factor in the Islamic financing boom has been the high price of oil leading to increased wealth in the Gulf Cooperation Council states and Iran, among others. This has in turn resulted in an increase in the number of Islamic institutions seeking specialist financial products.
Maddocks Islamic Finance advises both onshore and offshore Islamic financial institutions in relation to structured finance, institutional transactions as well as retail Shariah compliant financial products, it said.
(By Habhajan Singh, The Malaysian Reserve, Oct 20, 2008, Page 32)