Experts: Islamic funds more resilient during financial crisis

By Sathish Govind



The financial crisis has proven the Islamic fund management industry to be far more resilient and much safer for investors then its conventional counterpart due to the lack of exposure to conventional banks, director of Amanie Advisors Sdn Bhd, a leading firm specialising in Islamic Solutions, Baiza Bain told The Malaysian Reserve recently.??



“As a result during the global financial crisis, almost all Islamic funds outperformed their conventional counterpart which in itself is proof of its sound investment practice,” Baiza said.??He added that the crisis thus has attracted more Muslims and non-Muslims into the industry which now understand the hazards of the conventional financial system.??


Chief executive officer and executive director of Asian Islamic Management Sdn Bhd, Akmal Hassan agrees and adds that there is sufficient proof that Islamic fund management had shown to be far more resilient especially during the financial crisis.??


“As an example, the fund size of Hwang AIIMAN Growth Fund (AGF), a fund launched by Hwang Investment Management Bhd has grown from RM36.128 million in the year 2007 to RM88.32 million as at Jan 31, 2012” “AGF has been consistent in declaring income distributions since its inception on October 2002 and has also proven to be a sound option for investors seeking capital growth and those who have remained since inception have seen capital growth of 244.63%,” Akmal said.??

Akmal further adds that there will be exponential growth in the sector especially in the next few years due to an increasing number of high net growth individuals around the world and growing interest from developing and emerging economies.??

“Countries such a as Japan, South Korea, Brunei, Indonesia, Australia, Singapore are countries that are looking to expand their offerings, create more value and push for greater transparency from Islamic sources, he added.??


At present globally, the Islamic fund management assets represent 4.5% of the total Islamic finance assets. The total estimated assets under management is US$60 billion (RM183 billion). Rate of the industry growth for the past decade has been estimated at 15% per annum.??Enumerating some of the differences and advantages of Islamic fund management compared to the conventional system, Akmal said the Shariah-compliant investments allow for profit sharing through prearranged agreement in sharing risk and returns and prohibits the payment or acceptance of interest fees.??Akmal added that Islamic fund management offers greater transparency, lower risks to promote stability and meets the ethical and faith based needs??


On some of the challenges facing the industry, Baiza said that for the industry to grow at a faster rate there is a need of standardisation of the Islamic fund management industry on a global scale as it is now fragmented and focused on a few countries.??


On some of the trends in the industry, Akmal said that he foresees more Islamic investment players entering the local market as it is gaining reputation as an Islamic financial hub in the Asean region.??He added this will translate into more diverse and sophisticated Shariah-compliant funds being developed here and exported to the Middle East and emerging regions due to the growing affluence of these nations that calls for better need for wealth management of product and services.??

The Securities Commission (SC) had said that under the Capital Masterplan 2, the size of the Malaysian Islamic capital market is projected to expand at an average 10.6% per annum over the next 10 years to RM2.9 trillion by 2020.??The SC added that 2011 continued to be a good year for the Islamic capital market globally, especially the sukuk segment. The total value of sukuk issued globally in 2011 amounted to US$92 billion, representing a 68% increase, year-on-year.??



Malaysia remains at the forefront of the sukuk market, accounting for 73% or US$67 billion of the total sukuk issued.??Malaysia is also the domicile for 68% of the US$210 billion total sukuk outstanding globally as at end-2011.



(The Malaysian Reserve, 19 March 2012)

StanChart Saadiq sees Islamic banking penetration up 3%

By Mohd Rashdan Jamaludin

Standard Chartered Group’s (StanChart) Islamic banking arm Standard Chartered Saadiq Bhd sees the penetration rate of Islamic banking in Malaysia to rise 3% to 25% this year, parallel to the global trend.

StanChart global head of Islamic banking Wasim Saifi said Islamic banking is growing rapidly in the international financial markets, and the bank sees the same applies in Malaysia. Without disclosing specifics, Wasim said there are several push factors, among which include the perception that Islamic banking has gotten sophisticated by well-discerned banking customers. He added that Islamic banking has become simpler and widely accessible.

“Islamic banking also projects stability to both Muslims and non-Muslims alike,” he said. “We see ample opportunities to help our customers and potential customers worldwide do the switch from conventional banking. The fact that Islamic banking asset represents only 1% of the global conventional banking’s, there is vast growth potential, especially with over one billion Muslims worldwide,” he told The Malaysian Reserve in a recent interview.

Indonesia, for example, has the most Muslim population and yet, its Islamic banking penetration rate was still 3%, he said, quoting Pakistan as another populous Muslim nation with only 9% patronising Islamic finance. “We will definitely see growth momentum in the next two to three years,” said Wasim, adding that the StanChart Saadiq is looking to spread its wings to the African continent.

For Malaysia, StanChart sees the progress made in policy framework, comprehensive regulations and product diversification has encouraged the acceptance of and switch to Islamic banking locally. To meet the increasing demand, StanChart is looking at opening up more Saadiq branches, with eight in sight in the near term.

According to its website, StanChart claimed to be the first international bank in Malaysia to offer Islamic banking products in 1992, with its Saadiq arm officially launched in 2008. StanChart has footprints in over 70 countries.

(The Malaysian Reserve, 09 January 2012)

Saturna targets RM31.3b fund with M’sia as its finance hub

[A BLASTY FROM THE RECENT PAST]

By Farah Saad

With Malaysia chosen as its global Islamic finance hub, US-based Islamic investment management company Saturna Capital Corp plans to raise a fund of US$10 billion (about RM31.3 billion) by 2015 via its local unit Saturna Sdn Bhd.
This is more than twice the size of the US$3.5 billion it has right now, but Saturna believes that given the current economic climate, the target is achievable.



Saturna Sdn Bhd director of Islamic Investing and deputy portfolio manager Monem Salam sees a shift in direction of the world’s funds, with capital moving away from the more traditional markets of the Middle East, the US and Europe, to a fast-growing Asia, and Malaysia will be in the middle of it all.



“The problems that are happening in the West right now are all systemic, they are not going to be resolved overnight. With Europe and the US having problems, the Middle East being too volatile, the only place for the money to flow to is Asia,” he told The Malaysian Reserve.



In 2003, Saturna group’s fund size stood at US$40 million, in 2008 that figure bloomed to US$1.4 billion, and as for 2011, the fund size stands at US$3.5 billion.

 Salam said Saturna chose Malaysia to be its global Islamic finance hub because of its experience in Islamic finance, its available manpower, and the government’s support in the form of initiatives.



Malaysia’s location and close proximity to other countries in the Asia-Pacific region also made it an attractive location, he added.

Salam also said he is just as excited about Indonesia’s prospects as well, and has singled out the country as South-East Asia’s economy to watch.



“Population-wise, it is roughly the same size as the US. Then you take into consideration a growing middle class, as well as the growing number of people moving up from middle to upper-middle, and upper-middle to wealthy. That is a huge, huge market,” said Salam.

 Saturna recently secured a mandate from an Australian company, which will be managed from its offices in Kuala Lumpur.

Saturna Capital, established in Bellingham, Washington, in 1989, claims to be the world’s second oldest Shariah income fund.



In 2010, the company bought Alpha Asset Management Sdn Bhd, and within two months converted all its investments to Islamic funds, while retaining its mainly non-Muslim clientele.

In June 2010, the company was granted an Islamic fund management licence by the Securities Commission.
 


“The way that Saturna is run is a little different. Normally you would have conventional funds, run them through an Islamic filter to remove all the ‘sin stocks’ to get the Shariah-compliant fund, but what we do is that research is done first on an Islamic basis, then we build the fund from the bottom up. So far, the returns are proven, and Islamic funds have consistently outperformed conventional ones,” said Salam.



Islamic finance has grown by leaps and bounds over the past few years. Prior to 2008, Islamic finance was merely “an interesting thought”.

 “Now the challenge becomes growing assets and going up the economic ladder,” he said.



Islamic finance has expanded so much, that more often than not, there are new funds being launched promising innovation.



“The industry tends to focus on ‘what’s new’, so you get all these new products in the market when what the client really wants is a simple investment product that works,” Salam said.

(The Malaysian Reserve, 04 December 2011)

France’s First Sukuk Hampered by Debt Crisis

Jan. 25 (Bloomberg) -- France’s efforts to sell the nation’s first Islamic bonds and attract Shariah investors from the oil-rich Persian Gulf are being hindered by Europe’s debt crisis as borrowing costs rise.

The euro region’s second-biggest economy, which put in place the legal framework to allow banks and other private issuers to sell Islamic bonds in 2009, had its top AAA credit rating cut by Standard & Poor’s on Jan. 13 on concern policy makers are failing to address the effects of the debt crisis. Yields on two-year French government notes have climbed 10 basis points since the one-step reduction, according to data compiled by Bloomberg.

“Just because the legal framework is in place doesn’t mean the economic and financial situation is conducive to an issuance of sukuk in France,” Jawad Ali, the Dubai-based global deputy head of the Islamic finance practice at law firm King & Spalding, said in a Jan. 19 interview. “Investors aren’t looking at Europe and saying there are a lot of opportunities. They are looking at Europe and saying there is a lot of uncertainty.”

The cost to protect France’s debt from default is almost twice that of Germany, the largest economy in the euro area and the only one to retain a stable outlook on its AAA status from, S&P.

[By Khalid Qayum and Dana El Baltaji, Bloomberg]

Fitch:Sukuk demand still outweighs supply

Jan 23 - Fitch Ratings says plans by sovereigns outside the Middle East and other largely Islamic regions to tap the sukuk market could meet pent-up demand from Islamic institutional investors and banks to diversify their bond holdings, making the sukuk market a useful source of additional funding over time.

The opportunity to buy shariah-compliant debt from investment grade sovereigns that have not yet tapped the market would be likely to generate strong investor appetite.

Supply has got off to a strong start in 2012, with the General Authority for Civil Aviation of Saudi Arabia bringing a government-guaranteed deal that could pave the way for more issuance from the Kingdom, including the sovereign.

Issuers from outside the Islamic world could contribute more eventually to the increase in supply as they diversify their investor base. Sovereigns would be well placed to tap demand, as they are unlikely to have to struggle to find assets that qualify to back shariah-compliant bond issuance. Savings in the oil-exporting countries of the Middle East will continue to grow at current oil prices, supporting greater demand from investors.

South Africa invited banks to pitch for a government sukuk advisory and structuring mandate in December. Bloomberg reported in mid-January that Ireland, which is due to return to the bond market in 2013 under the terms of its EU/IMF assistance package, is considering sukuk issuance.

Sukuk supply from sovereigns outside the Middle East and South-East Asia would be a much-anticipated development. In 2004, the German state of Saxony-Anhalt issued EUR100mn sukuk, and in 2009, France amended its civil code to develop Islamic finance. Anticipated issuance from France, the UK and Luxembourg has not materialized.

The sukuk market is growing rapidly. 2011 issuance was USD84.4bn, a 62% increase on 2010, according to Zawya Sukuk Monitor. But supply is still overwhelmingly from Muslim countries or countries with a Muslim majority population. Malaysian issuers accounted for more than half of 2011's supply by volume. Between them, issuers in Malaysia, Qatar, the UAE, Indonesia and Saudi Arabia provided more than 90%.

Despite the strong year-on-year increase in supply, the sukuk market remains a fraction of the size of the global bond market. The lack of a standardized deal structure has constrained growth, which has not kept pace with demand from Islamic institutional investors and banks.

CIMB Islamic appoints Habibah as director

CIMB announced the appointment of Habibah Abdul as independent non-executive director of CIMB Islamic Bank Bhd effective Jan 19, 2012. Habibah was previously the group partner of the audit and business advisory division in Ernst & Young.

HeiTech Padu to replace BSN core banking system

PHOTO CAPTION: HI-TECH BANKING SYSTEM: ICT solutions provider HeiTech Padu Bhd has won a RM63.6m bid to provide a replacement core banking system for government-owned Bank Simpanan Nasional Bhd (BSN). (From left) BSN general manager/chief executive Datuk Adinan Maning, Secretary General of Treasury Tan Sri Dr Wan Abd Aziz Wan Abdullah and HeiTech executive director Safiee Mohammad at the signing ceremony in Kuala Lumpur (pic: Ismail Che Rus)

ICT solutions provider HeiTech Padu Bhd has won a RM63.6 million bid to provide a replacement core banking system for government-owned Bank Simpanan Nasional Bhd (BSN).

The deal will see HeiTech Padu and its partners BML Istisharat Sdn Bhd and Juris Technologies Sdn Bhd undertake the delivery of the core banking and loans origination and collections systems for both the conventional and Islamic banking products as well as their services.

BSN chief executive officer Adinan Maning said it took the bank two years to decide which company to award the contract to, as it was a "difficult" decision.

The change, however, was deemed necessary as the current system in use by the bank was slow in getting products to market, compared to other banks.

"Hopefully in two and a half years' time, maximum, we will be able to have a system that will help us to be very efficient and improve our service level," he told reporters after the signing ceremony in Kuala Lumpur yesterday.

The total amount invested collectively is approximately RM100 million, said HeiTech group CEO Harris Ismail.

The systems will be implemented in all BSN branches nationwide over a period of 24 months and will include a Shariah-compliant module.

Harris said the contributions from the deal would make up approximately 10% of HeiTech's revenue for the current financial year.

"We don't expect to make a profit from this as we consider it to be part of our national service," he said.

Harris said HeiTech expects the system and module to contribute positively to the company's future earnings once the intellectual property patent is obtained, as the system could be implemented in takaful and insurance.

For now, however, the deal with BSN is exclusive, he said.


[By Farah Saad, The Malaysian Reserve; Jan 18, 2012]