TMR: London now a key Islamic finance centre

By Kazi Mahmood

London has emerged as the key Western centre for Islamic finance, acting as the leading financial centre with specific provisions made to spearhead the sector with the British government support, UK minister Greg Clark said.

During his recent visit to Malaysia, Clark who is also the financial secretary to the Treasury of the UK, said it could not be denied that Islamic finance played a role Malaysia’s changing skyline, saying London will also see the same.

“We have seen how the skyline of Kuala Lumpur has changed in recent years, and Islamic finance played a role in this but what is little known by travellers to London is how the recent developments there were also touched by the sector,” Clark said.

It is important for us to learn from this country in terms of what’s being done here in the Islamic finance sector,” he said.

Clark said Islamic finance assets in London is today estimated at £19 billion (RM96.9 billion), and that is why the UK is willing to develop the sector even further.

UK also offers a secondary sukuk market which is today valued at US$5 billion (RM16 billion).

We have taken some efforts as the UK government to remove, for example, some of the dual taxation policies and extend tax reliefs to the Islamic finance sector, Clark said in an interview during the recent Kuala Lumpur Islamic Finance Forum.

“London has 20 international banks and they are offering Islamic financial services. Six of these are fully Shariah-compliant,” the minister said, adding that the UK’s largest accountancy firms have a Shariah expert providing advice to UK and international financiers on Islamic finance.

London’s interest in Islamic finance dates from the days of the HSBC’s push to serve its Muslim customers with Islamic finance products in 2003.

However, 10 years later in 2013, the UK government launched its first Islamic finance task force, co-chaired by Clark and Baroness Warsi, a senior Minister of State at the Foreign and Commonwealth Office.

The task force will help to cement London’s status as the western hub for Islamic finance by showcasing the UK as the preferred choice for the Muslim world to invest in and do business with, a statement from the www.gov.uk website said.

It also indicated that the task force will support development of the UK’s Islamic finance sector, increasing inward investment and strengthening the economy.

“The task force will include major industry figures to ensure that the UK’s offer is promoted at home and abroad by both the public and private sector,” the statement said.

UK intend to use Islamic finance to facilitate inward investment and strengthen the UK economy, including through our ongoing support for Sovereign Wealth Funds looking to invest in UK infrastructure.

In this respect, London is hosting the 9th World Islamic Economic Forum from Oct 29- 31, 2013, offering an excellent opportunity to showcase London and the UK to 1,500 key Islamic decision makers and to increase awareness here of key economic issues affecting the Islamic world.

THE MALAYSIAN RESERVE, 14 October 2013

BADLISYAH: Career prerequisites in Islamic finance

As far as Islamic finance is concerned, one could say that I have been around long enough to know a few things about it. As a result I have been asked to give many career talks to students at universities around the globe which I gladly do as part of CIMB Islamic Bank Bhd’s engagement with the academia and on personal basis beyond office hours.

During these talks, I am often asked by students and their teachers on what it takes to succeed in the Islamic finance industry. Do they need strong academic qualifications? Do they need to have a strong command of English? Do they need to have a lot of extracurricular activities to give them an edge? Do they need to do practical training? There are also other questions, including how they can become a CEO of a bank like me.

I find their enthusiasm very refreshing and inspiring and my response to them is, in a sense, fairly straight forward and typical for those line of questionings.

Yes, academic qualification is important but it is not the “holy grail” for success. Yes, they definitely need a good command of English as without it they will be handicapped.

Yes, they should have strong extracurricular activities as these give them good life’s experience that they will never get in a classroom.

I emphasise that between someone who has a first class honours degree with little or zero extracurricular activities, and someone who has a third class honours degree or even a diploma for that matter but is active in extracurricular activities giving him or her priceless managerial and leadership experience, I will choose the latter. Of course there will be other considerations to take into account for making that choice but extracurricular activities often time trounce pure academic qualifications.

Hard skills can only help them build a bridge over a ravine but it is the soft skills that will help them convince people to use the bridge that they built. Islamic finance is that bridge they need to build if they join the industry.

The academic qualifications or theoretical knowledge will help them build the industry by creating products and services but it will not help them grow it. Growth will come when people use it. It is the soft skills that they learn through extracurricular activities that will allow them to succeed in getting lawmakers to enable it, securing the regulators to govern it, persuade the investors to invest in it, convince their management to do it and to assure their customers of its attractive value propositions.

And yes, having practical training will also give them an advantage to succeed in a dynamic industry like Islamic finance although it is not a prerequisite for fresh graduates. Notwithstanding, it is always something good to have.

I personally do not really care what kind of practical training people get. It does not have to have anything to do with Islamic finance. I shared with them that I personally worked in a launderette for a few years after school and during school holidays. I was washing, folding and ironing clothes, manning the reception desk, handling the till machine, managing customer complaints, doing inventories, dealing with suppliers, maintaining the washing machines and dryers, etc. Yes, I have done everything including all the “icky stuff” of handling someone’s dirty underwear. The experience served me well in my career.

To me practical training must be real. It cannot be something done for the sake of having a good curriculum vitae or undertaken for the glamour of it. To draw an extreme example, if becoming a janitor gives you valuable practical work experience then do it and put that in your resume. Don’t think that practical training must only be a cushy attachment with an Islamic bank in an air-conditioned office, sitting at a desk and assisting in a multi-billion sukuk deal. It is all about slugging it out and really learning how to work hard and work smart.

However, after everything that’s been said, if there’s no perseverance, there won’t be success. When I first joined the industry in 1997 when it was in a “bagai kerakap hidup di atas batu, hidup segan mati tak mahu” (or in other words, in a limbo stage), my friends called me stupid but I persevered. So people interested in Islamic finance must have perseverance to succeed. It is about accomplishing things even when there seems to be no hope at all of us ever succeeding. I guess my perseverance has allowed me to be part of the most exciting and fastest growing component of the global financial market.

On the last question about becoming a CEO, my advice to them is to never aspire to become one. I never did. I always tell them to just focus on doing a good job and deliver more than what is required of us at all times. To do things purely for the good of the organisation we serve to the best of our abilities and to never shy away from doing what is needed and required of us so long it is consistent with Shariah.

Any position including the position of a CEO comes simply as an enabler for us to do what we need to do; doing more and doing it better. Positions should never be the reason why we do things.

At the end of the day, I will continue to speak at universities and engage with the academia to build a stronger and better Islamic finance industry for as long as I am able to.

Islamic finance needs more talents and I encourage all those nubile young men and women in universities to join an “old timer” like me in this exciting and fast growing industry.

[Badlisyah Abdul Ghani is ED and CEO of CIMB Islamic Bank Bhd]

THE MALAYSIAN RESERVE, 07 October 2013

Labourious beginning of the Islamic finance industry

By Kazi Mahmood

Labourious and stepping into the unknown, those were the early beginnings of the Islamic finance industry in Malaysia where it all started with new legislations adopted in the 1980’s, Khazanah Nasional Bhd deputy chairman Tan Sri Nor Mohamed Yaacop recalled in a speech in Kuala Lumpur.

At that time, he told the audience during the 10th Kuala Lumpur Islamic Finance Forum (KLIFF 2013), there was only one bank offering such services — that is the Bank Islam Malaysia (BNM) — and there was the need to pass new laws and regulations through the August Parliament in order to give Islamic banking its own characteristics.

“We could have granted exemptions to the Islamic banking industry with the existing banking laws, but we decided to implement our own Islamic banking laws. That led us to seek new legislations, which eventually became the Islamic Banking Act (IBA) in 1983,” Nor said.

The former minister said these were tough times though, since the legislators had to decided on how to interpret the Islamic banking sector and sought the help of late Tan Sri Professor Ahmad Ibrahim who drafted a law passed through Parliament.

“It was easier those days, because we did not have the complicated sukuk of today for example. We went to the simple then we took on the complicated,” Nor recalled.

After that, more laws were passed through Parliament, including the Takaful Act of 1984, and after we found we could not use the existing insurance laws to implement Islamic insurance industry in the country, Nor said.

He said Islamic banking today represented more than 24% of the entire Malaysian banking assets.

Malaysia’s Islamic banking assets has reached over RM500 billion in 2012, according to some reports.

The IBA today is known as the instrument that started the assimilation of Islamic laws in the Malaysian economic system, whereas the Takaful laws have helped the spreading of Islamic insurance in the country.

While in 1989, Malaysia implemented the Banking & Financial Institutions Act, 1989 which is the legal structure that allows banks to operate in the country, it means that the country had two banking laws guiding the local banks.

Thus Malaysia became the first country in the world with a dualistic system that allowed both the Islamic banking and the conventional banking systems to function separately, without interchange.

“Today, Malaysia may be the only country on earth that has both a conventional banking system and the Islamic banking system. It all started with conventional banks offering a window to Islamic banking solutions to their Muslim consumers,” he said.

This facilitation of both systems, he said, could be exported to other Muslim countries or to other jurisdictions where Islamic banking is being offered under existing conventional banking services, urging Malaysia to look forward to the spread of the local expertise in this matter.

In 1998, BNM changed some vital rules. Instead of the term “interest-free” banking, the Islamic banks offering interestfree services would be called “Islamic banking” institution.

Furthermore, in 1999, BNM decided that the Islamic banking units of banking institutions participating in the Islamic banking system were upgraded to become the Islamic banking divisions of the conventional banks.

“It was shameful in those days to go to pawn shops to exchange gold or anything for money. We were told, in our childhood, not to let friends or neighbours see when we enter pawn shops,” the former minister recalled.

THE MALAYSIAN RESERVE, 30 September 2013

COMMENT: Malaysia now truly open for business

By Habhajan Singh

The administration has finally found the courage to lead. The timetable to roll out the Goods and Services Tax (GST) is a clear indication that it is time for action.

Prime Minister Datuk Seri Mohd Najib Razak is finally putting two major polls behind it — the 2013 General Election (GE) and the Umno elections that concluded recently.

For the last two years, perhaps longer, the nation has been in a quagmire. On the political front, nothing much was happening. The ruling Barisan Nasional (BN), comfortable with their usually wide victory margins, were pushed back after the 2008 GE.

The present administration wanted to transform the economic, government and political landscapes. But you could sense hesitation, and opposition even from within the fold. They were constrained, politically, following the significant advance made by the federal Opposition under the leadership of the evereloquent Datuk Seri Anwar Ibrahim.

On the business front, major decisions were left hanging. Many foreign leaders and business folks had begun postponing visits. They wanted to see more certainty on the ground before committing their money. “We are postponing some visits. Let things clear out,” one diplomat told The Malaysian Reserve some two years ago.

In the meantime, some significant changes have taken place. One major milestone came in 2009 when Umno approved constitution amendments to allow for a wider grassroot leaders’ participation to elect its leaders. It was a significant change. Umno, after all, is the most dominant party in the ruling BN.

Looking at the result of the party polls, it is easy to dismiss the changes. Well, the present line-up may not have altered much, but the ground has certainly shifted away from some power brokers. That is a significant.

It looks like Malaysia is now truly and finally open for business. The Budget 2014 speech of Najib is a clear indication of that.

THE MALAYSIAN RESERVE, 28 September 2013

HUMAYON: I-5 Group to benefit Islamic finance, banking

Malaysia possesses all the basic ingredients of a global hub for Islamic banking and finance. The biggest advantage that Malaysia has over its competitors is in terms of the unwavering support its government has dedicated to Islamic banking and finance.

While Malaysia has emerged as a global leader in Islamic banking and finance, its growth potential is limited by its relatively small domestic market.

Out of 28 million people in Malaysia, only 60% are Muslim. Another potential contender for global leadership in Islamic banking and finance, ie, Saudi Arabia, has similar demographic credentials, with about 19 million Saudi nationals out of around 28 million people who live in the country.

Again, domestic market size is rather limited. Other Gulf states also do not enjoy the benefits of large domestic markets, and hence can only serve as “offshore” centres for Islamic banking and finance.

The other two countries that have potential to lead the global Islamic financial services industry are Indonesia and Pakistan, with huge domestic markets of about 237 million and 190 million people, respectively.

Indonesia is a declared secular country, while Pakistan is an Islamic state, with the religion of Islam enshrined in its constitution.

In both the countries, however, the governments are rather reluctant to unconditionally support Islamic banking and finance.

Malaysia can further strengthen its leadership role in the global Islamic financial services industry by forming and leading a Group of I-5, the top five countries with the potential of leading the global Islamic financial services industries.

These countries may include Saudi Arabia, Malaysia, Pakistan, Indonesia and Turkey.

These countries are not necessarily the top ranked countries in the Islamic Finance Country Index, developed and published annually by a London-based consulting firm.

Nevertheless, they can be knitted together strategically to form a block that may be used for developing Islamic banking and finance as a tool for integration of financial sectors in these countries.

In the absence of a platform like I-5, the major contenders for the role of global leadership may enter into an unhealthy competition to attract Islamic capital. Admittedly, only a fraction of US$1.63 trillion (RM5.16 trillion) under management of Islamic financial institutions is mobile in terms of cross-border flows.

Independent national approaches to Islamic banking, without an effective international coordination, are sub-optimal.

Without a well-thought-of global strategy, it will not be surprising if the countries with sizeable Islamic banking sectors start feeling threatened by each other, and engage in a “price war” like situation. This is particularly important as for many institutions in the Middle East it makes more logistic sense to do business in Turkey rather than travelling to the Far East or South Asia.

The proposed member states of I-5 possess unique value propositions. Pakistan, for example, presents arguably the most conservative model of Islamic banking in the world, based predominantly on Hanafi school of Islamic jurisprudence, which takes a rather conservative view in matters related to business and finance.

There is a definite value proposition that Pakistan may offer to other members of the proposed I-5. Indonesian economy, being one of the fastest emerging markets in the world, must offer an array of economic opportunities to the Islamic financial institutions seeking Islamic financial assets. Malaysia is now in a position to share its expertise and experience in developing the most comprehensive regulatory framework for Islamic banking and finance.

It is proposed that Malaysia should play a lead role to develop a comprehensive framework for an Islamic banking and finance passport for the Islamic financial institutions to operate freely in the member states of the proposed I-5.

Saudi Arabia is in need of liberalisation of economy and the proposed I-5 offers it an opportunity to adopt an Islamic approach to liberalisation of financial sector. Malaysia’s leadership role in the I-5 can be maintained if the secretariat of the proposed group is located in Kuala Lumpur.

It is important for all the five countries to show more commitment to Islamic banking and finance and use it as a strategic tool to attract funding for a number of infrastructural projects (eg Jakarta Metro, electricity projects in Pakistan, etc) that need external financing.

Through adopting a combined leadership role in Islamic banking and finance, the proposed I-5 can serve as a financial powerhouse in the Organisation of Islamic Cooperation block.

[Dr Humayon Dar is chairman of Edbiz Consulting Ltd, a London-based Islamic financial advisory group, and a visiting professor of Islamic Finance at the Academy for Contemporary Islamic Studies, UiTM]

THE MALAYSIAN RESERVE, 23 September 2013

Malaysia wants Islamic finance industry to ‘look west’

By Kazi Mahmood

With the backing of Maybank Islamic Bhd, the World Islamic Economic Foundation (WIEF) is working together with the Greater London Authority to boost trade and investment between Malaysia, the Association of South-East Asian Nations (Asean) and the UK.

The idea is based on the consensus of using Islamic finance as the platform for the transactions that will involve Malaysian investors and businesses in their efforts to diversify their portfolios into the UK, particularly in London, Maybank Islamic CEO Muzaffar Hisham said last week in Kuala Lumpur.

“There is an increasing interest by Malaysian investors in diversifying their investment portfolios into the UK and particularly London. Maybank Islamic is well placed to encourage such opportunities”, Muzaffar said.

Muzaffar emphasised on the strategic importance of Islamic Finance for London as an opportunity to tap into a new source of capital, assets and liquidity in Islamic markets for London’s future growth and global ambitions.

Muzaffar has not only encouraged sovereigns but also UK corporate firms that are wishing to issue funds to consider Shariah-compliant instruments as they expand to new frontiers, especially in the Gulf Cooperation Council (GCC) and Asean/Malaysia.

“The deal will most probably be announced during the 9th WIEF in London in October,” Muzaffar told reporters after the soft launch of its new retail mortgage product at the WIEF headquarter in Kuala Lumpur.

Maybank Islamic has recently secured pound sterling crossborder financing, making it the first Malaysian bank to have such financing instruments in London, Bernama reported.

Also present during the event were deputy mayor of London Sir Edward Lister and WIEF MD Datuk Syed Abu Bakar Almohdzar, who both reiterated the importance of boosting trade, investments and business between Malaysia, Asean and London through Islamic Finance.

“Developing trade and investment links with Malaysia is a key priority for London and Maybank’s initiative significantly broadens the range of Shariah-compliant investment opportunities. Hosting the world,” Lister said.

The WIEF will showcase London’s role as the leading Western hub for Islamic Finance and lay the foundation for strengthening our bond with the Islamic world, Lister added.

London has taken proactive measures to grow Islamic Finance in an attempt to attract more investment from the Middle East and other Muslim countries in the Asean region, believing these are essential to further boost London’s standing as an important centre for the industry.

There is a growing appetite for Shariah-compliant investments in London as it grows in Malaysia and Asean, the Maybank Islamic feels that it is well placed to bridge prospective clients in facilitating their aspirations.

In addition, Maybank Islamic is also actively expanding its foreign currency business in the retail banking space.

The bank is in the final stage of launching an Islamic foreign currency property financing product for London properties due to be launched in fourthquarter of 2013.

On the other hand, Syed Abu Bakar said Malaysia will continue to play a leading role in Islamic finance, through the WIEF, with London as a new global centerpoint.

“As Malaysia continues to play a leading role in Islamic finance, the World Islamic Economic Forum continues to be a strong advocate of Islamic Finance in Muslim and non-Muslim communities around the world,” Syed Abu Bakar said.

He also said that with London being an increasingly influential driver of Islamic trade, there are greater opportunities to develop Islamic economy at the forthcoming 9th WIEF in London this Oct 29-31, 2013”.

THE MALAYSIAN RESERVE, 23 September 2013

Expert: Basel III will make industry sound

By Kazi Mahmood

Basel III, which replaces Basel II is intended to plug the loopholes where its predecessors failed, will demand more dedication from all stake players for it to be practical, an industry expert said.

The global regulatory reform under Basel III refers to guidance issued by Bank of International Settlements as a comprehensive response to the global credit crisis, but what is of importance is to ease its application within the Islamic finance sector.

“More dedication from both stake players, from the regulators and the market players are needed to make things more simplified because one of the key issues for the implementation of the regulations is making it practically possible,” Deloite & Touche Islamic finance group director Dr Hatim El-Tahir said to The Malaysian Reserve (TMR).

The Basel III regulations will bring up the importance of capital adequacy and liquidity management, which will be the base for sound industry, though they will affect to a certain extent the day to day business capabilities of the Islamic finance institutions, he said on the sideline of the forum entitled Basel III: Its Impact on Islamic finance.

“You can’t bend the arms of these institutions in order to fulfill the benchmarks of international regulations thus affecting the lending and financing capacity of the Islamic institutions. These are the key issues we have been hearing from industry players,” he said.

“Limiting the capital adequacy of the institutions is not going to make it better for them to do their business and this is with regards to the sustainability of smaller banks, not only that of Islamic banks. I think the Basel regulators need to think in terms of the specific requirements and capacities of the banks and markets to make things more realistically possible,” he said.

He said preparations for Basel III should be considered in different stages whereas strategic actions for balance sheet composition, funding, capital management, and business planning necessitate a solid understanding of issues and robust action plan.

Execution of business strategies and changes to funding mix, liquidity profile, or capital structure can also depend on macro variables, competitive environment, market conditions, and business opportunities; as such, some may take several years to accomplish, he said during his presentation.

“The ideas about the safe capital base or high liquid assets and good risk management, these are all good from theory. How will smaller banks for example implement all these, without having the right expertise and technology and most importantly the capital to implement Basel III?” he asked.

The Basel III guidelines, he said, will definitely help smaller banks since the regulators are working towards helping these institutions to be more consolidated within, to ensure that they are more competitive and more capitalised.

‘Yet there are signs that the global regulatory reforms are gearing towards more stronger financial institutions,” he said.

“There is no room for smaller capitalising institutions simply because they do not fit the criteria that will fit the regulations that protects their investors. I think the smaller banks need to consolidate and bring more capital into the play,” he said.

The straightforward answer to the glut in the western financial system, he said when asked for his views on the issue, is that it resulted from the global financial crisis, which have very much impacted on the performance of western financial institutions.

“The financial institutions are the key drivers of the economy and when financial institutions fail, this will have implications in many other industries,” he told TMR.

THE MALAYSIAN RESERVE, 09 September 2013