BNM mulls 5 Shariah advisors for Islamic banks

By Habhajan Singh
Bank Negara Malaysia (BNM) is mulling at pushing up the number of Shariah comittee members to five from the present three and getting directors more involved in Islamic governance under its wide-ranging proposals on Shariah governance for Islamic banks.

At present, Islamic banks operating on the local turf like Maybank Islamic Bank Bhd, CIMB Islamic Bank Bhd and Kuwait Finance House Malaysia Bhd, are required to have at least three members in their in-house Shariah committee. Each member is not allowed to sit on the Shariah committee board of another Islamic bank, but may sit on the Shariah committee of a takaful operator.

A member of the Shariah Advisory Council (SAC), the Shariah mother-board at the central bank level currently headed by Dr Mohd Daud Bakar, is also not allowed to sit on Shariah committee at the bank level. The measures are partly built in as a firewall to ensure proper governance on the Shariah front.

The central bank is also recommending Islamic financial institutions (IFIs) operating in Malaysia to appoint their respective chairman of Shariah committees onto the board as independent directors. It is understood the Shariah governance recomnmendations drafted by the central bank have been circulated to IFIs for their feedback.

"So far, feedback has been mixed. Some banks may be a little behind the curve on some of the proposals," said one Islamic finance expert with knowledge of the proposals.

In its latest recommendation, it is understood that BNM is also compelling Islamic banks to ensure that at least three of the five Shariah committee members have Shariah background. It is understood that the requirement is to ensure members are able to fulfil the board's role, as spelt out in the Islamic Banking Act 1983 and Takaful Act 1984, which is to ensure that all aspects of their bank's business operations are in accordance with the Shariah principles.

"At the moment, there is no specific requirement. However, in practice, BNM approval is required for the appointment of each and every Shariah committee member. So, invariably, they will ensure that the board is appropriately manned," said one industry executive.

These proposed changes will mark yet another milestone in the regulation regime in place to govern IFIs which come under the jurisdictions of BNM, especially after the introduction of the Central Bank of Malaysia Act 2009.

In a report on Nov 23, 2009, The Malaysian Reserve noted that an analysis of the new ground rules for the central bank showed a strong Islamic finance flavour running through the 68-page document, especially in empowering of the SAC, designated to be the "authority for the ascertainment of Islamic law for the purpose of Islamic financial business". On the proposal for Shariah committee chairman to sit on the bank's board, an industry expert told The Malaysian Reserve that it may raise some issues.

"Some banks have state muftis chairing their Shariah committees. Now, do you want muftis to sit on the boards of Islamic banks?" he asked. Perak mufti Tan Sri Harussani Zakaria, for example, is chairman of Maybank Islamic's Shariah committee.

At CIMB Islamic, on the other hand, its Shariah committee is headed by Prof Dr Mohammad Hashim Kamali, who is already sitting as an independent director on the bank's board. Mohammad Hashim is the chairman/chief executive office of Hadhari Institute For Advance Islamic Studies. On the takaful side, MAA Takaful Bhd's Shariah committee chairman, Dr Mohd Khalil Ruslan from Universiti Malaya's law faculty, also sits on the company's board.

(This story appeared in The Malaysian Reserve on 25 October 2010. 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)

Islamic fund management sector to see global players

The largely-fragmented Islamic fund management industry will welcome more global players as demand for sharia-compliant asset management products rise, a fund manager at Algebra Capital said, accordng to a Reuters (Oct 20, 2010) report.

The asset management portion of Islamic finance has been at a virtual standstill in the $1 trillion industry, in part, due to its perception of yielding poorer returns than conventional funds. "We think the type of players in Islamic funds is going to change and more established global managers will play a direct role," Mohieddine Kronfol, managing director at Algebra Capital told the Reuters Middle East Investment Summit. "The environment is better and people have begun to appreciate the need for such products."

THE REPORT ADDS:The Dubai-based asset management firm was in the process of developing additional funds along with its partners, including a global sukuk fund to tap into rising demand, Kronfol said.

"These don't necessarily have to be in our names. It will be someone else launching it and advising the work to us. It most probably will not be an Algebra Capital fund," he said.

The executive also said he expected the wave of debt issues in the region to continue as the need for additional sources of funding and demand for emerging market debt instruments among global investors increase.

"People generally are not really aware of how quickly the MENA bond market is developing," Kronfol said.

"You have several companies in the region that are well managed, that can access capital markets and that can think about diversifying their means of funding."

Global asset manager Franklin Templeton holds a 40 percent stake in Algebra and the Dubai-based firm runs the Middle East North Africa equity fund for the global asset manager.

M’sian Islamic finance education gets int’l demand

[PHOTO: Banker Norleza Abu Bakar (fourth from left) with four lawyers, (from left) Roziana Yusof, Wan Helmi Wan Hasan, Mohd Farid Azahari and Rafidah Ash'ari, are part of the batch that recently graduated from IIiBF]

By Habhajan Singh
Two local institutions specialising in Islamic finance saw their students graduating this month.

IIUM Institute of Islamic Banking and Finance (IIiBF), the wing under the International Islamic University of Malaysia, presented the latest batch of graduates their scrolls on Oct 4. On Saturday, International Centre for Education in Islamic Finance (INCEIF) celebrated a milestone with its second convocation ceremony.

IIiBF, officially established in January 2005, now offers a Postgraduate Diploma in Islamic Banking and Finance, Master of Science in Islamic Banking and Finance and PhD in Islamic Banking and Finance. Additionally, it also provides certificate programmes in Singapore and Sri Lanka.

"There are plans under way to offer similar certificate programmes in Bahrain, China, India, Maldives and Kazakhstan," said IIUM rector Prof Datuk Seri Dr Syed Arabi Idid. He said the institute has signed more than 15 MoUs and collaborations in areas of training, product development and consultancy with various private and governmental institutions nationally and internationally such as Brunei, Iran, Sri Lanka, Bahrain, Nigeria, Indonesia and Singapore.

"As part of IIiBF internationalization programme, our staff is involved in providing technical expertise to the Krygzstan and Afghanistan governments to develop Islamic financial system as a second pillar to support economic development there," he said.

INCEIF is also working on global collabaration in its quest to become a truly global university in Islamic finance going forward. Its resident and chief executive officer, Agil Natt, said the university would be collaborating with the University of Luxembourg, the Chinese University of Hong Kong and the Reims Management School in France next year in Islamic finance education.

"These are countries that have Muslim minorities. The fact that they are associating with us for Islamic finance education is indeed a good sign," he said in his speech at the recent convocation, reports Bernama.

The report added that INCEIF has already started its Chartered Islamic Finance Performance Professional (CIFP) programme in Bahrain in collaboration with the University of Bahrain, adding that the university is also currently working on accreditation in Iran and Yemen.

INCEIF was set up in March 2006 by Bank Negara Malaysia which provided an endowment fund to develop and enhance human capital in Islamic finance, to meet the needs of Islamic industry.

(This story appeared in The Malaysian Reserve on 25 October 2010. 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)

IBFIM inks pact to co-develop Islamic finance in Maldives

By Siti Radziah Hamzah
The first Islamic bank in Maldives, Maldives Islamic Bank, is expected to be fully operational in January next year, said its chairman Khaled Al-Aboodi.

He said the management team of the bank has been appointed and is currently in discussion with the advisor of the bank to provide advisory services in terms of providing training for the bank.

"Prospects are tremendous in terms of serving the market. We plan to take between 20% to 25% of the total market of Islamic banking (in the country) within the next three to five years," he told reporters after the signing of a memorandum of agreement (MoA) between the bank and the Islamic Banking and Finance Institute Malaysia (IBFIM) yesterday.

Khaled said the bank will be focusing on three main sectors namely small and medium enterprise (SME), fisheries and trade. He added that the bank also aims to diversify to other areas such as saving, takaful and mortgage businesses.

Khaled said the bank is in discussion with a Malaysian partner to develop an Islamic saving scheme. Witnessing the signing were Bank Negara Malaysia deputy governor, Datuk Mohd Razif Abd Kadir, and chairman of IBFIM, Datuk Seri Zukri Samat.

The MoA will bind both parties to co-develop Islamic finance in Maldives through extensive study of the country legal and banking framework to create an environment for the growth of Islamic finance. Maldives Islamic Bank has been granted a licence by the Maldives Monetary Authority to establish the country's first Islamic bank.

Jeddah-based Islamic Corp for the Development of the Private Sector, a subsidiary of Islamic Development Bank, holds a 70% stake in the bank and the remaining 30% is held by the government of Maldives.

Regional mandatory sharia finance body "years away"

The formation of a Gulf-wide sharia council with the mandate to set industry rules, rather than just issue guidelines in its present form, is still "years away", a senior executive at regulatory body AAOIFI, reports Reuters (Oct 11, 2010).

Speaking on the sidelines of an industry conference in Abu Dhabi, Assistant Secretary General Khairul Nizam said few expect such a centralised sharia council to be in place before 2013.

"It's an idea at the moment. It can help the Islamic finance industry because, if the committee has some regulatory bite to it, it can make AAOIFI standards mandatory," said Nizam.

THE REPORT GOES ON:

Currently, standards set by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) board are considered guidelines, rather than rules. Some countries such as Bahrain, however, require Islamic institutions to follow the standards.

Nizam said the Bahrain-based body is currently working to issue regulatory guidance for sharia scholars serving on the boards of Islamic institutions, which the regulatory body hopes to finalize by the end of 2011.

"It's going to be a long process because we have to make sure to get it right the first time," he said.

He said the industry body has had five meetings already to discuss key issues facing scholars that could be regarded as a conflict of interest in the growing $1 trillion Islamic finance industry.

Nizam said there is discussion over whether scholars should have a limit on the number of boards they sit on. Currently just 20 of the top scholars appear on 54 percent of sharia board positions, according to a report by consultancy Funds@Work.

AAOIFI will also address whether scholars should have shareholdings in the institutions they advise on, issues regarding compensation and whether scholars serving on sharia boards can also participate in separate sharia advisory firms that may have relationships with the institutions they serve. Nizam said an "exposure draft" will be circulated to all Islamic banks by the end of the first quarter for review.

Distressed Deals Lure Shariah Funds Managing $10 Billion

Islamic private equity funds in the Persian Gulf plan to take advantage of lower asset prices after the property market in Dubai tumbled as much as 50 percent from its peak in 2008, reports Bloomberg (Oct 27, 2010).

“We want to take advantage of massive dislocations that have taken place in this market over the past three years,” Yahya Jalil, director of private equity at Abu Dhabi-based investment and advisory company The National Investor, said in an interview Oct. 18. “We have gotten over that hump in the cycle when there were a lot of liquidity constraints.”

THE REPORT GOES ON:

Middle East and North Africa investment groups have about $10 billion available after raising a record $5.4 billion in 2008 that they haven’t been able to spend, Gulf Venture Capital Association said in a July 20 statement. Mid-sized businesses in the Gulf may need as much as $1 billion from investors, Jalil said. The Bloomberg GCC 200 Index of regional stocks has declined 26 percent since the end of September 2008 after credit markets collapsed.

The National and Kipco Asset Management Co., a Kuwaiti investment bank, started a $200 million Shariah-compliant fund this month, Jalil said in Abu Dhabi. Bahrain’s Capital Management House plans to complete a transaction and buy stakes in companies specializing in aviation and energy, Chairman Khalid Al Bassam said in an Oct. 25 telephone interview.

Islamic funds received $8.9 billion of commitments from investors from 2003 through July this year, of which about $4.5 billion has been invested, Kuwait Finance House KSC, the country’s biggest Islamic bank, said in an Oct. 8 report. About $75 billion of deals have been completed since 2003, the bank said.

“The private equity market is coming back,” said Al Bassam, whose firm has stakes in energy, banking and real-estate companies.

Shariah-compliant equity companies raised and completed deals worth about $3 billion worldwide last year, mostly in the Middle East and North Africa, Dubai-based Yasaar Media, a media and research company that specializes in Islamic finance, said in an August 2009 report.

Islamic finance industry under regulated, says Deloitte survey

by Habhajan Singh

At least two out of three Islamic finance industry leaders in the Middle East reg ion be l ieve t hat t he fast-growing financial sector is under regulated, a survey revealed. Some 31% of the Islamic Finance leaders from Saudi Arabia, Bahrain, UAE, Qatar and Lebanon surveyed by Deloitte believed that the Islamic Finance industry is appropriately regulated, majority (66%) indicat ing that it i s under regulated. Only 3% said it is over regulated.

"This result is consistent with the previous findings relating to the level of supervision and financial regulation in the GCC (Gulf Cooperation Council)," said the first of Deloitte's Islamic Finance leaders survey in the Middle East benchmarking practices.

The report noted that its findings also confirm the compelling need for an enhancement to the regulatory environment promoted by organisations like Islamic Financial Services Board, Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions and International Islamic Financial Market.

A copy of the survey, which excluded industry players from this part of the world, was made available to The Malaysian Reserve. Deloitte said it was the the first Islamic Finance leaders survey in a biannual series targeted at industry practitioners and leaders of Islamic financial institutions (IFIs) in the Middle East. It was based on interviews conducted with indust ry leaders between April and June 2010.

Islamic accounting standards and risk management were identified as the top two areas requiring new regulatory measures, and the leaders surveyed, view corporate governance and Shariah governance as prerequisites for best practices. It also noted that current and anticipated regulatory changes are the chief drivers of the business performance of IFIs.

It said the majority of industry leaders surveyed (84%) noted that within the next year,Islamic finance regulation will increase significantly.

"This is consistent with regulatory reforms that have recently taken place around the world. Includes are the US Securities and Exchange Commission's new rules requiring a large amount of disclosure about the information used to securitise notes," it added.

It noted that the European Commission has made similar moves. Reforms cited included new measures in Basel III to tighten core tier one capital, Ireland's new laws limiting bank credit exposures and exposures and the UK's bank tax levy. Bank Negara Malaysia (BNM) will also be introducing a new Shariah Governance Framework soon.