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Malaysian banks urged to set up Islamic financial institutions abroad

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imran
on September 4, 2008
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KUALA LUMPUR: Malaysian Islamic financial institutions (FI) are strongly urged to set up offices abroad, especially in Gulf Cooperation Council (GCC) countries to take a bigger slice of the oil money.

The oil windfall already has the new generation of Gulf leaders coming up with more investments and economic development plans to channel the excess liquidity.

“When it comes to infrastructure alone, there’s US$600 billion worth of project financing to be done in GCC for the next few years,” said Dubai International Financial Centre (DIFC) executive director of Islamic Finance, Nik Norishky Thani.

DIFC is one of the fastest-growing financial centres. A full-fledged onshore capital market, it offers participants 100% foreign ownership and zero tax on income and profits as part of its many financial incentives.

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Islamic Bond Decree Cripples Sukuk, Imperils Projects

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on September 4, 2008
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Sept. 3 (Bloomberg) — The fastest-growing part of the global bond market is faltering, and it has nothing to do with subprime mortgages or the credit crunch.

Sales of Shariah-compliant debt, which financed Dubai’s Palm development, the world’s largest man-made island and where David Beckham and Donald Trump have homes, fell 50 percent in 2008 and prices dropped an average 1.51 percent, according to HSBC Holdings Plc index data.

The so-called sukuk market, which has doubled each year since 2004 and grown to $90 billion, is declining after a Bahrain-based group of Islamic scholars decreed in February that most bonds ran afoul of religious rules. Only one that complies with the edict has been issued, pushing up borrowing costs on projects including $200 billion of real-estate developments in the United Arab Emirates capital.

“In times of distress, the first thing investors sell are the credits they don’t fully understand,” said James Milligan, Dubai-based head of Middle East fixed-income trading at HSBC, the biggest underwriter of sukuk bonds in the Gulf last year. “This has hit spreads hard in the region,” he said, referring to the relative level of the Islamic bonds’ yields.

The bonds satisfy Islam’s ban on interest by allowing investors to profit from the exchange of assets, rather than money. Sales of the debt fell to $11 billion from January to August, from $21 billion in the same period of 2007, according to data compiled by Bloomberg. They peaked at $38.6 billion last year, growing from virtually nothing six years earlier, the International Monetary Fund said. The decline in prices is worse than the 1.25 percent drop in U.S. corporate bonds, HSBC data show.

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SC Okays 22 Sukuk Bond Worth Rm17.7 Bln In First Half Of This Year

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imran
on August 27, 2008
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KUALA LUMPUR, Aug 12 (Bernama) — The Securities Commission (SC) has approved 22 Sukuk issues totalling RM17.7 billion in the first half of this year, accounting for 31 percent of the total bonds approved during the period.

Sukuk issuances here whether in Ringgit or in U.S. dollars are expected to remain attractive as Malaysia has a strong domestic investors base to anchor the distribution of major sukuk issues, said its chairman Datuk Zarinah Anwar.

“Sukuk pricing for Malaysia-originated issues are highly competitive and there is also strong availability of expertise as well as an established regulatory framework which meets both Syariah and legal requirement,” she said.

Malaysia pioneered the development of the global sukuk market with the launch of the first sovereign five-year global sukuk in 2002.

Since then, the country’s sukuk market had experienced unprecedented growth with Malaysia firmly established as one of the largest issuers of sukuk over the years, she said in her keynote address at the Malaysian Islamic Finance Issuers and Investors Forum 2008.

Last year, 76 percent of bonds approved by SC were sukuk. — BERNAMA

Is Islamic finance market ready for hedge funds?

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imran
on August 7, 2008
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LONDON: Currency swaps, exchange traded funds (ETFs), collateralized debt obligations (CDOs), hedge funds and credit protection transactions until a year or so would have been unthinkable in the global Islamic finance market. No longer.

Hot on the heels of the recent launch by Daiwa Asset Management Company, the second largest asset manager in Japan after Nomura Asset Management, with funds under management of $96.34 billion, of the Daiwa FTSE Shariah Japan 100 ETF, comes the launch at end June of the Islamic Fund of Hedge Funds by Barclays Capital and Shariah Capital Inc. of the US off the Al-Safi Trust alternative investment platform.

Such is the latent appetite for value-added alternative Islamic financial products, that the Dubai Multi Commodities Center Authority (DMCC), an agency of the Dubai government, saw fit to seed the Islamic Fund of Hedge Funds investing a total of $250 million - $50 million in five hedge funds through the Al-Safi Trust alternative investment platform, established jointly also by Barclays Capital and Shariah Capital Inc. in Cayman Islands.

The first five funds on the Al-Safi platform are long-short equity funds focusing on energy, resources and soft commodities and managed by US-based hedge fund managers - Tocqueville Asset Management (gold); Lucas Capital Management LP (energy); Zwelg-Dimenna International Managers Inc. (resources); Ospraie Management LLC (agriculture); BlackRock Inc. (resources & mining) respectively. But the promoters are confident that the platform would attract a whole range of alternative investment products hitherto absent from the Islamic capital and fixed-income product market, in addition to additional long/short equity hedge funds; 130/130 funds as well as specialized investment funds.

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More skilled Islamic finance professionals needed in Singapore

Published
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imran
on July 29, 2008
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SINGAPORE : Singapore is well-positioned to be the conduit for the global Islamic finance industry, given its comprehensive banking infrastructure, according to the Chartered Institute of Management Accountants (CIMA).

But it said that a lack of specialist knowledge is hindering the industry’s growth in the country.

CIMA noted that more skilled Islamic banking professionals are needed in order to draw more wealth from the global Islamic banking industry that is said to be worth as much as US$493 billion.

The surge in oil prices is fuelling growth in Islamic finance.

And according to some numbers, the sector is expanding by up to 20 per cent annually worldwide.

But industry watchers said the number of skilled professionals has been lagging.

Charles Tilley, Chief Executive, Chartered Institute of Management Accountants, said, “Shari’ah law is a very complex law. Islamic finance therefore sets a different set of risks, and the way you mitigate risks, than you would do with traditional banking.

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Making the difficult transition

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imran
on July 24, 2008
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Most of the concerns expressed about the Islamic finance industry reflect the shortage of qualified professionals and Shari’ah scholars necessary to keep up with the rapid growth seen in the last five to10 years. This should be of great concern to the industry because without enough experienced people staffing the industry, there are significant limits to the rate of growth that can be sustained. In particular, the necessity of Islamic financial institutions to maintain Shari’ah supervisory boards to review and regulate the institutions practice from a Shari’ah standpoint makes qualified scholars one of the most valuable commodities in the industry.

However, Shari’ah scholars do not grow on trees and it takes a long time for new scholars to be widely accepted as authorities in the needed fields including Fiqh as well as familiarity with the finance industry. International conventional financial institutions entering the Islamic financial industry typically will look for the scholars with the broadest and longest reputation, which due to their deep pockets, creates upwards pressure on the cost of maintaining a Shari’ah board.

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How conventional bankers can become Islamic finance experts

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imran
on July 2, 2008
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The lack of Islamic bankers is one of the biggest challenges the industry faces. Attending courses and obtaining certifications on Islamic Finance is key to winning clients’ hearts and minds in the region as the sector adjusts to the growing consumer interest.

While bankers in Europe and the US face new waves of mass lay-offs, downsizings, mergers and acquisitions and even bankruptcies as a result of the sub-prime crisis, the Gulf region sees no let-up in double-digit growth.

‘The need for highly qualified executives in emerging financial hubs such as Dubai, Qatar or Riyadh is enormous,’ says Thomas W. Hofer, Managing Partner of Dubai -based executive search firm Taylor Hofer Partners.

‘The impact of the global credit crunch on Arab and international banks in the oil-rich region has been insignificant,’ he adds.

Lack of knowledge

However, for most high-potential bankers the shift to the Middle East is not a smooth career path.
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Singapore: Sukuk gaining acceptance

Published
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imran
on June 12, 2008
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Proponents of Islamic finance should pat themselves on the back and rejoice. Not only has the industry been largely sheltered from the US credit crisis, major economies are also beginning to warm up to this relatively new form of financing.

Earlier this month, the British government announced it favoured stepping into Islamic finance, and wanted to raise some $4 million through Shari’ah compliant bonds. I was not surprised by this development as London is already home to the largest Islamic finance market in the western world, and I was quite confident the government would want to maintain its leadership status in the industry.

But what excites me the most is that my home country, Singapore, has finally decided to embrace Islamic finance. The Singapore government rarely makes the wrong decisions and I am sure they did their homework before plunging into Islamic finance. And although it is relatively a late entrant into Islamic finance, I am confident that Singapore will be making waves in the Islamic finance industry in the near future.

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Central Bank of Bahrain set to launch key Islamic financial instrument

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imran
on June 10, 2008
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The Central Bank of Bahrain (CBB) is set to launch a key Islamic financial instrument aimed at providing a much-needed liquidity management tool to Islamic financial institutions.

The Islamic Sukuk Liquidity Instrument (ISLI) has been jointly developed by the CBB and the Bahrain-based Liquidity Management Centre (LMC), an organization which provides asset sourcing, structuring and market making capabilities.

ISLI has been designed to enable financial institutions, both conventional and Islamic, to access short term liquidity against Government of Bahrain Islamic leasing (Ijara) bonds (sukuk), issued by the CBB.

The new initiative reflects CBB’s continuing commitment and contribution to the Islamic finance industry and will further enhance Bahrain’s role as a world leader in the sukuk market.

‘The development of the uniquely-structured ISLI represents a major breakthrough for the Islamic finance industry worldwide and will significantly enhance the sukuk market,’ said Dr Abdul Rahman Saif, Executive Director, Banking Operations, at the CBB.
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Dow Jones launches Islamic market index

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imran
on June 9, 2008
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NEW YORK: Dow Jones Indexes, a leading global index provider, has launched the Dow Jones Islamic Market (DJIM) China Offshore Hong Kong Index.

The DJIM China Offshore Hong Kong Index represents the performance of companies that have been screened for compliance with Islamic principles and whose primary operations are in China but trade on the Hong Kong stock exchange.

Stocks included in the index are H-Shares and Red Chips.

The DJIM China Offshore Hong Kong Index is designed to serve as underlying for investment products such as mutual funds, exchange-traded funds (ETFs) and other investable products.

“The Dow Jones Islamic Market China Offshore Hong Kong Index is another innovative addition to the highly successful Dow Jones Islamic Market index series following a unique and superior methodology,” said Dow Jones Indexes editor and executive director John Prestbo.

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