July 2010 Issue

Bermuda Aims to become a Western Islamic Finance Hub

Khaleej Times, Middle East

Islamic Finance Growing and Running Parallel to Conventional Finance

Sunday Times, Sir Lanka

Senegal Seeks Bahrain Help in Islamic Finance

IStock Analysis, United States

The government of Senegal is looking to Bahrain to help develop its Islamic finance industry. The countries leaders are convinced that as it develops as a financial centre it could provide a gateway for Bahrain institutions to tap into the entire sub-Saharan Africa region. Senegal-based SYM International Finance Corporation, in partnership with the government of Senegal, yesterday took part in a forum at Gulf Hotel as part of its efforts to assist the Senegal government to promote the Senegal Financial Services Centre and attract more private investments. Leading bankers from the country gave a comprehensive presentation on the centre to more than 40 financial services practitioners, with emphasis on its structure, actors, general regulatory framework, business activities and main products.

Japan’s First Islamic Funding Deal

The Peninsula, Asia

Sumitomo Corp is arranging the first Islamic funding deal in Japan, which could pave the way for other Japanese issuers to tap the $1 trillion industry, a source with knowledge of the deal said. The yen-denominated issue, which would be the first by a Japanese issuer in the country, mirrors the structure of Islamic bonds but is not strictly sukuk as Japan’s banking regulations do not provide for such an offering. The issue would follow a recent $100m Islamic bond sale by Japan’s top brokerage Nomura Holdings in Malaysia, and reflects growing interest by the Asian economy in Shariah-compliant financing.
The deal is expected to be signed in the third quarter and the issuance amount has yet to be finalised. The issue would be underpinned by a series of sale and purchase transactions to meet the sharia’s requirement that financing deals have to involve specific assets. Japan has been keen to develop its Islamic finance market, and state-owned Japan Bank for International Cooperation said in 2007 that it wanted to sell sukuk although that plan has yet to materialise.

Where is the Hub of Sharia Transactions?

Gulf News, Bahrain

If London is deemed as the foreign exchange transaction hub and New York for equities, where is the Islamic finance transaction hub? Or is this question ahead of its time? This is not the same as large dollar amount of sukuk listed on Nasdaq Dubai or large volume of sukuk from Malaysia. It's less about listings, and more about liquidity, as the former is attracted to the latter. The world's corporations, governments, banks, funds, and investors look at New York, London, Frankfurt, and Tokyo as places for deploying investments and raising capital. For Islamic finance, the usual suspects of hubs, from London to Bahrain/Dubai to Malaysia, are the appropriate places for Islamic finance transaction hubs. Thus, the concept of a single global Islamic stock exchange or a single hub, representing the $1 trillion (Dh3.67 trillion) industry, may not be viable because of complexities of cross-border regulations and taxes, Sharia standards, and dispersed fragmentation of Islamic finance.

Islamic Banking Share to Reach 15%

Daily Times, Pakistan

The Islamic banking share would increase to 15 percent soon, head of Islamic Banking, Habib Metropolitan Bank, Muhammad Haroon Ahmed said Tuesday. At Karachi Chamber of Commerce and Industry, he said the Islamic banking enjoys the equity of more than Rs 250 billion. Meezan Bank and Bank Islami were considered as pioneers who initiated with separate units and Habib Metropolitan Bank is offering 41 counters for Islamic Banking and aims to expand this function in Karachi, Lahore and Islamabad this year. Head of product development, research and training of Bank, Abdul Jabbar Karimi said Islamic banking in the presence of conventional set-up was increasing with more awareness.

Adaptation of Islamic Economic System to Alleviate Poverty

Daily Times, Pakistan

Ex Governor State Bank, Ishrat Hussain has said that Islamisation of economic system, if adopted and practiced in its true form, at any time in the future will strengthen the economy particularly income distribution and poverty alleviation which have proved elusive under the present western economic model. This will, in fact, eliminate the sources of instability, violence and propensity towards terrorism arising from a sense of deprivation. He said that the introduction of Islamic banking has promoted financial inclusion by bringing those who have so far remained outside the conventional banking system thus deepening the financial sector. “We need to explore the unique features of Islamic finance for the larger good of the society particularly in the context of economic growth and poverty alleviation. Islamic finance can be a powerful tool for inclusive growth and amelioration of the conditions of poor in the Muslim countries,” said Hussain.

Takaful Insurance Sector to Grow in 2010

Business Insurance, USA

The takaful insurance and reinsurance sector is likely to continue to grow in 2010, according to a report by Standard & Poor’s Corp. S&P said the market for takaful insurance and reinsurance, which complies with Islamic Sharia law, is supported by high levels of growth and an increase in profitability. In a report, “Takaful Insurance Has Long-Term Viability and Benefits from Expected Growth, but Stiff Competition Exists,” S&P said particularly strong growth is likely in Malaysia and the Gulf Cooperation Council states of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
But the takaful market is becoming highly competitive and is suffering from the impact of global investment markets on returns, factors that “place an ongoing strain on sustainable development,” Neil Gosrani, a credit analyst at S&P in London and one of the report’s authors, said in the report.

Sukuk Gain to Six-Month High on Global Growth

Bloomberg Businessweek, USA

Islamic bonds are trading at their highest level in more than six months as companies reach agreements with creditors to restructure debt and the global economy recovers. The Dow Jones Citigroup Sukuk Index, which measures the performance of Islamic bonds globally, closed at 120.53 yesterday, the highest since Nov. 30 and leaving it 3.8 percent short of the record set Nov. 25. The index has climbed 6.3 percent from its low in December, helped by Dubai World’s May 20 agreement to restructure part of its $23.5 billion of debt. “That was a big boost for the global sukuk market,” said Zeid Ayer, who helps manage $1.6 billion of Shariah-compliant equities and bonds in Kuala Lumpur for Principal Global Investors and Malaysia’s CIMB Group Holdings Bhd., which have an asset management joint venture. “Restructuring deals help to bring a lot more clarity to the situation.”

Malaysia Leads in Filling Shariah Service Gaps

Bloomberg Businessweek, USA

The Islamic finance industry is catching up with Malaysia in offering a full range of services, supporting growth in an industry with $1 trillion in assets, said the chief executive officer of CIMB Islamic Bank Bhd. Malaysia has a Shariah-law compliant alternative for every conventional product available because of its early start, Badlisyah Abdul Ghani said in a June 25 interview in Kuala Lumpur. Automobile financing complying with the religion’s ban on interest accounted for 80 percent of new loans last year, said Badlisyah. There’s no industry “handicap” or lack of demand, only the need for appropriate regulations, he said. “We don’t have much difficulty in introducing new Islamic financial products in Malaysia as there is an effective product- development approval process,” said Badlisyah. CIMB Islamic is a unit of Malaysia’s second-biggest banking group CIMB Holdings Bhd. “In most other markets the process is not that clear, and most of the time you have to go through a cumbersome process of getting clearance from different regulators.”

Pakistan Plans Sukuk Bills to Lure Gulf Banks

Bloomberg Businessweek, USA

Pakistan, the world’s second-largest Muslim nation, plans to expand its Shariah-compliant banking industry and attract more investors from the Persian Gulf by boosting sales of sukuk bills. State Bank of Pakistan is seeking to sell sukuk maturing in a year or less in the domestic market in the quarter ending September, spokesman Syed Wasimuddin said in an e-mail yesterday. The plan is part of an effort to double Islamic banking services in the next three years to 12 percent of the total. The securities pay profit rates rather than interest.

Islamic finance: The Next Big Thing

KippRepot, UAE

At a recent meeting in Dubai, lawyers from several international firms talked about the legal issues surrounding Islamic finance. In spite of their reputation, involvement from lawyers signifies maturation of the market. More than 75 countries are involved in Islamic finance, and there are consulting firms built around advising companies and banks about Shariah-compliance. “Where we are in Islamic finance today is where [foreign exchange] was in 1971. We are on the cusp, technology is the next phase,” the global head of Islamic finance for Thomson Reuters, Rushdi Siddiqui, says.
But while these developments give reasons to hope that Islamic financing will soon move from an alternative to a mainstream option, the market still faces critical challenges. Experts say a lack of consistent rulings on Shariah compliance, short supply of Shariah scholars, isolation from broader financial markets, and constraints on the time-frame of debt instruments are major challenges to the growth of Islamic finance.

Bermuda Looks to Middle East for Financial Expansion

Investment International, USA

Bermuda finance and business sectors are looking to expand and regard Bahrain as a gateway into the Middle East’s financial markets, it is claimed. President and chief executive officer of Bermuda’s Stock Exchange, Greg Wojciechowski, said that a recent visit to Bahrain had convinced him that the Gulf state offers Bermuda’s financial community a remarkable opportunity to develop commercial relationships thorough out the GCC region. During the visit, which also included Bermuda’s Minister of Finance, Paula Cox, delegates met with Bahrain’s top government and business leaders prior and attended the first Bahrain/Bermuda conference on Global Financial and Insurance Services.

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