Archive for Islamic Finance

First Sharia-compliant capital savings plan launched in the UK

June 16, 2008 at 11:17 am · Filed under Al Buraq, Islamic Finance, UK, United Kingdom ·Tagged ,

First Sharia-compliant capital savings plan launched in the UK

By Richard Harris | 16:12:15 | 13 June 2008

Alburaq, the London arm of Bahrain-based Arab Banking Corporation (ABC) today launched what it says is the UK’s first shariah-compliant capital protected savings plan.

The product, which is being offered in partnership with the Bank of Ireland, allows savers to deposit between £500 and £1 million in a five year account, as an alternative to a guaranteed equity bond.

Keith Leach, head of Alburaq at ABC, said despite growing availability of Islamic home finance products there had previously been a dearth of options for Muslims wishing to save money in accordance with their religious beliefs. The new account was an easy way for Muslims to gain exposure to equity markets in a secure way, he added.

‘There are restrictions on the type of companies that are considered allowable,’ he said. ‘The companies must not be over reliant on debt nor must they be engaged in activities that conflict with the principles of shariah.’

‘Many of these principles will be similar to those required by ethical investors.’

The core principle of Islamic finance is that interest is forbidden, though according to Shariah law investment in companies which profit from the sale of alcohol, pork or pornography, for example, is also forbidden, or ‘haram’. Alburaq has a committee of independent scholars to ensure shariah compliance.

At maturity on 5 September 2012 savers will receive their initial capital plus 100% of any gain in the performance of 20 shares selected from the global Dow Jones Islamic Titans 100 Index.

Source: http://www.citywire.co.uk/personal/-/news/money-property-and-tax/content.aspx?ID=305719

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Dubai creates $10bn Islamic investment firm

May 17, 2008 at 8:27 am · Filed under Dubai, Dubai Banking Group, Islamic Finance, Islamic Investment, News ·Tagged ,

Dubai creates $10bn Islamic investment firm
by Reuters on Tuesday, 06 May 2008

Dubai Holding, a group of companies owned by the ruler of the wealthy Arab emirate, said on Tuesday it will consolidate two units to create a sharia compliant investment firm, tapping into the fast-growing market.

The company plans to combine Dubai Islamic Investment Group and Dubai Bank in a new entity called Dubai Banking Group, which would invest across the Middle East, Africa and South East Asia.

” [It] will… aggressively target significant direct investments and acquisitions in a wide range of sectors across the world’s biggest Islamic markets,” Soud Ba’alawy, chairman of Dubai Group, the financial services arm of Dubai Holding which will manage Dubai Banking Group, said in a statement.
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A nearly six-fold rise in oil prices since 2002 has flooded the Gulf with cash that bankers are scrabbling to invest. At the same time, demand from the world’s 1.3 billion Muslims for investments that comply with their beliefs has soared.

Islam bans interest, and demands that risk and reward be shared between all participants in a business venture. It also prohibits investments in some business sectors, such as alcohol and pornography.

In January, Dubai’s Noor Islamic Bank started operations. The lender is 25% owned by the government of Dubai and 25% by Dubai ruler Mohammed bin Rashid Al-Maktoum, also vice president and prime minister of the UAE.

Dubai Banking Group will be competing with firms including Bahrain-based Islamic investment banks Gulf Finance House and Arcapita.

Gulf Finance House said earlier this week it would build a cement company worth up to $2 billion to take advantage of a construction boom while Arcapita said Tuesday it bought Pinnacle Real Eastate, a European warehouse firm, for an undisclosed sum.

Dubai Banking Group already has investments in Islamic financial institutions in the UAE, Kuwait and Malaysia which combined are worth more than $10 billion.

Dubai is trying to diversify its sources of income away from the energy sector, and has promoted itself as a global financial services hub.

Source: http://www.arabianbusiness.com/518573-dubai-holding-creates-new-islamic-investment-firm?ln=en

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Variety is the spice of life in Islamic finance

April 26, 2008 at 10:34 pm · Filed under Analysis, Islamic Finance, Shariah ·Tagged

Variety is the spice of life in Islamic finance

Reuters
Published: April 26, 2008, 00:35

Despite growth rates at least twice as high as those recorded on global conventional financial markets, the Islamic financial industry remains fraught with diversity and heterogeneity, says Moody’s Investors Service in its special report entitled Islamic Banks and Sukuk: Growing Fast, but Still Fragmented.

Modern Islamic finance is a recent phenomenon. Only 30 years have passed since the first fully fledged Islamic financial institutions (IFIs) emerged, and the market for Sukuk (Islamic bonds) was virtually non-existent as recently as the beginning of this century.

Today, estimations tend to value the Islamic financial industry – which comprises about 300 Sharia-compliant banks, takaful (or Islamic mutual insurance) companies and mutual funds in line with the principles of Islamic finance – at more than $700 billion in terms of assets.

“The market for Sukuk alone, accounting for around $100 billion at year-end 2007, has exceeded the GDP of a country the size of Morocco,” says Anouar Hassoune, a Moody’s analyst and author of the report.

Moody’s notes that current excess liquidity prevailing in Gulf econ-omies since 11 September 2001 has fuelled both sustained demand for the products supplied by IFIs and the booming expansion of the market for Sukuk, while contributing to creating a very close link between Islamic banks and what remains to date a relatively illiquid compartment of the bond market. Nevertheless, the rating agency expects liquidity in the Sukuk market to improve gradually as the variety of Sukuk issuances widens.

Not only are volumes expected to exceed $150 billion by the end of the current decade, but the nature, geographic location and credit quality of future issuers are also expected to considerably evolve and diversify.

At this stage, the Islamic financial industry remains very much intermediated – or, in other words, more widely dominated by financial intermediaries capturing deposits to recycle them into on-balance-sheet asset portfolios than by disincarnated, de-territorialised and virtual capital markets.

Weakly co-ordinated

Moody’s notes that some 90 per cent of Sharia-compliant assets are concentrated on IFIs’ balance sheets and on those of conventional banks offering Islamic financial services and products through “Islamic windows”. Islamic finance is becoming increasingly “internationalised,” but essentially remains a collection of disseminated and still weakly co-ordinated local operations.

“A number of forces within the Islamic financial universe tend to contribute to its fragmentation. The core principles underlying Islamic financial products, although subject to vast consensus as to their formal content, remain differently interpreted and differently weighted in practice,” says Hassoune.

In Moody’s opinion, the lack of technical and contractual standardisation impedes the capacity of Islamic finance, as an alternative financing and investment model, to enhance its globalisation process, without necessarily forbidding its internationalisation.

Initiatives aiming at either introducing Islamic finance or strengthening its position are mushrooming across a wider range of countries, whether home to majority Muslim populations or not, but these remain country specific and weakly co-ordinated, despite the sustained endeavour of several cross-border organisations to bring some consistency to the concept.

“Building in prospective views is not an easy task in such a young industry. Nevertheless, we expect the Sukuk market to become more complex, more structured, larger, more diversified and more liquid as it evolves over time,” adds Hassoune.

Equally, IFIs are expected to explore new geographic horizons as well as new business lines, become more competitive and (paradoxically) contribute to the gradual emergence of a more disintermediated Islamic financial industry – one with a reduced presence of Islamic banks.

Source: http://www.gulfnews.com/business/Banking_and_Finance/10208467.html

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The UK’s Development as a Major Marketplace for Islamic Finance

April 23, 2008 at 3:41 pm · Filed under Analysis, Islamic Finance, Islamic Investment, Shariah, UK, United Kingdom ·Tagged , , ,

The UK’s Development as a Major Marketplace for Islamic Finance
Anouar Hassoune, Standard & Poor’s – Emmanuel Volland, Standard & Poor’s – 23 Jul 2007

The UK is set to become the first non-Muslim country to be a major financial centre of Islamic finance. This article looks at the conditions that have allowed Islamic finance to grow in the UK, and how it may move forward.

Competition is heating up among the world’s financial centres to attract Islamic issuers and investors. So far, Dubai, Kuala Lumpur, Bahrain and, to a lesser extent, Riyadh and Singapore, are all well placed to capture part of the booming Islamic finance industry. The latest entrant is London, the only financial centre actively involved in Sharia-compliant market intermediation that is not in a Muslim country. London, as a financial centre, has a number of competitive advantages compared with its emerging-market counterparts, including:

* Large size and international reach.
* Deep, efficient markets, where investors can switch from one asset class to another (including in and out of sukuk).
* Liquidity in the secondary market.
* Tremendous human resources and expertise (including research, analysis, operations, and structuring capabilities).

In addition, the legal environment is robust. The tax regime applicable to sukuk coupons will make them deductible – no longer viewing them as rental payments but equivalent to interest. Announced 21 March 2007, among other initiatives pertaining to Islamic finance, this sukuk-friendly amendment to tax law in the UK stands to make London more attractive for issuing and trading sukuk, although Dubai has been so far the most active trading centre for sukuk notes. The largest sukuk to date were those issued by Dubai-based Nakheel Group for US$3.52bn early in the first quarter of 2007. These notes were listed in both Dubai and London.

The overall size of the sukuk market worldwide is estimated at nearly US$70bn,including issuance from Malaysia, Pakistan and, of course, the Middle East. However, the bulk of sukuk are over-the-counter instruments. Listed sukuk account for only 20-25% of outstanding sukuk issued worldwide, that is, US$10-15bn so far. There are more sukuk listed in Dubai than anywhere else, but the secondary market is virtually non-existent. Second is London, where the secondary market for sukuk totalled less than US$5bn at 21 March 2007. Among listed sukuk, Standard & Poor’s Ratings Services rates close to US$6bn or roughly 50% of sukuk outstanding that is listed globally. New sukuk issuance is expected to accelerate, and could reach US$20-25bn in the next five years, according to the most reasonable forecasts.

We believe that the global Islamic financial industry will benefit from the UK’s development as an attractive marketplace for Sharia-compliant financing and investment instruments – on both the wholesale and retail side. We estimate that up to 300,000 retail customers in the UK would be ready customers for Sharia-compliant banking services. The establishment of these services in the UK would extend the reach of the Islamic financial model – so far still concentrated in a few countries in the Middle East and Muslim parts of Asia. As for wholesale banking, London has the capacity to become a hub for Sharia-compliant financial flows that seek recycling in Europe. For example, Islamic investment banks such as the Bahrain-based Arcapita Bank B.S.C. and Gulf Finance House, both have offices in London where vast amounts of liquidity from the Gulf meet attractive Sharia-compliant asset classes packaged in private equity, real estate, and infrastructure funds domiciled in the more mature and stable European economies.

The UK intends to become a key player in market intermediation for sukuk. Competition from western financial centres is low, as limited appetite for Islamic finance is coming from New York, more interested in facilitating the trading of Sharia-compliant stocks, especially through the Dow Jones Islamic Index and, more recently, through the newly created family of Standard & Poor’s Sharia indices. London, on the contrary, has a wider approach to Islamic finance, encompassing a broader range of financial instruments and asset classes. For example, the Financial Services Authority (FSA) has recently licensed the European Islamic Investment Bank, a wholesale financial institution created expressly to recycle the massive amounts of institutional and private liquidity in the Gulf into Sharia-compliant asset classes originated in mature, stable, and transparent western markets.

The FSA has taken on an Islamic retail strategy in keeping with its mission that aims for inclusion. This principle aims at combating financial exclusion, that is, the incapacity or unwillingness of households to access banking services because of distance, poverty or religion.

Some UK citizens do not actively deal with banks simply because banking in the UK is based on interest, called ‘riba’ in Arabic, considered unlawful according to Sharia, or Islamic law. To prevent Muslim customers being excluded from the banking market because of their beliefs, the FSA has given its green light to established conventional banks to offer Sharia-compliant services. Both HSBC, through its Amanah brand, and Lloyds TSB already offer Islamic banking services.

The FSA has also recently licensed a fully-fledged Islamic financial institution, the Islamic Bank of Britain, to serve the UK retail market with Sharia-compliant products. For Sharia-compliant services to become more comprehensive in the UK, the country needs to offer takaful (or Islamic mutual insurance). Licensing a takaful company or allowing conventional insurers to offer takaful products could be the next step in the UK’s strategy to further enhance its position as a leading Islamic financial centre.

The UK itself might be interested in issuing sukuk notes. Such issuance would be of high interest for investors who adhere to or favour Islamic finance. If the country did so, its issuance would be the second to carry an AAA rating, after sukuk issued by the Islamic Development Bank in 2005 for US$1bn. In addition, the UK would be the third sovereign outside the Middle East to issue Sharia-compliant paper, after Malaysia in 2002 through a US$600m structure called Malaysia Global Sukuk Inc. Japan has also expressed its intention to tap liquidity in the Gulf through the issuance of Sharia-compliant notes. The German State of Saxony-Anhalt has also issued sukuk, through a vehicle called Stichting Sachsen-Anhalt Trust for €100m in 2004.

http://www.gtnews.com/article/6846.cfm

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Islamic finance manages over $500b assets

April 15, 2008 at 11:35 pm · Filed under Islamic Finance, Islamic Investment, News ·Tagged ,

Islamic finance manages over $500b assets

22/03/2008 10:02:00 AM GMT
Islamic banking has emerged as one of the vital pillars of the global economic system.

Islamic banking, with 15 to 20% growth a year, has emerged as one of the vital pillars of the global economic system.

(AJP – Bahrain Tribune) Islamic banking, with 15 to 20% growth a year, has emerged as one of the vital pillars of the global economic system.

Islamic financial institutions (IFIs) are operating in over 75 countries, managing between $500 billion and $1 trillion assets, an economist and member of Bahrain’s Parliament Dr Jassim Hussain said.

In Japan to present a paper on Islamic banking, the MP urged Japan, being one of the top industrialised economies, to join the global trend by adopting the Islamic banking model as an alternative and safe banking and financial system. He made a presentation at the Japan Institute for International Affairs dealing with Islamic banking opportunities in Bahrain.

The audience included professionals from diverse fields such as academics, investors and news agencies. The economist said that IFIs work under strict Shariah guidelines and are based on the basic principle that the money earns return once used in productive or real investment.

He said: “Islamic banking prohibits a guaranteed, predetermined rate of return, making the entire cycle from investment to returns more transparent and open, unlike the conventional way of baking where depositors get a sense of a certain level of returns at the time of deposit.

Islamic finance encourages risk sharing, promotes entrepreneurship, a connect based in creating a welfare state with equal opportunities for everyone and not for a select group of people in each society who holds wealth.

On the socio-economic level as to how investment can play a positive role in building a robust system, Shari’a prohibits investment in some activities such as gambling and liquor. “At the start of the year, some 300 IFIs are operating in 75 countries, managing some $500 billion, and there is a projection to reach a $1 trillion in the next few years.

Talking about Bahrain’s experience, Dr Hussain said Bahrain Islamic Bank was set up 30 years ago – the first ever Islamic commercial bank was opened in 1975 in the United Arab Emirates – and this institution has set a benchmark for other new entities aspiring to become leading Islamic banks.

Total assets of Bahrain-based IFIs (retail and wholesale) 10 years ago amounted to $1.4 billion, increasing to $1.9 billion six years ago, still to $ 8 billion three years ago and $16.4 billion last year.

However, figures do not fully capture full activities of Bahrain-based Islamic institutions (Gulf Finance House’s investments in different countries like $1 billion plus the Jordan Gate project). As of last January, Bahrain boasted some 26 banks plus two special ones dealing primarily with property.

Local, conventional banks offer dedicated branches (Ahli United Bank) offering al Hilal Islamic Banking Services since last October which has a separate Shariah board.

Mostly wholesale (investment), a few commercial global banks provide Shari’a-compliant products (window) like Citi and HSBC.

Islamic banking products include murabaha (trade with a markup or cost plus financing) accounts for three-quarters of the Islamic financial activities, mudaraba (profit sharing), general investments, accounts for 10 per cent of Islamic financial activities, musharaka (equity participation), like joint ventures in ijara (leasing), salam (deferred payment or delivery of goods), sukuk (Islamic bonds) and now credit cards.

The concept of Islamic banking credit cards (with a one-time charge plus fee per transaction) was launched six years ago by Shamil Bank of Bahrain, yet no major breakthrough was experienced but the product is there all the same.

Source: http://www.islamonline.com/news/newsfull.php?newid=102001

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