Category Archives: Around the world

Bombay Stock Exchange launches Islamic index

Bombay Stock Exchange launches Islamic index

Stock Exchange

The Bombay Stock Exchange (BSE) in the Indian city of Mumbai has launched a new index which consists of companies that meet the Islamic legal code.

The Tasis Shariah 50 was formed using guidelines from an Indian Shariah advisory board.

Studies have found that most Muslims in India are excluded from the country’s formal financial sector.

That is because Islamic law does not allow investment in companies that sell goods like alcohol, tobacco or weapons.

Neither does it allow investment in companies that derive significant profit from interest.

The index is intended to be the basis for other Shariah-compliant financial products.

‘Come and invest’

BSE Managing Director and Chief Executive Madhu Kannan said that the new index would attract Islamic and other "socially responsible" investors both in India and overseas.

"This index will create increased awareness of financial investments among the masses and help enhance financial inclusion," he said in a statement.

Companies included in the index have been screened by Tasis, which is based in Mumbai and whose board members include Islamic scholars and legal experts.

"Before anyone can attract investors, we need to put in place institutional infrastructure, and having an index to track Shariah-compliant stock is important," MH Khatkhatay, senior adviser to Tasis, told the Reuters news agency.

"If you have an ETF (exchange traded fund), for example, you need an index, or if overseas investors want to invest in Shariah index in India, this is an invitation for people to come and invest."

Tasis said the index would "unlock the potential for Sharia investments in India".

"The BSE has the largest number of listed Sharia-compliant stocks in the world," said Shariq Nisar, director of research and operations at Tasis.

"All Muslim countries of the Middle East and Pakistan put together do not have as many listed Sharia-compliant stocks as are available on the BSE."

Stocks will be reviewed every month to ensure they continue to meet the criteria – any which do not will be removed, officials say.


Dubai’s first Shariah compliant REIT launched

Dubai’s first Shariah compliant REIT launched


Dubai Islamic Bank (DIB) launched the emirate’s first Shariah-compliant real estate investment trust to aid in the recovery of the country’s battered real estate sector, top executives said on Tuesday.

Emirates REIT, a joint venture between DIB and French property firm Eiffel Management, looks to attract Shariah-compliant property such as office buildings, warehouses, schools and car parks and convert the rental income into dividends for investors, said Adnan Chilwan, chief of retail banking at DIB.

Around 80 per cent of the REIT’s annual profit will be distributed to shareholders as a dividend.

The initiative was a move by DIB to help fuel growth in the UAE’s struggling real estate market by allowing investors to take income-producing real estate assets from their balance sheets and receive tradeable shares in the REIT, Chilwan said.

"We are cautiously optimistic but, of course, much depends on the acceptance in the market," he said.

Mark Inch, chairman of Eiffel Management, said the firms expect the REIT to generate 5 to 10 per cent in returns over time and the companies expect the REIT to come to market "in the near future."

DIB provided the seed financing by moving seven of its own properties throughout the UAE into the REIT, executives said. Properties will be based in the Dubai International Financial Center.

DIB’s chief executive Abdulla Ali Al-Hamli said the REIT will initially look to draw capital from the local market but plans to expand to attracts funds throughout the region and then globally.

Executives said that 51 per cent of investors must be from the Gulf Cooperation Council but all investors would have access to non-freehold real estate invested in the REIT.

In September, Dubai Islamic Bank raised its stake in troubled Islamic lender Tamweel to 57.33 per cent, effectively rendering the mortgage lender a subsidiary of the bank, in a move that was expected to help revive lending in Dubai’s property market.


Naymet Islamic Microfinance to launch Islamic microfinance product in Pakistan

Naymet Islamic Microfinance to launch Islamic microfinance product in Pakistan

<strong>Location: </strong> Hyderabad, India
<strong>Industry: </strong>Financial Services
<strong>2007 Sales: </strong> NA

Grameen Bank, the organization founded by Nobel Prize winner Muhammad Yunus, may be the best-known practitioner of microfinance, which provides small loans and other financial services to the poor. But advisory board member Tarun Khanna, a professor at Harvard Business School, believes Hyderabad, India-based SKS Microfinance (privcapId=26522095) could have even more impact. (Khanna is on the board of the organization.) For one, it's "unabashedly for profit," Khanna says, which means it's growing fast and plowing those profits back into building new systems and greater scale. Already, SKS has 14,000 employees and 3.5 million customers throughout India, and is adding 300,000 new customers each month.

Pakistan’s AlHuda-Centre of Islamic Banking (CIBE) and Economics has signed a Memorandum of Understanding with Naymet Islamic Microfinance to develop Islamic Microfinance Products for Naymet Microfinance.

AlHuda CIBE will operate manuals of Islamic financial products. It will provide accounting and auditing measures, Shariah supervision, and help in training staff members. It will also facilitate Naymet Islamic Microfinance in advisory for Shariah complaint I.T solutions.

Mr. Muhammad Zubair Mughal, Chief Executive Officer, AlHuda CIBE said that Alhuda Centre of Islamic Banking and Economics is very eager to develop Islamic Microfinance products. He added that Islamic microfinance is not only developing within Pakistan but Bangladesh, Lebanon, Syria, Malaysia, Indonesia South Africa and other countries are also benefiting from the products of Islamic microfinance.

President, Naymet Islamic Microfinance, Mr. Shahid I. Mohammad said, "It’s our privilege to establish a working relation with AlHuda CIBE. Islamic microfinance products will be very beneficial in developing Shariah complaints industry. It will be a step forward to flourish a web of Islamic microfinance products network in Pakistan that will be very poverty alleviation and uplifting the economy of the country".


First French Islamic bond seen early 2011

First French Islamic bond seen early 2011


The first Islamic bond issue out of France could happen early next year, the chief executive of the French Deposits Guarantee Fund said on Wednesday.

Thierry Dissaux, also a former special adviser for financial affairs at the French Treasury, said at a conference in Dubai: "At the beginning of 2011 we could see the first sukuk under French law."

Dissaux said guidelines for certain financing structures including sukuk, ijara and murabaha were approved in August by the tax regulators. Approvals for other structures, such as the investment agency, wakala, and limited partnerships known as mudaraba should be passed in the coming weeks, Dissaux added.

He said once the legal framework was approved, it would open the door for corporates to issue sukuk in France.

Declining to be more specific, Dissaux said: "These issuers could be corporations already active here in the GCC."

Dissaux said sharia scholars at the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), the industry’s regulatory body, had approved the French sukuk issuance model in November, with minor adjustments.

France and Britain are keen to take a lead on sukuk issuance in Europe, although appetite on the continent has been dampened in the wake of wranglings over debt in Dubai.

Dissaux said while Britain had been far ahead, the gap had closed in recent months.


Brunei eager to move forward in Islamic finance

Brunei eager to move forward in Islamic finance


Brunei’s involvement in Islamic finance came about by way of the establishment of Tabung Amanah Islam in 1991. Tabung Amanah, the country’s first Islamic trust fund, was established to help local Muslims undertake their holy pilgrimage. Not long after, it was followed by the county’s first Islamic bank, the Islamic Bank of Brunei (IBB).

Currently, Bank Islam Brunei Darussalam (BIBD), a merger between IBB and the Islamic Development Bank of Brunei, is the largest and only Islamic banking provider in Brunei with assets totaling BND4.98 billion (US$3.81 billion).

Despite a large Muslim majority, (about 67% of the population), this oil-rich nation did not see much development in the area of Islamic finance until 2006 when the ministry of finance launched the Banking Order and Insurance Order, established the Brunei International Financial Centre, launched its first Sukuk and introduced the Shariah Financial Supervisory Board on a national level. This was seen as a much needed boost to open the Islamic banking industry in Brunei for its locally based companies and for foreign Islamic banks to plant their operations in the country. For the Takaful industry, the Takaful Order 2008 provided regulation to the industry that helped create a level playing field with the conventional insurance companies.
Similarly, tax incentives play an important role in creating a level playing field for Brunei’s Islamic finance industry. Previously, the taxation imposed on Islamic banking was similar to its conventional peer. This caused Islamic financial institutions to once be subjected to a 30% corporate tax and an additional 2.5% zakat contribution. According to Sri Anne Masri of ETHICA Consultants, the tax incentive now allows Islamic financial institutions (IFIs) in the country to deduct the 2.5% zakat contribution from the required 30% corporate tax while receiving an exemption from stamp duty as well. Javed Ahmad, BIBD’s acting managing director, said that there were concerted efforts by the government to make Islamic banking attractive in Brunei.

Brunei does not have a central bank and as such, all formulation of policies and supervision of financial services are regulated by the ministry of finance. The country’s Shariah Financial Supervisory Board approves all Islamic financial products and services offered at national level.

The bulk of the Islamic banking assets are from the institutional sector, which in turn derives its assets from the retail market. Financial institutions in the Sultanate are known for their excess liquidity. According to Sri Anne, statistics provided by the ministry of finance’s financial institutions division (FID) revealed that the loan-to-deposits ratio (LDR) has been quite low compared to that of international standards. “At the moment the IFIs in Brunei are still in the developmental stage of growing their investment banking sector. Hopefully, infrastructure development projects in Brunei will assist in the growth of the investment sector as it calls for an active participation locally and regionally. This is a growing challenge for IFIs as Brunei is a small player in the international arena,” she said.
On the surface, there seems to be a lack of innovative products being offered in Brunei’s Islamic finance industry. Javed explained that product development was determined by market demand. On a retail level, the market demand of Brunei differed from many others in the region because there is no personal income tax or capital gains tax. He believes product innovation takes place as a result of tax requirement. At the corporate level, he said the bulk of companies – mainly oil and gas – did not generally borrow, resulting in very little requirement for debt capital.

“So it is not that we are complacent but it depends entirely on customers’ needs. They have not been very demanding due to the no-income tax regime, while large industries are very high cash generators; and should the need for expansion arise, it would normally be obtained through internally generated funds,” he said. However, he explained, as privatization of public sector services such as telecommunication, electricity and water in Brunei occur, so too will the opportunities of borrowings from banks.

On the other hand, Sri Anne offers an alternative insight on what she terms as “the uniqueness” of the financial scene in the country. She explained that the government is focused on developing and shaping its society into the culture of saving and being debt-free, a truly Islamic concept. Among the government’s initiatives is the reduction of consumer lending by 30% and the curb on credit card spending.

Sri Anne believes that before innovative products — retail or institutional — can be introduced, Bruneians have to be educated on how to save and invest wisely while Islamic banks would have to deliver products that are truly Islamic. She feels that these symbiotic elements need to exist to make Islamic finance successful and meaningful. “I believe Brunei cannot compete with the likes of Malaysia or Singapore as an Islamic financial center. However, Brunei can create its own unique brand for its own people (market) then export the model to other Islamic centers globally,” she said.

Sukuk in Brunei continues to be dominated by sovereign issuances, with the first coming in 2006 based on the Ijarah concept. To date, there has been only one corporate Sukuk issuance, Brunei LNG’s BND100 million (US$71.7 million) Ijarah issue.

According to Sri Anne, Sukuk issuance has been solely driven by the government to lower excess liquidity in the market although there are no regulatory restrictions on corporate Sukuk issuance. “Maybe in the near future, with the upcoming infrastructure and development of Brunei and a good understanding of the process from corporate players for alternative financing, increased market players and participation from other than the few financial institutions, I am sure there are endless possibilities given the right ingredients,” she said.

The progress of Brunei’s Islamic finance industry is due to its want of size, noted several of the country’s academicians. There is a need to enhance Islamic banks and Takaful companies in terms of product offering and innovation, corporate governance and human capital. Local analysts say an overseas expansion would be the appropriate next step for this oil-rich nation. When asked, Javed did not dismiss this proposal but said BIBD would have to first strengthen its base by investing in its human capital and technology, something that has been ongoing for the bank over the last two years. Javed said: “We do not want to rely on manual processes so a lot of the investment we are making is really for state-of-the-art technology that will truly transform the bank in terms of how we serve our customers.”

He added that despite having several opportunities come its way, there was nothing, the bank felt, worth venturing into. Javed said the criterion for expansion was having investments that would be independently managed due to BIBD’s lack of management capacity.

According to Brunei’s ministry of finance, Islamic banking assets in 2009 stood at about BND6.3 billion (US$4.81 billion), or 40% of the total banking sector growth in Brunei. This percentage, which rose from 33.9% in 2008, is expected to grow to 55%–60% over the next three to five years. If positive statistics are of any indication to the sign of the times, then Brunei Darussalam is slowly but surely setting the stage for exponential growth in Islamic finance.