Category Archives: United Arab Emirates

S&P Reports ‘Sukuk’ Market is Growing, Despite ‘Some Roadblocks’

Insurance Journal: S&P Reports Sukuk Market is Growing, Despite Some Roadblocks


A report from Standard & Poor’s Paris office – The Sukuk Market Has Continued To Progress In 2009 Despite Some Roadblocks – notes that new issues of "sukuk (bonds compliant with Islamic law) topped $9.3 billion in the first seven months of 2009 compared with $11.1 billion during the same period in 2008.

"The smaller amount of issuance was due not only to the still-challenging market conditions and drying up of liquidity, but also to the less-supportive economic environment in the Gulf Cooperation Council countries, particularly in the United Arab Emirates," explained credit analyst Mohamed Damak.

"The medium-term outlook for the sukuk market remains positive, though, in our view, given the strong pipeline–with sukuk announced or being talked about in the market estimated at about $50 billion–and efforts to resolve the major difficulties impeding sukuk market development."

Malaysia has taken the lead as the major country of issuance for sukuk, accounting for about 45 percent of sukuk issuances in the first seven months of 2009. Issuers in the Kingdom of Saudi Arabia have contributed another 22 percent of sukuk issued during the same period.

S&P pointed out that the "default of a couple of sukuk was possibly partly responsible for the slowdown in issuance. The silver lining was that these defaults should provide the market with useful information on how sukuk will behave following default."

World’s first shariah-compliant law firm opened in Dubai

World’s first shariah-compliant law firm opened in Dubai

United Arab Emirates-based law firm Agha & Shamshi is believed to be the first firm in compliance with Islamic law, a move which the firm’s founding partner, Oliver Agha, said is motivated by principle and philosophy. “The vision is to create a firm that lives true to the principles of Islamic finance, which means having an ethically based law firm that ensures it is practicing law. Also, not engaging in activities that are impermissible under the shariah,” Agha said in a radio interview with talk show FM station, Dubai Eye.

But just how does a firm operate in compliance with shariah principles? Agha said that Agha & Shamshi abstains from investing the funds at its disposal in conventional instruments. More significantly, the firm turns away clients and legal work that does not comply with Islamic principles, like those in the casino or interest-lending businesses.

“We have had to turn work away,” Agha said. “We have had to say ‘no’ to conventional finance work. Large banks asked us to represent them on conventional transactions, which in my past life would have been fantastic. We have had to say ‘no’ to dispute resolution matters that entailed pursuing a debt with interest. So these are the sort of things that we have had to decline … because we’re sticking to our principles.”

Agha said that even with having to turn away work as a result of its shariah-compliance policy, there is still more than enough on offer. “We believe that in this region there ought to be enough business to allow a small firm like ours to get by,” he said. “Let’s not forget that a huge amount of law has nothing to do with interest-bearing debt. You have projects, construction and EPC contracts, energy projects, and project finance done through Islamic financing. There is a lot that we can keep busy with and we will be able to do that.”

Agha also made headlines late last year, after walking away from a top position as DLA Piper‘s head of Islamic Finance. In January, he opened his own firm and formed an alliance with US firm Pillsbury, citing the “right cultural and strategic fit” between the two businesses. At the time, Agha had intended to develop his firm “based on ethical Islamic principles.”

But this is not the only legal business to have signalled interest in structuring itself along shariah-law lines. In late July 2009, UK firm Norton Rose highlighted the importance of Islamic finance to its long-term Gulf strategy, and strongly implied that a similar model may be on the cards. “The spread of Islamic finance and principles in international business is set to continue,” said Middle East international managing partner and head of finance, Campbell Steedman. “An understanding of Islamic culture and the development of shariah-compliant products throughout all our practice areas will be an essential part of both our development and the development of the market, in the years ahead.”


DIFC Authority releases updated version of ‘Guide to Islamic Finance’

DIFC Authority releases updated version of ‘Guide to Islamic Finance’

dubai tower

The Dubai International Financial Centre Authority today announced the release of the updated version of its ‘Guide to Islamic Finance in or from the DIFC’.

Apart from incorporating the new landmarks in the evolution of its model Islamic insurance regulatory framework and operating practises, the latest publication also takes into account the changing overall scenario as a result of the ongoing financial crisis that is gripping the world.

At the same time, the publication retains and expands on its original aim of assisting those parties from within the region and outside, who are interested in learning about the rapidly expanding world of Islamic finance.

The publication provides a summary of the underlying concepts in Islamic finance and examines the issues facing the Islamic financial services industry, both in DIFC and beyond; now and in the future.

The Islamic Financial services industry is growing at a phenomenal rate. What emerged as a niche industry has now pervaded almost every major financial market in the world. Markets are seeking to introduce Islamic products under various labels like Islamic Finance, Shariah-compliant Finance, or even Alternative Finance, but whatever title is used, it is without doubt one of the fastest growing financial sectors in the world. Most global banks either have a subsidiary or a division dedicated to Islamic Finance.

Abdulla Al Awar, Chief Executive Officer of DIFC Authority, pointed out that the DIFC had identified Islamic Finance as one of its major pillars even before it became globally popular. “Since then the DIFC has successfully worked towards becoming a hub for Shariah-compliant finance.

“Perhaps now is the opportunity for Islamic Finance to come out from the shadows of conventional finance and provide financial products in line with Shariah to an investor base that is currently unsatisfied and unsure of the conventional financial system,” he said.
There are many factors for this phenomenon. Many conventional forms of banking and insurance have been prohibited or restricted in the Islamic World on the grounds that they contravene the tenets of Islam.

But, in recent years, there has been a dramatic growth in Islamic or Shariah-compliant financial products, reflecting a number of trends including changes in Islamic law such as the approval in 1985 by the Grand Counsel of Islamic scholars of the Takaful system as the alternative form of insurance written in compliance with Islamic Shariah and the emergence of an international market in Sukuk (Shariah-compliant) bonds.

Other factors are economic development giving rise to infrastructure and other projects which require Shariah-compliant forms of financing, rising incomes among the Arab population resulting in the need for Islamic consumer financial products such as insurance, mortgages, pension plans and investment funds, and changing demographics resulting in the growing need for pensions and other retirement savings products.

The publication points out that the total size of the Islamic Banking industry is currently estimated to be between US $800 billion to $1trillion, and is estimated to have a global potential of $4 trillion. It is growing at 15-20 per cent per annum and within the next 8-10 years Islamic banking industry is projected to capture half of the savings of the world’s 1.6 billion Muslims.

Currently, market penetration amounts to an estimated 20 per cent of the Arab population. This figure is expected to rise dramatically and it is expected that within the next decade, 50 to 60 per cent of the total savings of the world’s 1.2 billion Muslims will be in the form of Shariah compliant products.

More interestingly, as conventional banking faces troubled times, Islamic banking, which is asset-backed as opposed to debt-based, offers a viable alternative and is becoming increasingly popular in global financial capitals such as London, which ranks second after Dubai in terms of the number of listed sukuks.

The publication says assets under management in Islamic Funds are estimated to be between $50-70 billion and the total value of sukuks issued is valued at more than $88 billion, of which $13 billion is listed on NADAQ Dubai.

Hari Bhambra, Senior Partner, Praesidium, said: “Islamic Financial Institutions based in the DIFC are clearly ready to respond to this opportunity and this publication provides information on the manner in which Islamic Finance can be offered in or from the DIFC.

“Praesidium has developed this publication with the DIFC Authority to assist those parties interested in learning about Islamic finance generally and gaining an understanding of the operating environment of the DIFC,” he said.

Bhambra said the publication provides a summary of the underlying concepts in Islamic finance and examines the issues facing the Islamic financial services industry, both in DIFC and beyond; now and in the future.

It also sets out the regulatory environment developed by the Dubai Financial Services Authority (DFSA) for Islamic finance and the scope for the application of such requirements to new product offerings, such as Shariah-compliant REITs.

Read the guide here

Dubai Bank launches new service for women

Dubai Bank launches new service for women


Dubai Bank, a leading bank offering a comprehensive range of Shariah-compliant products and services, has announced the launch of  “Amirah,” a new service for its female customers.

“Amirah” (princess in Arabic) provides enhanced, targeted and more personalised services to the women that bank with Dubai Bank, said a top official.

As part of the new service, the bank has created exclusive areas within some of its branches, enabling women to carry out their banking transactions with greater comfort and privacy, explained Mohammad Amiri, head of Retail Banking group at Dubai Bank.

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Sukuk transparency needed to spur growth: Moody’s

Sukuk transparency needed to spur growth: Moody’s


The Islamic finance industry needs to be clearer about the nature of its sukuks, or Islamic bonds, if their growth is to be sustained in the long term, ratings agency Moody’s said in a reported on Wednesday.

The nascent Islamic finance industry is debating whether it should replicate conventional financial products or develop its own structures.

"For the long-term health and sustainability of the market, Moody’s believes all parties need to be very clear about the ‘substance’ of the underlying sukuk risk in question to avoid the situation where some parties will be confused … by complex Islamic terminology or legal jargon," the report said.

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