Category Archives: Growth

Colleges Expanding Shariah Courses Amid Scholar Shortage

Colleges Expanding Shariah Courses Amid Scholar Shortage

University-Degree

Universities are expanding Islamic finance courses as demand for professionals qualified in Shariah law outstrips supply in the $1 trillion industry.

The International Islamic University of Malaysia plans to start postgraduate courses specializing in Shariah-compliant capital markets, banking and insurance after enrollment for its general program in finance complying with Muslim tenets tripled in the past year, said Professor Mohd Azmi Omar, the dean of the institute. La Trobe University in Melbourne, which started classes this year, is working with officials in Malaysia to offer industry-recognized qualifications.

A lack of skills is among the biggest challenges for the expansion of global Islamic banking, said Washington-based Patrick Imam, an economist at the International Monetary Fund. About 50,000 professionals will be needed over the next five to seven years to meet demand, according to Ishaq Bhatti, the director of La Trobe’s Islamic banking and finance program.

“There are very few people who are really good at both finance and the interpretation of Shariah law,” Imam said in an e-mailed reply to questions on Dec. 10. “To do Islamic banking you must be fluent in finance and Islamic principles, and typically they are either one or the other.”

Industry Standards

The Islamic finance industry, with assets the Kuala Lumpur- based Islamic Financial Services Board estimates will climb to $1.6 trillion by 2012, is developing global standards to improve regulations. The Manama, Bahrain-based Accounting & Auditing Organization for Islamic Financial Institutions said a shortage of scholars increases the risk of conflicts of interest as many sit on various advisory boards.

Sheikh Nizam Yaquby of Bahrain and Syria’s Abdul Sattar Abu Ghuddah, who each serve on 85 boards of Islamic financial institutions, ranked first among the top 20 religious experts in an October report from Zawya, an online Middle East business news and directory, and Funds@Work AG, a Kronberg, Germany-based consulting company.

Experts are preparing the first standardized certification for scholars. A permanent committee is due to be selected by year-end to work on setting up a body to issue permits for those qualified to sit on Shariah boards, Aznan Hasan, the president of the oversight committee, said in an Aug. 30 interview in Kuala Lumpur.

“You could see the hunger and the thirst for Islamic finance when we first announced this program in July 2009,” La Trobe’s Bhatti said in an interview on Oct. 28 in Kuala Lumpur. “Initially, we thought 100 people were going to register, then we started getting very high-profile requests from governments and the industry, so we increased it to 200.”

Thailand, Senegal

Thailand, Senegal and Sudan are among countries seeking to tap the wealth of the world’s 1.6 billion Muslims by selling Islamic bonds, which are vetted by scholars for compliance with Shariah law.

Global sales of sukuk, which pay returns based on asset flows to comply with the religion’s ban on interest, fell 28 percent this year to $14.5 billion from the same period in 2009, according to data compiled by Bloomberg. Issuance reached a record $31 billion in 2007.

Shariah-compliant bonds returned 12 percent in 2010, the HSBC/NASDAQ Dubai US Dollar Sukuk Index shows, while debt in emerging markets gained 13 percent, according to JPMorgan Chase & Co.’s EMBI Global Diversified Index.

Malaysia Yields

The difference between the average yield for sukuk in developing nations and the London interbank offered rate has narrowed 160 basis points, or 1.6 percentage point, to 308 this year, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index.

The yield on Malaysia’s 3.928 percent sukuk maturing in June 2015 was little changed today at 3.06 percent, according to prices from the Royal Bank of Scotland Group. The extra yield investors demand to hold Dubai’s government sukuk rather than Malaysia’s was also little changed at 342, data compiled by Bloomberg show.

The U.K.’s Durham University, Al-Azhar University in Cairo and Ethica Institute of Islamic Finance in Dubai also offer Islamic finance courses. Harvard University in Cambridge, Massachusetts, runs an Islamic legal studies program through its law school, according to data on its website.

Durham University

Schools and colleges are facing a shortage of teaching staff for Islamic finance courses as demand increases, said Professor Rodney Wilson, a lecturer at the Centre for Middle East and Islamic Studies at Durham University.

“We need to appoint more staff” as Durham only has four lecturers for the classes, Wilson, who is based in London, said in an e-mailed response to questions yesterday.

La Trobe University is working with Malaysia’s Kuala Lumpur-based International Centre for Education in Islamic Finance to gain approval to provide the Chartered Islamic Finance Professionals certification, said Bhatti.

The Institute of Islamic Banking and Finance at the IIUM will start a Masters in Islamic capital markets in September 2011 in conjunction with the Malaysian Securities Commission, the institute’s dean said in an interview on Dec. 6.

“We have bankers, lawyers and fresh graduates attending our classes,” said Mohd Azmi, who also teaches Islamic capital markets at Trisakti University in Jakarta, Indonesia.

Source: http://www.bloomberg.com/news/2010-12-13/colleges-expanding-shariah-courses-amid-scholar-shortage-islamic-finance.html

To contact the reporters on this story: Soraya Permatasari in Kuala Lumpur atsoraya@bloomberg.net; Suryani Omar in Singapore at somar6@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

Indian Centre for Islamic Finance (ICIF) urges introduction of Islamic banking in India

Indian Centre for Islamic Finance (ICIF) urges introduction of Islamic banking in India

Gateway_of_India

The Indian Centre for Islamic Finance (ICIF) has made out a strong case before Prime Minister’s Economic Advisory Council member V. S. Vyas for introducing interest-free banking in the country at the earliest to ensure “inclusive growth with innovation” in accordance with the recommendations of the Planning Commission’s Raghuram Rajan Committee.

An ICIF delegation from New Delhi, led by its general secretary H. Abdur Raqeeb, met Prof. Vyas at Yojana Bhavan here over the weekend to impress upon him the need for creating a framework to provide benefits of banking products and services to the marginalised sections of society, when “serious questions” were being raised about the utility of the micro-finance model.

Prof. Vyas, who is also deputy chairperson of the Rajasthan Planning Board, had observed at a dialogue on “Ethical issues in planning and management” here recently that Islamic economic principles for equitable distribution of wealth to the poor and the needy could provide answers to some of the challenges of modern economy.

Spurred by Prof. Vyas’ remarks that the Islamic financial system could be further explored, the ICIF delegation made a detailed presentation before him while suggesting introduction of a pilot project with the public, private and foreign banks operating in India to open an “interest-free Islamic banking window” within the existing Indian banking regulations in Mumbai for one year before deciding the future course of action.

Mr. Abdur Raqeeb pointed out that certain faiths, including Islam, prohibit use of interest-based financial instruments and perceive them as promoting usury and exploitation. Since a large number of people belonging to these communities are in the economically disadvantaged strata of society, they are unable to access banking products and benefit from the country’s economic growth.

Financial reforms

A high-level committee on financial sector reforms under Dr. Raghuram Rajan appointed by the Planning Commission in 2008 had stated that the delivery of interest-free finance on a larger scale, including through banking system, would be “in consonance with the objectives of inclusion and growth through innovation”. Prior to this, the Reserve Bank of India constituted a working group in 2006 to examine the instruments used in Islamic banking. Mr. Abdur Raqeeb told The Hindu here that he had requested Prof. Vyas to prevail upon Prime Minister Manmohan Singh, Union Finance Ministry and RBI to accept the high-level committee’s recommendations in the wake of setbacks in the micro-finance institutions as well as the RBI’s recent efforts for funding new rural branches through a pilot project in the north-east region receiving a “serious jolt”.

Significantly, the Prime Minister had recently asked the RBI to look into the Malaysian model of Islamic banking during his visit to Kuala Lumpur. Dr. Singh had observed that he would recommend to the RBI to look at “what is happening in Malaysia in this regard” while referring to the demands for experimenting with interest-free banking.

The ICIF delegation presented to Prof. Vyas some documents on the “financial tsunami of 2008” and the Islamic perspective of why it happened as well as the remedies. Mr. Abdur Raqeeb said the Islamic finance instruments had the potential to provide satisfactory services to the daily wage earners, farmers and below poverty line families.

“Islamic finance can cater to the needs of the growing population in the cities and come up with innovative products in the sectors such as insurance, mutual fund, capital market, trading loans, real estate and small infrastructure development projects,” said the ICIF general secretary, adding that huge investment flows from Muslim countries in Middle East and East Asia were waiting for the Islamic banking doors to be opened in India.

While emphasising that financial exclusion of large segments of population was adversely affecting socio-economic and educational uplift of the masses, Mr. Abdur Raqeeb called upon Prof. Vyas to join the efforts for providing a level playing field to interest-free banking along with the conventional banking model.

The ICIF also requested Prof. Vyasto look into the Maharashtra Government’s recent pact with Bahrain-based Gulf Finance House, which will be investing 10 billion U.S. dollars over the next seven years for setting up an integrated economic development zone near Mumbai. A similar venture in Rajasthan would immensely benefit the people of the State.

Islamic bonds

A reference to the Kerala Government’s initiative for establishing an Islamic finance model, which has since been challenged by Janata Party leader Subramaniam Swamy in the High Court, was also made at the meeting.

The Kerala Government is reportedly looking at Islamic bonds as another form of venture capital to build airports, introduce high-speed trains and develop expressways in future.

Source: http://hindu.com/2010/12/14/stories/2010121460600300.htm

UK leading the world in Islamic Finance

Zawya: UK leading the world in Islamic Finance

london bridge

Following the success of the World Islamic Banking Conference (WIBC) in Bahrain, the UK has been praised as the leading Western centre for Islamic finance and one of the world’s most attractive destinations for Islamic banks.

The conference, supported by UK Trade & Investment (UKTI), included an expert panel from the UK, which led debates on the future of the sector, both in the UK and around the world.

This panel included three members of the UK Islamic Finance Secretariat, as well as representatives of leading advisory firms.

They spoke to a large audience of Islamic wholesale and retail bankers from across the Gulf region and beyond, as well as advisors and other professional service providers specialising in Islamic Finance.  

The panel looked at the pitfalls and opportunities for Islamic finance in light of the global economic downturn and opportunities for growth in the sector, with some estimates putting its value at over US$4 trillion in the coming years.

Leading industry speakers said:

"Small corporates looking at sukuk issuance are favouring UK law – it’s a safe pair of hands. We have recently been asked to look at several issuances particular for this reason and also due to the experience we have in the UK working with international institutions," said Kazi Rahman, Lawyer, Wragge & Co.

Richard Thomas, CEO, Gatehouse bank said, "The UK is the number one centre for co-operation with other Islamic finance centres such as Bahrain and Malaysia."

"There is a great opportunity for investment and commercial banks to raise awareness of an alternative source of finance," said Sultan Choudhury, Director at the Islamic Bank of Britain.

"The UK is one of the most attractive banking destinations, particularly when it comes to Islamic finance. Rules and laws facilitate the use of Islamic products," said Darshan Bijur, Director of Islamic Finance Advisory, KPMG

The Panel challenged the audience to learn from UK experiences and implement changes within their own institutions.

The UK, and especially London, has been working to move the Islamic Finance sector from niche to mainstream over the last decade, with wide expertise and a financial infrastructure that is uniquely placed to support Islamic banking.

In the UK there are 18 major law firms providing legal services in Islamic Finance; Five stand-alone Sharia-compliant banks; Providers of education in Sharia compliant finance; Five of the largest national professional services firms with Islamic Finance teams based in London providing Sharia-complaint services.

The WIBC has been running for 17 years, and is the world’s largest and most influential gathering of Islamic finance industry leaders. This year there were over 1,200 international delegates from more than 50 countries.

Source: http://www.zawya.com/story.cfm/sidZAWYA20101213110927/UK%20leading%20the%20world%20in%20Islamic%20Finance

Middle East Sukuk bond returns increase by six times over last quarter

Middle East Sukuk bond returns increase by six times over last quarter

coin2

Islamic bonds in the Persian Gulf are returning six times more this quarter than in the previous three months as Dubai-based companies restructure debt and economic growth in the region accelerates.

Sukuk sold by the six-country Gulf Cooperation Council have returned 2.9 percent since June 30, compared with a 0.5 percent gain in the second quarter, according to the HSBC/NASDAQ Dubai GCC US Dollar Sukuk Index. The average yield on the debt narrowed 83 basis points, or 0.83 percentage point, in the past six weeks to 6.65 percent and reached an eight-month low of 6.49 percent on Aug. 3, according to the HSBC/NASDAQ GCC Index.

Bonds in the region that comply with Shariah law may extend gains after the International Monetary Fund said in a report on July 7 that gross domestic product growth in the Middle East will quicken to 4.5 percent this year from 2.4 percent in 2009. State-owned Dubai World said on July 22 it will complete a restructuring of its $23.5 billion of liabilities in “coming months,” while real-estate unit Nakheel PJSC said a group of creditors supported a proposal to alter the terms on $10.5 billion of loans and unpaid bills.

“The Middle East may be coming out of its economic woes, so there is a better chance that its debt will be attractive for the region’s investors,” Muhammad Asad, who oversees the equivalent of $210 million as chief investment officer at Al Meezan Investment Management Ltd., the largest Shariah-compliant fund in Pakistan, said in an interview yesterday in Karachi. “The restructuring and economic recovery are positive signs.”

DP World Sukuk

A rally in the 6.25 percent dollar-denominated sukuk due 2017 issued by DP World Ltd., the world’s fourth-biggest container port operator, pushed the yield down 131 basis points since June 30 to 7.33 percent, according to data compiled by Bloomberg. The yield on the Dubai Department of Finance’s 6.396 percent sukuk due in November 2014 declined 56 basis points to 7.13 percent in the same period, prices from Royal Bank of Scotland Group Plc show.

Transactions in the Islamic financial services industry are based on the exchange of asset flows rather than interest to comply with the religion’s principles. The majority of sukuk are of the Ijarah type, which are based on a sale and lease agreement as in real estate.

Property prices in Dubai, the Persian Gulf’s financial hub, retreated more than 50 percent from their peak in 2008 as the global credit crisis led to a cut in mortgage lending and pushed companies to slow expansion, according to estimates from Colliers International. The GCC countries are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

Rally ‘Impressive’

“The rally in GCC sukuks has been impressive so far but stabilization of the real-estate sector, which is usually a big component of sukuk structures, is needed,” Ahmed Talhaoui, the head of portfolio management at Bahrain-based Royal Capital PJSC, which is 44 percent owned by United Gulf Bank BSC, an investment bank in Bahrain, wrote in an e-mail yesterday.

Global sales of sukuk dropped 28 percent to $7.85 billion so far in 2010, according to data compiled by Bloomberg. Persian Gulf issuers sold $2.5 billion, compared with $3.2 billion a year earlier.

Islamic bonds sold by Middle Eastern borrowers have returned 9.4 percent this year, according to the HSBC/NASDAQ Dubai GCC US Dollar Sukuk Index. Shariah-compliant notes that include issues from the Persian Gulf to Southeast Asia and the U.S. gained 9.1 percent in the period, the HSBC/NASDAQ Dubai US Dollar Sukuk Index shows. Debt in developing markets increased 12 percent, JPMorgan Chase & Co.’s EMBI Global Diversified Index shows.

Attract Investors

The difference between the average yield for emerging- market sukuk and the London interbank offered rate widened five basis points yesterday to 401, the highest level in more than two weeks, according to HSBC/NASDAQ index. The spread has narrowed 66 basis points this year.

Higher sukuk yields in the Persian Gulf relative to Asia make the bonds more attractive, according to Abu Dhabi Islamic Bank PJSC, the United Arab Emirates’ second-biggest Shariah- compliant lender.

The yield on Malaysia’s $1.25 billion of 3.928 percent Islamic notes due 2015 sold in May dropped two basis points today to 2.84 percent and reached a record-low 2.82 percent on Aug. 11, RBS prices show. The rate has dropped 100 basis points since the notes were issued.

“The return is likely to be higher in the GCC not because of their performance, but because it’s the only way to attract investors to this market,” Naeem Ishaque, senior manager of the international division at Abu Dhabi Islamic Bank, said in an interview yesterday. New issuers will have to offer higher returns, said Ishaque, whose bank had 68.3 billion dirhams ($18.6 billion) of assets in the second quarter.

Islamic Finance coming of age: KPMG – Frontiers in Finance

Islamic Finance coming of age: KPMG – Frontiers in Finance

Last year may go down in history as the watershed year for the financial services industry. However, as Dr. John Lee and Anita Menon explain, while Islamic finance was not entirely unscathed by the vagaries of the economy and the contagion effect of the conventional finance sector, the industry still recorded compounded annual growth rates of 28 percent from 2006 to 2009. Islamic banks also recorded an increase in assets by 28.6 percent in 2009 to US$822 billion.1

This in itself is interesting, as a couple of years ago at the height of the previous growth cycle for Islamic finance, many felt that the true test of the resilience of the system would be when there was a shock to the system, and when the liquidity in the Middle East dried up. However, skeptics would also claim that this was due to Islamic institutions general investment prohibitions which meant that they were less exposed to subprime assets.

2009 also saw the entrance of a number of new players which indicate that interest in this burgeoning sector is as yet, unabated. As at end 2009, there were 1,124 Islamic financial institutions globally.2 While issuance of sukuk3 dropped in 2009 on the back of tightening liquidity and concern on possible defaults, the demand for quality sukuks continued to be there and issuance increased by 40 percent for the first 10 months of the year, as compared to the corresponding period in 2008.4 Saudi Arabia led the issuance followed closely by Malaysia; with one of the largest issuances by Malaysia’s national oil and gas company Petronas totaling US$1.5 billion.

Outlook for the rest of this year and into 2011

The outlook for the remainder of 2010 remains positive with some analysts saying5 that Saudi Arabia is expected to continue to lead issuance, although investors are expected to be somewhat spooked by the recent Dubai World crisis, sukuk defaults and the problems seen to be encountered by some of the institutions in the Middle-East. Dar-Al Arkan, Saudi Arabia’s largest property developer by market value, successfully issued a sukuk in February this year raising US$450 million and analysts believe that the number of issuances for the rest of 2010 is likely to grow to pre-crisis levels.

KPMG in Malaysia’s analysis indicates that the Islamic finance market is steadily growing both deeper and wider, with the emergence of new Islamic finance markets such as the Maldives, Korea, Kenya, Nigeria and also stronger interest from EU countries like France and Italy. Korea for instance, is currently working on amendments to its legislation that may see the first Korean sukuk being issued as early as 2010 or 2011. In Malaysia, the interest continues to grow and, among the recent liberalization measures is the issuance of two new Islamic banking licenses to foreign players; with a paid-up capital of at least US$1 billion, along with two family Takaful licenses towards the middle of this year. Malaysia continues to be a leading market outside the Middle East with assets of almost 11 percent of the global market and with Islamic assets making up almost 19 percent of the banking and finance market in Malaysia. However, the UK is emerging as a key market holding close to 2.5 percent of global assets.6

Within the Asia-Pacific region, relative newcomers such as Singapore and Hong Kong have expressed their desire to also become centers, while the most populous Muslim nation – seen by many as the next big growth zone – Indonesia has still a long way to go if estimates of asset size are anything to go by. Bank Indonesia, the central bank of Indonesia, has indicated that shariah assets are projected at US$7.6 billion as at end 2009, which places the nation’s Islamic finance assets at 2-3 percent of the total banking assets.7 This is attributed to the nascent infrastructure and regulatory system for Islamic finance. While there is a new law which was set to be effective in April 2010 that would remove the double-taxation on some Islamic banking transactions, there are still issues around this area that hold back the otherwise huge untapped potential in this country.

The global Muslim population is continuing to grow faster than the non-Muslim market; recent estimates place the Muslim population at 1.57 billion, 23 percent of the global population.8 There is also a large Muslim population in the Asia-Pacific region – China for instance has more Muslims than Syria; while Russia has more Muslims than Jordan and Libya combined. This translates to immense opportunities for shariah compliant finance in as yet untested markets. The potential for Islamic finance continues to be enormous. The only impediment to its growth may be that the conventional regulatory structure is currently unable to support the introduction of Islamic products.

Through the adoption of a progressive face as opposed to an overtly religious tone, in countries such as Malaysia, the Islamic finance industry has continued to make inroads in the non-Muslim market. This may also be the approach adopted in countries such as India and certain African countries with large Muslim populations, but, where the projection of an Islamic face would be anathema to the political regime.

Islamic finance is also gaining acceptance where it is seen as an ethical alternative to the conventional system, bridging the gap between socialism and capitalism. According to the Vatican’s official newspaper Osservatore Romano in its March 2009 issue, “The ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service.” Ethical investors also are drawn to the principles that underlie Islamic financial transactions. Therefore growth is expected to come from this segment of consumers as well who are not necessarily attracted by its faith-based appeal, but more from its socially responsible outlook.

The future of Islamic finance

The ongoing debate on whether products are shariah compliant or shariah based and the lack of standardization, continues to be an issue. Additionally, other major hurdles that remain or have become more apparent with the recent financial meltdown include:

  • the need for robust risk management practices that would be able to drive product innovation and development;
  • the need for a legal and regulatory framework for dispute resolution, especially on cross-border transactions;
  • the ongoing requirement for trained practitioners in this field that have a strong understanding of shariah requirements, but are also in tune with market and consumer demands.

Notwithstanding that, many Islamic institutions are expected to undergo a transformation in their approach and strategy, and more importantly in their business models as well. This will enable them to encompass more of the ideals of shariah principles and to move away from the predominance of debt-based structures as in the past. When Islamic finance was first introduced into the market, the approach was to adopt products that were familiar to the generation of consumers and clients brought up on conventional financial products. Therefore, Islamic financial products were shariah compliant mirrors of their conventional equivalents. Furthermore, the initial target market was retail customers who are generally risk-averse and therefore, fixed rate products were more appealing to this segment of the market.

Increasingly however, a radical shift from the current norms will be required and this would fuel the anticipated growth in Islamic finance. The pursuit of social objectives would gain emphasis alongside the pursuit of commercial objectives; since Islamic finance is meant to be the antithesis of the previous conventional financing norms – where excessive risk-taking led to the ultimate downfall of many players. The financial crisis has heightened the interest in Islamic finance and it’s future; the concepts of risk-sharing should be ingrained further through the development of more profit and risk sharing mudaraba and musyaraka products. This would require a shift in banking business models as well. Increased product sophistication and market awareness-building would also need to go hand-in-hand with the advancement of the financial and legal infrastructure.

Over the next 18 months Islamic finance institutions are expected to come of age.

1. Banker’s Top 500 Islamic Financial Institutions survey published in association with HSBC Amanah, www.ameinfo.com/214968.html, November 5, 2009.
2. “The Future of Islamic Finance”, Financial Times Special Report, December 8, 2009.
3. sukuk – an Islamic financial certificate, similar to a board in Western finance, that complies with shariah law.
4. “Moody’s reports: Sukuk issuance surges, dominated by government-related issuers,”Global Credit Research, www.moodys.com, November 10, 2009.
5. “Saudi seen leading 2010 sukuk issuance,” www.reuters.com, February 17, 2010.
6. Banker’s Top 500 Islamic Financial Institutions survey published in association with HSBC Amanah, www.ameinfo.com/214968.html, November 5, 2009.
7. “Indonesia embracing growth Islamic finance,” www.thejakartapost.com, April 5, 2010
8. “Global muslim population hits 1.57 billion,” www.cbsnews.com, October 7, 2009.

Source: KPMG – Frontiers in Finance June 2010