Category Archives: Innovations and developments

Abu Dhabi Islamic Bank issues world-first Basel III compliant Sukuk

Abu Dhabi Islamic Bank issues world-first Basel III compliant Sukuk

Source: http://www.ifre.com/adib-pushes-sukuk-boundaries-via-perp/21051902.article

Investor appetite for bank capital issuance from emerging market lenders shows no signs of abating, with Abu Dhabi Islamic Bank printing a blowout deal last week that was the first Basel III-compliant sukuk issue.

The innovative Hybrid Tier 1 non-call six perpetual note offering raised US$1bn at 6.375% on the back of an incredible US$15bn book from 330 orders as private bank accounts, predominantly in Asia as well as in other regions, European fund managers, and even the odd sukuk investor scrambled to get their hands on the paper.

“There was a huge response to the roadshow, which underpins the groundbreaking nature of the transaction,” said James Nelson, director, bond syndicate at Standard Chartered, which co-led the deal with HSBC, Morgan Stanley and NBAD.

Rival bankers were critical of the execution process that saw pricing ratchet down by 62.5bp from initial guidance of the 7% area. “Investors are not happy when the pricing is dragged so tight and the books get so big in the process,” said one official.

While acknowledging that the tightening was aggressive, bankers close to the deal argued that it was in line with the performance of other recent bank capital transactions.

Gazprombank’s US$1bn perpetual non-call 5.5-year note issue started in the mid to high 8% range and was priced at 7.875%, for example, while a US$575m perpetual non-call six issue for Friends Life began in the mid-8% range before also pricing at 7.875%.

“It was key to engage every investor in this price discovery process and test yield sensitivities, given the innovative nature of this trade,” said Souhail Mahjour, an official on the EMEA debt syndicate desk at HSBC.

Part of the challenge for the leads was the wide range of investor views during the roadshow, with one account arguing that the notes should come at low to mid-5% at one extreme, while others sought 8% at the wide end. “You could drive a bus through investors’ views,” said one banker.

One way to calculate fair value is to take ADIB’s outstanding senior 2016 notes, which were trading at a bid yield of 2.80% earlier last week, and work backwards.

Assuming that a new 10-year non-call five Tier 2 issue from the lender would come 80bp back of that for the subordination and then a another 30bp or so for the curve extension, fair value for that bond offering would be in the high 3% area. Adding a further 150bp–220bp for the difference between Tier 2 and old-style Tier 1 for some emerging market banks takes fair value from high 5% to low 6%.

Private anchors

As expected, private banks anchored the trade, taking 60% of the allocation, followed by fund managers at 26% and banks at 11%. By geography, Asia was the biggest recipient with 38%, followed by the Middle East at 32%, Europe at 26% and US offshore at 4%.

The sukuk investor base was a marginal participant in the trade.

“The local investor base – dominated by banks – wasn’t expected to play as big a role as they usually do for a sukuk issue as they have limited scope to buy other banks’ capital instruments,” said Mahjour. “Only the most overcapitalised banks had the power to buy pieces of this trade.”

Key features of the structure include an issuer call option in year six and on every periodic payment date thereafter, coupon resets (without step-ups) every six years and non-cumulative coupon suspension (optional and mandatory), subject to a dividend stopper.

One banker added that the Tier 1 structure was perfectly attuned with Sharia principles, given that the flexibility to cancel coupons and the perpetual maturity provided equity-like features to the instrument. The deal is unrated. ADIB’s senior ratings are A2/A+; Moody’s/Fitch.

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Depositor-controlled Shariah board mechanism suggested

Depositor-controlled Shariah board mechanism suggested

Source: http://arabiangazette.com/islamic-banking-reform/

A group of Islamic scholars have proposed that banks’ sharia boards create partnerships between the boards and Muslim depositors, to insulate the boards from pressure exerted by bank managements and counter allegations of conflicts of interest.

Sharia boards, composed of experts in Islamic financial law, supervise Islamic banks’ activities and products to make sure they conform to religious principles, such as bans on interest and pure monetary speculation.

Banks commonly appoint prestigious scholars to their sharia boards and pay them handsome fees and retainers. This has left the system vulnerable to charges of conflict of interest: the scholars are being paid by the institutions which they are supposed to be supervising impartially.

A group of scholars in South Africa, led by Durban-based Ebrahim Desai, a senior figure in the city’s Muslim community, proposed that Muslim depositors in each bank fund a sharia compliance body that would be created separately from the bank.

The body would then hire a Sharia board to supervise the bank. In this way, the scholars on the board would not be appointed by or report to the bank’s management, and would not have a direct financial relationship with the bank.

“We seek a neutral and balanced position,” Desai said by telephone, adding that freed of subjection to bank managements, sharia boards would be able to play more strategic and powerful roles in governance.

“This would be in line with the larger interest of the Muslim community in upholding sharia law by maintaining the ultra-independence of the sharia supervisory board.”

Emraan Vawda, a colleague of Desai, argued that by their nature, banks were ill-suited to policing their own Islamic activities. “Commercial concerns in the overwhelming majority of Islamic banks far outweigh genuine commitment to Islamic values and precepts,” he said.

The proposal is likely to meet with considerable scepticism in the Islamic finance industry. Desai said many institutions had approached him to discuss his proposal but he declined to name them, saying the talks needed to be kept confidential.

One potential issue is whether depositors would be willing to fund the sharia compliance bodies; to compensate for this expense, they might demand higher returns on their money placed with the bank, which the bank might not be willing to provide.

Banks themselves might be reluctant to give authority over their activities to a separate body, while highly paid Islamic scholars might prefer to continue working for bank managements rather than being subject to groups of depositors who could prove more awkward and demanding.

One sharia board member in Dubai, who declined to be named because of the sensitivity of the issue, said the scholars in the South African group were not experienced in the financial world and were instead mostly community-based.

Such scholars can command great influence within their communities and give products informal endorsements to win mass appeal, but they cannot necessarily rule on the finer points of financial contracts, he said.

Desai and Vawda said they had served eight years on the sharia board of South Africa’s First National Bank (FNB), the retail arm of South Africa’s second-biggest bank FirstRand, where they provided their services at no cost to FNB.

By avoiding financial remuneration, the scholars hoped their decisions would be free of influence, and they rejected several offers to be on FNB’s payroll, Desai said. “We were not dictated by money but dictated by principle.”

However, working for free is unlikely to become a new model for the mass of Islamic scholars, given the lucrative fees available in the industry.

Desai, Vawda and the rest of FNB’s sharia board resigned in July, complaining that the bank had failed to consult with the board on several occasions, and hired a new head of its Islamic finance business without input from the board.

FNB said it aimed to appoint a new sharia board by the end of this year and would draft clear rules and roles for the board, which would not include approving appointments of senior personnel. It said the previous head of its Islamic finance business resigned after the bank conducted an investigation into “internal processes and practices of the businesses aligned to internal governance practice”.

MasterCard for Muslims points way to Mecca

MasterCard for Muslims points way to Mecca

sign-to-mecca

Source: http://bottomline.nbcnews.com/_news/2012/10/12/14372544-mastercard-for-muslims-points-way-to-mecca?lite

A Gulf state-owned bank has rolled out a new MasterCard that not only complies with Islamic laws banning loans with interest but also includes an embedded compass pointing the way to Mecca.

The new card from Al Hillal bank in United Arab Emirates is the latest in a growing array of banking products aimed at the world’s 1.6 billion Muslims that comply with Shariah, or Islamic law.

“We continue to see a growing demand, especially in the Middle East, for Islamic banking in general, and more specifically in our case, for cards that are Shariah-compliant in accordance with the tenets of the Islamic faith,” MasterCard spokesman James Issokson said.

Shariah forbids “riba” or the charging of interest on loans because it could enable the rich to exploit the poor, encourages risk, and creates social and economic disharmony, according to Abed Awad, an expert on Islamic law who teaches at Rutgers and Pace universities.

Scholars say Muslims can pay interest when there are no other options to get the funds they need. Credit card operators get around the prohibition by charging users fees instead of interest rates.

In addition to the electronic compass that helps users orient themselves toward for prayers five times day, the new MasterCard offers other benefits. Card users are eligible for travel vouchers that can be used to pay for the Haj pilgrimage to Mecca, which Muslims are required to do at least once in their lifetime if they can afford it.

A percentage of the money spent using the card is donated to local charities, said Issokson.

Islamic banking is a huge industry with more than 500 Shariah-compliant funds around the world holding $1.5 trillion in assets, a third of which were launched in the past seven years, according to the Gulf Daily News, a publication based in Bahrain. Some of the products are available in the United States, where there are about 2.5 million Muslims.

Michigan-based University Bank offers Shariah compliant home financing, deposit products and commercial financing through its University Islamic Financial Corp business. Guidance Residential, which is based in Reston, Va., offers residential mortgages in more than a dozen states, according to its website.

Pakistan’s Meezan Bank launches ‘Laptop Financing’

Pakistan’s Meezan Bank launches ‘Laptop Financing

 

 

Meezan Bank has launched a new consumer financing product that will allow customers to purchase laptops on easy installments. The new product called Laptop Ease is being offered for repayment periods ranging from 3 months to 24 months. The bank will not charge any profit or return for customers who opt for the 3 month or 6 month installment plan. The product has been launched in collaboration with M/s. New Horizon and is available for only HP laptops. M/s. New Horizon will provide two years warranty with parts along with nationwide after sales services at the customers’ doorsteps.

 “Meezan Laptop Ease” through which customers can purchase Hewlett-Packard (HP) laptops, equipped with the latest features under a Halal financing scheme, is another step towards achieving Meezan Bank’s Vision of making Islamic banking the banking of first choice. Through this Riba-free facility, customers will be able to acquire laptops at easy installments for periods ranging from 3 to 24 months.

Laptop Finance is based on the concept of Musawamah which is a general and regular kind of sale in which price of the commodity to be traded is bargained between seller and the buyer without any reference to the price paid or cost incurred by the former. Thus, it is different from Murabaha in respect of pricing formula. Unlike Murabaha, seller in Musawamah is not obliged to reveal his cost. Both the parties negotiate on the price. All other conditions relevant to Murabaha are valid for Musawamah as well.

An MoU for this arrangement was signed between Meezan Bank and New Horizon at Meezan Bank’s Head Office.  Mr. Mohammad Raza, Head of Consumer Banking of Meezan Bank and Mr. Rahim Eqbal, COO of New Horizon signed the MoU.

 Speaking at the occasion, Mr. Raza said that Meezan Bank has an active focus on developing customer-friendly, Islamic alternatives to conventional banking products, in line with its Mission to offer a one-stop shop for innovative value-added products and services to the customers within the bounds of Shariah.

Islamic micro lenders set up global network

Islamic micro lenders set up global network

Islamic Microfinance Network (IMFN) has been set up to assemble the international Islamic Microfinance organisations on one platform, a statement said. 

The IMFN head office is in Lahore and its regional offices will be in Ghana, Mauritius and Middle East. 

According to IMFN official the board members of IMFN are Farida Tariq, Chairperson, Amjad Saqib, Vice Chairman, and Muhammad Zubair Mughal, Chief Executive Officer. 

Kawako Yasuma, CEO, Ghana Islamic Microfinance Bank, Mohammad Raffick Nabi Mohamod, Founder, AlBaraka Multi-purpose Cooperative Society, Mauritius and Khaleeq-uz-Zaman, Head of Shariah Islamic Banking, International Islamic University, Islamabad are working as directors Islamic Microfinance Network.

The core objective of this network is to provide best methodologies of Islamic microfinance, Shariah guidelines, and human resource to the industry.

Third working group meeting of Islamic Microfinance Network was held on Thursday at Lahore University of Management Sciences (LUMS) where national and international microfinance organisations took part. 

Zubair Mughal said that the trend of Islamic microfinance is rapidly increasing in Pakistan and all over the world. He said that there are 14 Islamic microfinance organisations working in Pakistan and more than 200 are playing active all over the world. One of the major reasons of this rapid popularity of Islamic microfinance is the failure of the typical microfinance and India is the open precedent of its failure. 

He said that the initial member countries of Islamic Microfinance Network are Iraq, Jordan, Yemen, Ghana, Mauritius and Kazakhstan.

Farida Tariq said that this network could prove to be an excellent source of poverty alleviation and institutional building.

Amjad Saqib added that the objective of this network is to assemble Islamic microfinance organisations at one platform.

Khaleeq-uz-Zaman and Syed Mohsin praised the effort of giving synergy to Islamic microfinance organisations.

Source: http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=27170&Cat=3&dt=1/23/2011

US legal win to boost Islamic finance: Case against insurer AIG’s Islamic investments dismissed

US legal win to boost Islamic finance: Case against insurer AIG’s Islamic investments dismissed

Lawyers said a U.S. court decision to dismiss a case alleging AIG’s <AIG.N> sharia-compliant businesses promoted religious doctrine, will boost confidence in the industry and lift sales of Islamic products in the longer term.

A Michigan district court rejected on Friday a claim filed by Marine veteran Kevin Murray in 2009 that the U.S. government violated the constitution by allowing funds from insurer American International Group’s $40 billion bailout to be used to fund its Islamic insurance businesses.

Lawyers say the case is significant for the industry in the United States, which has struggled with a backlash against Islam, and is looking for support from the courts and government to promote Islamic finance as a legitimate business.

“The decision … debunks the myth that Islamic finance is unacceptable and unlikely to withstand legal challenges to its validity in court,” said Megat Hizaini Hassan, head of Islamic finance at Malaysian law firm Lee Hishammuddin Allen & Gledhill.

“Once the financial services industry in the US realises that there should be no major legal issues, then hopefully this may help to make Islamic finance more acceptable in the mainstream.”

Islamic finance has been plagued by criticism in the U.S. that it is a means of funneling funds to terrorists or a plot by Muslims to spread a system of Islamic principles known as sharia has plagued the industry in the U.S.[ID: nLDE6971BO]

In his opinion, District Judge Lawrence Zatkoff, said the plaintiff did not prove that AIG’s sharia-compliant businesses engaged in religious indoctrination.

The distinction between sharia-compliant business as a financial model and overall Islamic law, is a positive step for Islamic finance growth in the U.S., lawyers said, but is just one battle won as the industry seeks to grow.

“The case helps the industry by putting the fringe element that is fearful of sharia in its place,” said Isam Salah, partner at King & Spalding in New York. “But I expect we’ll see more of these kinds of cases as we see a multi-pronged effort to combat all things Islamic in the U.S.”

An appeal of the ruling has already been filed to the Sixth Circuit Court of Appeals, said David Yerushalmi, Murray’s attorney and general counsel for the Center for Security Policy.

“Sharia compliant finance is a religious endeavour, there is no way you can separate it from political Islam,” Yerushalmi said. “Sharia can’t be cut up and diced, it’s an integral whole.”

Source: http://ph.news.yahoo.com/rtrs/20110118/tbs-lawsuit-islamic-7318940.html

Habib Bank Limited Islamic Banking launches Al-Ziarat Account for Hajj and Umrah

HBL Islamic Banking launches Al-Ziarat account for Hajj and Umrah

Habib Bank Limited on Monday launched ‘HBL Al-Ziarat Account’ as Haj & Umrah saving plan. The product is based on the concept of Modaraba and under the scheme, bank will provide Takaful also. At the launching ceremony, HBL President Zakir Mehmood said that rising Non Performing Loan (NPLs) is a major challenge for the banking industry and banks with the central bank assistance are taking several initiatives to curb the rising NPLs.

He said that Islamic banking is a different segment and using the new technology, HBL Islamic banking is being operated through different accounts. “HBL Islamic banking accounts are totally different from its conventional banking accounts and presently deposits of Islamic banking stand at Rs 6.3 billion,” he said. Keeping on mind the essence of Islamic economic system ie welfare of the society and sharing of the benefits, HBL has introduced this account, he added.

It is an immense desire of every Muslim to perform Haj & Umrah but due to high cost it is not possible for most of us to perform Haj & Umrah at will, he said and added that however, this unique product will enable Muslims to perform their religious duty under the saving plan ranging from 6 months to 20 years.

Zakir said HBL is the largest private sector bank in Pakistan with more than 1,450 branches nation-wide and HBL Islamic Banking is on fast track and its operation has increased to 19 dedicated Islamic banking branches across Pakistan offering Islamic Banking products and services from 206 branches of retail, commercial & corporate centers directly linked to the dedicated Islamic banking branch of the concerned region.

This product is initially offered through selected branches of HBL and more branches will be engaged on need basis, said Muhammad Aslam head of Islamic Banking HBL while giving the details of the product. “Under this product intending pilgrims wilt join the saving scheme by opening HBL ‘Al-Ziarat Account’ with any of 225 branches of HBL spread across the country,” he added The account will be opened in the Islamic Banking branch of HBL through either dedicated Islamic banking branch, as HBL has attempted to offer the service at the doorstep of the pilgrim, he said.

In addition, the life of the pilgrim will be covered through family Takaful coverage from Pak Qatar Family Takaful free of cost. The Takaful cost will be borne by HBL, Aslam added. At the time of opening of account, the pilgrim will nominate a relative to perform Haj-e-Badal or Umrah if needed and in case of pilgrim’s death during the plan, any shortfall between the target amount and savings will be paid by Takaful operator and the nominee will perform Haj or Umrah in place of the deceased.

Source: http://www.brecorder.com/news/money-and-banking/pakistan/1144640:news.html