Category Archives: Islamic Banks

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.

Advertisements

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 finance in the US: Interview with Devon Bank executive

Islamic finance in the US: Interview with Devon Bank executive

Interview with David Loundy, vice-chairman and head of religion- based financing at Devon Bank. Devon is a Jewish community bank in Chicago, offering Islamic finance.

My comments: It is interesting to see David’s answer to the first question on how Devon, a Jewish community bank, got into Islamic finance: due to demand from the community. This shows that while a top-down demand approach is popular, grassroot-level demand that is effectively and appropriately communicated is often equally productive. Western Muslim communities should follow the example of the Chicago Muslim community and press their local banks to start offering Islamic financing options.

QUESTION: How did a Jewish-owned family bank, Devon, in Chicago, get involved in Islamic finance?

Answer: Although many of our shareholders are Jewish, we are a community bank. We were created by a community to serve the needs of that community. That community is in constant flux. Once, it was predominantly Jewish. It is a “new immigrant community”. People move in, get established, bring family from the old country, and then move on.

Our headquarters is supposedly in the most ethnically diverse neighborhood in the Americas. Indian, Pakistani, African, Eastern European, some Arab. This includes a large Muslim population. They asked us for help. We helped. This is part of our mission-serve members of our community in the ways they need to be served.

Our Islamic finance programme derives from a customer who wanted to open a bookstore. They asked if we could help, but without riba. At the time, we said no, and the group found financing from the United Bank of Kuwait (UBK). When UBK was acquired, it sent away all of its US customers. The customer came back and asked for help again. At that point, the head of our International Department convinced management that there was an unmet need.

The bank started looking into options. As word got out, the demand exploded showing there really was a need, and we were in a good position to help. We had done non-interest-based financing before for the observant Jews, but the strong Muslim demand for such products surprised us.

Q: What have been the challenges internally, community and with the regulators?

A: Internally, our biggest challenge has been to line up needed liquidity. We turn away a million dollars of businesses a day. Some of this we are looking to manage with two prospective sukuk issuances. We would like to put in place a larger permanent solution, but it requires raising quite a bit of funding in a bad market. Our second internal challenge is resource allocation. All bank functions must run well, conventional and Islamic.

We are striving to triple our mortgage volume (conventional and Islamic) in the next 18 months, but that requires an investment in staff, technology, and processes to handle higher volume.

The community is not homogenous. 2010 was the bank’s 65th anniversary. We are generally known and respected in the community. People with prejudices do not respect that we are trying to serve the WHOLE community. I laugh at those that think that any entity providing Islamic finance has to, by definition, be donating to terrorist groups. A local synagogue soup kitchen or the Salvation Army are acceptable recipients for any donations.

The worst prejudice comes from competitors who publicly inquire as to how a non-Muslim institution can be an acceptable source of Islamic products. Answer: Because our products are better. Some in the community see our Islamic finance programme as a step towards peace and understanding. Our Muslim customers are just grateful that someone cares about their needs and is accommodating them.

Regulators are also not a homogeneous group. Banking regulators are largely supportive-they see us as “banking the unbanked” – a good thing. After 65 years in business, our regulators know us. They know we are experienced and careful, bankers. However, I often say that “Islamic finance is easy, dealing with the secretaries of state is the bane of my existence”. The amount of detail that goes into fitting the square peg of Islamic finance into the round hole of a conventional regulatory system, which can vary in each of several thousand counties, can be extreme.

Q:. The sub-prime induced credit crisis devastated the mortgage market, how were the Islamic mortgages impacted in Devon’s portfolio?

Devon Bank didn’t do sub-prime mortgages. Our Islamic portfolio has been performing VERY well compared to larger averages and even our conventional portfolio. In our 7.5 years of providing Islamic product, our write-offs have amounted to less than 90 basis points on originations-mostly due to a fraud and not credit loss. We have been careful in our underwriting, but if a customer losses a job, we both have a problem. An Islamic product has restrictions on what workout options are available, but we have been able to successfully arrange several restructurings.

The sub-prime mess disrupted entire markets. It negatively affected property valuations, and thus reserve requirements. It has scared investors, even in the face of great opportunities. A number of vendors are just plain gone. Things are starting to normalise a bit now, but the reverberations from the meltdown will take years to work out of the system.

Q. What is the profile of your typical Islamic mortgage customer, both residential and commercial?

It is fairly broad across the income spectrum. Usually first- or second-generation immigrants. Initially predominantly Indo-Pak, but now covering a much wider geographic origin. Because of our compliance level, we tend towards the more conservative end of the religious spectrum, but we get a broad range here too. We have forced industry pricing down so customers don’t feel punished for their religious observance. Our customers tend to have family networks helping with the purchase. Credit scores are a bit higher, but are often “shallow”.

Down payments are often either particularly high or low-depending on whether customers were saving to buy with cash or assuming they never would be able to buy at all.

On the commercial side, because we are a small bank, our size and location constraints produce some customer selection. They tend to be small business operators and investors; frequent masjid financing inquiries; an occasional inquiry from a Gulf investment bank.

Q: Has the time arrived for a licensed deposit-taking Islamic bank in the US? If not, what are the challenges?

We are between windows of opportunity. Devon Bank made two attempts to buy a bank to convert to Islamic. One was geographically located in a community where it would have also reached a sect of Christians that follow their religion’s prohibitions on interest as well as accommodating Jewish and Muslim prohibitions. US$6-US$9 million (US$1 = RM3.06) would have bought either institution. We could have cleansed the balance sheet and had the bank operating as a “proof of concept” pending further regulatory discussions. Our regulators were willing to see us try and make it happen in the beginning. We did not, however, have investor support.

A new charter is practically impossible to create, and largely un-economic to buy. When the right opportunity comes along, you have days in which to strike and consummate a deal. It takes a special investor who can work that fast on something novel. Now, the regulators are too busy with failing and flailing banks to put the resources into figuring out how to handle an Islamic bank. They know it WILL happen, but they don’t even know what questions to ask. It will happen, but it will be easier in a few years than it will be today.

The more interesting question is about customer demand. A subset of people will only deal with an “Islamic” bank, either out of prejudice or out of concerns over the “purity” of money coming from a conventional bank.

While we do not respect the first view, the second is one of religious conviction that we must acknowledge. There are solutions to this concern besides the creation of an Islamic bank. An end-to-end syariah-compliant bank would need to start small and demonstrate market demand. I believe there is sufficient demand for such an institution, but most plans are from people who don’t understand the US banking market and how it is regulated.

Q: What kind of interest and inquiries have you received from a Gulf or Malaysia-based institution in Devon Bank and its Islamic portfolio?

All of our businesses and funding so far have been from “onshore” sources. To date, we have not had good contacts in Malaysia. They just don’t know us-it has simply been a mismatch of networks. We have had more visits and potential businesses from Indonesians. We have had a number of contacts from Gulf entities, and I have taken several trips to the UAE, but they have been frustrating.

To some, we are a novelty (Oh look! An American doing Islamic finance! Isn’t that cute!). Others see our potential, but we have been the wrong thing at the wrong time. It is a frustration when you schedule a due diligence trip only to have the next eruption in the financial meltdown scare investors and kill discussions; or you read in the news about your potential partner defaulting on a few billion dollars worth of its debt during your discussions. Others are so fixated on winning the biggest prize that they don’t look at the merits of the race – for example, they are more interested in buying a trophy property rather than smaller more profitable ones.

The right people with the right vision WILL line up with the right time. We believe we have a compelling story and Grand Plans capable of execution – just bad timing. When those in the Gulf and in Malaysia are ready for us, we are ready for them. Our performance speaks louder than our “wasta”. In the mean time, we are not waiting – we have added capital to the bank and are adding more. We expect our business will continue growing.

Q: If you had to start all over for Islamic mortgages, what would you do differently?

I would have been more aggressive about developing infrastructure faster – vendors, staff, technology, business partners, etc. We started our programme slowly to make sure everything worked as it should and that our regulators didn’t see problems we were missing. However, it meant that resources weren’t lined up when needed.

The global credit crisis put an awful lot of plans on hold for a lot of people, and it prevented us from moving more quickly to the next stage. If we had shifted our entire timeline nine months earlier, we could have been functionally several years ahead of where we are now.

Q: What could the state of Islamic finance in the US be in 2020?

There will be an Islamic bank. A major US provider would have been long gone (five minor players pulled out of the market in the last two years). There will be a larger menu of investment options that many will not even know are syariah-compliant.

There will be “crossover” products that are syariah-based and valued for their performance characteristics, not because they fit a moral code, though they will not be widely used.

Many Islamic finance projects will continue to be done quietly in the background. The scope of product offerings will increase as providers stop trying to fit square pegs into round holes as much and develop legitimate de novo alternatives.

The Bigot Brigade will still be warning that Islamic finance is the road to Armageddon – without doing any more fact-checking than they have done today. The market will go from under-served to adequately served, though “adequately served” will not mean (fortunately) what people might have wanted it to mean three years ago.

Source: http://www.btimes.com.my/articles/jewbi/Article/

 

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

Biggest Islamic Bank to Be Launched Soon

Biggest Islamic Bank to Be Launched Soon

Sheikh Saleh Kamel, chairman of Al Baraka Banking Group, is set to launch the world’s biggest Islamic bank before the end of the year, with an initial public offering of $3 billion, a top official has said.

Adnan Yousuf, CEO of Al Baraka Banking Group, who is also the chairman of the Union of Arab Banks, said: “We have already completed the necessary research for launching the Islamic bank and there are currently discussions between Sheikh Saleh Kamel and investors to prepare for the public offering.”

“Under the current economic climate, Sheikh Saleh Kamel did not withdraw or pull back but, on the contrary, he is accelerating the finalization process. The Islamic banking industry needs this investment at such times. “The studies for the project have taken about a year and a half.”

The “mega bank” announced last year will have an initial capital of $10 billion through a number of initial public offerings and private stock options. Yousuf added that the time is ripe to launch the bank, as Islamic banking is gaining in appeal.

He said he expects that several banks will follow the Islamic banking model in the coming years, due to the growth achieved by these banks. Despite the global economic crisis and its repercussions in the international financial sector, the Islamic banking industry has not witnessed a slowdown in its growth, he said. Instead, these banks continue to prosper.

Source: http://www.saudigazette.com.sa/index.cfm?method=home.regcon&contentID=2010112888135

Ethica Institute Makes History at Mashreq Bank: Delivers First Bank-Wide Islamic Finance E-Learning

Ethica Institute Makes History at Mashreq Bank: Delivers First Bank-Wide Islamic Finance E-Learning

 

 

For the First Time Ever, Bank-Wide Islamic Finance E-Learning is Now a Reality, Bringing the Still-Booming Islamic Finance Industry One Step Closer to the Rest of the World

Islamic finance just got one step closer to addressing its biggest problem: a lack of qualified bankers and scholars. Today, the UAE’s largest private bank, Mashreq Bank, rolled out the first ever bank-wide Islamic finance e-learning solution at its Islamic banking division, Mashreq Al Islami. Hiring Ethica, the Islamic finance e-learning institute, brings Mashreq 100% online Islamic finance training and certification across their entire network of branches.

The move marks a major turning point in an industry heavily bottlenecked by a lack of trained bankers and scholars. To date, banks have had to rely on external consultants to deliver short courses, but today’s announcement makes year-round, bank-wide Islamic banking courses approved by scholars a working reality.

Mashreq Al Islami’s Chief Executive Officer, Moinuddin Malim, said, “Our partnership with Ethica demonstrates our commitment to ensure imparting quality programs, which caters to both basic Islamic banking courses as well as more sophisticated programs. We hold Sharia’h compliance as the core value of our business.”

Ethica’s Managing Director, Atif Khan, said, “Whether training 100 bankers or 1,000 bankers, in tough times only e-learning provides the cost-effectiveness and year-round learning advantage over more expensive delivery channels such as classroom training. We are delighted to finally deliver Islamic banking courses to bankers anywhere, anytime.”

Mashreq piloted Ethica with a few hundred users before rolling out bank-wide training. Earlier this year Dow Jones affiliate Zawya.com and New York based Banker’s Academy signed on with Ethica as well.

In 2010, Ethica Institute of Islamic Finance (http://www.EthicaInstitute.com) was chosen by more professionals for Islamic finance certification than any other organization in the world. The Dubai-based institute received the award nomination for “Best Islamic Finance Training Institution” in 2009 and 2010 by Islamic Business and Finance Magazine. Mashreq Bank is the largest private bank in the UAE with assets of $25 billion and launched Mashreq Al Islami, their Islamic finance division, in March of this year.

For more information about this article, or to schedule an interview with Ethica Institute of Islamic Finance, please call Sameer Hasan at +971-4-305-0782 or e-mail at info@ethicainstitute.com.