Category Archives: Islamic products

Yemen Plans First Sukuk Offering to Fund Budget Deficit

Yemen Plans First Sukuk Offering to Fund Budget Deficit

Yemen, the poorest country in the Middle East, plans to sell $500 million of local currency Islamic bonds for the first time to fund the budget deficit and spur the Shariah-compliant finance industry.

The central bank may offer sukuk in the domestic market from the first quarter, Deputy Finance Minister Jalal Yaqoub said in a telephone interview Dec. 29 from Sanaa, the capital. The government is seeking technical assistance on the sale from the International Monetary Fund.Tadhamon International Islamic Bank, the largest Islamic bank in Yemen, and Cooperative & Agricultural Credit Bank said they will participate in the sale.

“The issuance of the sukuk will create investment opportunities and diversify banks’ portfolios, both Islamic and conventional banks,” Masood Ahmed, director of the IMF’s Middle East and Central Asia Department, said in a telephone interview from Washington Jan. 4. “It will help the government to diversify the sources of budget financing.”

Yemen, which is battling al-Qaeda, an uprising in the north and a secessionist movement in the south, needs funds to bridge its fiscal gap, the biggest on the Arabian Peninsula. Muslims make up the majority of the population of 23.5 million, according to the Central Intelligence Agency World Factbook. Growth in the $30 billion economy will slow to 4.1 percent this year, from 8 percent in 2010, the IMF said in its October Regional Economic Outlook report.

Financing Deficits

The government’s 1.84 trillion-rial ($8.6 billion) budget for 2011 forecasts a deficit of 316.4 billion rials, state-run news agency Saba said Dec. 29. The government plans to fund the gap through domestic borrowing including sales of Islamic bonds and from external loans such as a three-year, $369.8-million credit facility from the IMF, according to the organization.

Foreign debt rose to $6.49 billion last September from about $6 billion a year earlier, Saba news agency reported Dec. 29, citing a central bank report. Yemen received a total of $808 million in loans from the Arab Monetary Fund, a unit of the 22- member Arab League, the fund said Dec. 26 on its website.

Yemen’s proposed Islamic notes will target individual investors and local banks, the Finance Ministry’s Yaqoub said. The government will determine sale details by the end of the first week of February, he said. The central bank currently sells 91-day, 182-day and 364-day treasury bills, according to data on its website.

Savings

“Yemeni citizens have a reasonable amount of savings, but the funds haven’t been used in projects,” Yaqoub said. “We want the savings that go to the Islamic banks to go to big development projects like electricity, roads, water and schools.”

Other governments are also seeking to benefit from growing interest in Islamic finance.Afghanistan drafted an Islamic banking law to permit standalone Shariah-compliant banks,Sudan sold Islamic bonds to local banks last month and the Palestinian Authority plans to sell its first sukuk this year. Global assets held by Islamic financial institutions may climb to $1.6 trillion in 2012 from about $1 trillion, the body said in April.

Shariah-compliant bonds returned 12.8 percent last year, the HSBC/NASDAQ Dubai US Dollar Sukuk Index shows. Debt in emerging markets gained 12.2 percent, according to JPMorgan Chase & Co.’s EMBI Global Diversified Index.

Global sales of sukuk, which pay returns based on asset flows, dropped 15 percent to $17.1 billion in 2010, according to data compiled by Bloomberg.

Sukuk Investments

The yield on Malaysia’s 3.928 percent Islamic note due June 2015 fell 9 basis points to 3.02 percent today, according to Royal Bank of Scotland Plc prices. The extra yield investors demand to hold Dubai’s government sukuk rather than Malaysia’s was little changed at 319 basis points, according to data compiled by Bloomberg.

The difference between the average yield for emerging market sukuk and the London interbank offered rate narrowed six basis points to 284 yesterday, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index.

Yemen has 17 banks, including three Islamic banks, Saba Islamic Bank, Tadhamon International Islamic Bank and Islamic Bank of Yemen for Finance and Investment, according to central bank data. Islamic banks in the country have “ample liquidity for an instrument like a sukuk,” which will help spur demand, the IMF’s Ahmed said.

Needing Sukuk

Sanaa-based Cooperative & Agricultural Credit Bank will buy the bonds to diversify holdings, economic and investment adviser Moneer Saif said in a telephone interview Jan. 5 from the capital. The bank’s Shariah-compliant unit CAC Islamic is seeking a license from the central bank, he said.

“Of course we will buy,” Saif said. “It will be one of our priorities. Islamic banks need Islamic products as an alternative to achieve good profits and compete with conventional banks.”

Oil accounts for 60 percent of government revenue and 90 percent of exports, the IMF said in a report on Aug. 19. Oil reserves are expected to be depleted within a decade, the Washington-based lender said.

U.S. pressure on Yemen to crack down on al-Qaeda has intensified since the local wing of the group claimed responsibility for a failed attempt to blow up a U.S. airliner on Dec. 25, 2009. In October, two parcel bombs sent from the country to U.S. synagogues were seized in the U.K. and Dubai.

The country’s economic “challenges are compounded by a difficult security situation and civil unrest, a rapidly growing population, poor infrastructure, and weak institutional capacity,” the IMF said.

‘Failure’

The government’s plan to finance infrastructure with Shariah-compliant funds may not succeed because existing electricity and water projects are “already a failure,” Rasheed al-Sakkaf, head of treasury at Tadhamon International Islamic Bank, said in a telephone interview Jan. 3.

Al-Sakkaf said his bank would only buy if the project is economically viable. “If the profit is good, we will buy more.”

Islamic bonds are typically backed by assets or cash flow because of the ban on interest. Investors earn any profit from the assets instead.

Yemen delayed the sukuk sale from last year because the government had difficulties “getting well-skilled staff to run the sukuk project,” Yaqoub said.

The 15 percent increase in oil prices last year, economic growth and a recovery in the rial have set the stage for a sukuk offering this year, the IMF’s Ahmed said. The currency has gained 12 percent since reaching a 2010 low of 239.98 on Aug. 4, according to data compiled by Bloomberg.

“The conditions should be there for them to be able to diversify their domestic debt instruments by introducing their sukuk in the market,” he said.

Source: http://www.bloomberg.com/news/2011-01-05/yemen-plans-first-sukuk-offering-to-fund-budget-deficit-islamic-finance.html

To contact the reporter on this story: Dana El Baltaji in Dubai delbaltaji@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

BankIslami Pakistan acquires Citibank’s house financing portfolio

BankIslami Pakistan acquires Citibank’s house financing portfolio

BankIslami has signed a first-of-its-kind deal to acquire Citibank Pakistan’s house financing portfolio amounting to Rs953 million. This is the first time an Islamic bank has acquired mortgage assets of a conventional bank.

“This acquisition will serve as a milestone for the Islamic banking industry in Pakistan and elsewhere,” said BankIslami CEO Hasan Bilgrami. He added that the acquisition of the housing portfolio is in line with BankIslami’s growth strategy in this segment.

Citibank’s house finance customers will now be required to switch to the Islamic mode of financing. “The transition for customers to BankIslami will be made easy and convenient,” said the CEO. Despite a general slowdown in the banking industry, BankIslami has expanded to 100 branches in less than three years.

A compound annual growth rate of 72 per cent over the last two years has made it one of the fastest growing banks in the country.

Source: http://tribune.com.pk/story/95697/bankislami-acquires-citibanks-house-financing-portfolio/

Dubai’s first Shariah compliant REIT launched

Dubai’s first Shariah compliant REIT launched

cottage

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.

Source: http://www.emirates247.com/property/real-estate/dubai-s-first-islamic-reit-launched-2010-11-24-1.320578

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".

Source: http://www.apbankers.net/page.Article.cmc?&A=12&B=1292125205&C=2010&SID=1

First French Islamic bond seen early 2011

First French Islamic bond seen early 2011

eiffel-tower

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.

Source: http://www.arabianbusiness.com/first-french-islamic-bond-seen-early-2011-367637.html