Tag Archives: Nizam Yaquby

Islamic Bank of Asia sees shift in investor attitudes: Sub-prime crisis prompting growing interest in Islamic Finance

Islamic Bank of Asia sees shift in investor attitudes: Sub-prime crisis prompting growing interest in Islamic Finance

The Islamic Bank of Asia (IB Asia) is seeing an increase in investor interest for Islamic finance as the US sub-prime crisis continues. Two of the bank’s pre-eminent Shariah Board members have seen a steadily-growing stream of interest from Gulf Cooperation Council (GCC) investors, Muslim and non-Muslim, for Islamic banking products, as they seek new investment opportunities.

IB Asia Shariah Board members Shaikh Nizam Yaqouby and Dr. Mohammed Daud Bakar say that while changes in the global investment climate are driving demand for Islamic banking, it is the development of innovative Shariah-compliant products that will help grow the industry.

“Islamic Shariah scholars have led the way in innovation. Investors now demand more than just debt finance (lending and borrowing) in their products. They participate in the assets and this creates real economic value,” says Shaikh Yaqouby, an internationally-acclaimed Islamic scholar and teacher of Tafsir (a scientific study that focuses on the interpretation and explanation of the Holy Qu’ran) based in Bahrain.

He adds: “More investors – whether affected directly or indirectly by the sub-prime situation – are attracted to investment vehicles which are underpinned by an inherent immunity from risk. As Shariah-compliant banking forbids the purchase of debts, it is therefore one of the options that investors are turning to.”

Dr. Mohammed Daud Bakar, another IB Asia Shariah board member and the Chairman of the Shariah Advisory Council at the Central Bank of Malaysia, says: “The demand for Islamic investment vehicles in certain categories currently exceeds supply. As an example, the global Sukuk market is increasing at an astonishing average of 40% per annum, fuelled by record investor numbers turning to Islamic banking. The Sukuk allows investors to participate actively and bear the risks – which can be minimized but never eliminated; being inherent in all investments – alongside the rewards.”

IB Asia has four of the world’s most prominent Islamic scholars on its Shariah Board, well-versed in a variety of disciplines ranging from Islam, finance and Shariah law. Apart from Sh. Nizam and Dr. Daud, IB Asia’s Shariah scholars include Sheikh Dr Mohamed Ali Elgari and Dr Abdul Sattar Abu Ghuddah, both based in Saudi Arabia.

Vince Cook, Chief Executive Officer of IB Asia, says: “While market sentiment remains cautious, we still see a growing interest from global parties in tapping into the increasing flows of liquidity from the Middle East. Also, the robust levels of transparency and risk management inherent in Islamic finance make it less susceptible to the ongoing market turmoil, and hence a more attractive investment option.”

He adds that IB Asia’s ability to generate innovative Islamic financing structures that help Gulf investors gain access to Asia’s opportunities puts it in good stead to cater to the growing demand for Islamic finance: “With a long-term view toward broadening our product base, we are currently in detailed discussions with government organizations, regulators and other stakeholders in Asia and the Middle East to prepare for a Sukuk issuance later this year, market conditions allowing.”

Bolstered by a unique shareholding structure that includes DBS bank, a leading financial services provider in Asia and 34 prominent GCC shareholders, and based in Singapore, a world-renowned financial hub perched at the strategic crossroads of Asia, IB Asia is well-positioned to open up new investment opportunities in Asia for GCC investors.

In less than a year, IB Asia has focused on cross-border transactions securing a range of significant business with several prominent GCC companies, including three Kuwait-based companies – the International Leasing and Investment Company, the National Industries Group and the AREF Investment Group – and Barwa Real Estate Company based in Qatar.

Islamic Finance – The scholars at the heart of the market

Islamic Finance – The scholars at the heart of the market

Shaikh Nizam Yaquby is a Shari’ah scholar, a holy man – and one of the most important people in the fledgling industry of Islamic banking. Why? Because he is one of a handful of people who can judge the Shari’ah compliance of financial instruments.

It is a decent enough store, nestled in the middle of Manama’s souq, the largest market in Bahrain. It has a steady flow of customers looking at the diverse products on offer: the cufflinks and the sunglasses, the curling wands and the less than half-price periscope. And at the back, behind a desk completely swamped by papers and textbooks, sits one of most influential people in the Islamic financial world.

Shaikh Nizam Yaquby is a Shari’ah scholar: one of a small number of men (they are always men) whose standing as an academic and whose knowledge of the financial world makes him trusted to pass judgment on whether financial instruments are permitted under Shari’ah law. An educated man with perfect English honed during studies in Canada, among other places, he is one of the most respected and well-known of his kind, not just in Bahrain but internationally. As a consequence he serves on a huge range of Shari’ah advisory councils at banks and industry bodies: the Dow Jones Islamic index; HSBC Amanah, including the seal of approval on the landmark US$600 million bond it recently led for Malaysia; the International Islamic Financial Market; Bahrain Islamic Bank; the Accounting and Auditing Organization for Islamic Financial Institutions (Aaoifi); and others.

Yaquby claims there are dozens of respected scholars whose opinions can be called upon on shari’ah matters, but when languages and financial knowledge are thrown into the mix, the truth is there are very few. The three who advised on the Malaysia bond – Justice Muhammed Taqi Usmani, a Karachi-based lawyer who is chairman of the Centre for Islamic Economics, and Mohamed Ali Elgari, an economist and director of the Centre for Research in Islamic Economics at King Abdulaziz University in Jeddah, are the other two – are particularly respected and between them appear on numerous advisory boards. These men advise on what securities are permitted, which companies can be invested in, and precisely where strict Muslims can and can’t put their money. And in a growing market, they are powerful men.

But they don’t like that description. “No, it is not a matter of power,” says Yaquby. “These deals have to be done in a particular way and if Islamic banks are claiming they are doing so, they have to verify it to the public and their shareholders. It is a not a matter of power, it is a matter of technicality. For example, in every deal you have lawyers, but you cannot say that lawyers have power – rather that every transaction has to go through an acceptable law firm. This is exactly the same thing.”

The legal analogy is used widely. “Like any other advisor they are paid on a time basis, in line with industry standards, like you pay lawyers or accountants,” says Iqbal Khan, head of HSBC Amanah. “When you need expert advice you pay for that, and they are not on the payroll of any institution, but time-based like lawyers.” But it seems the number of options is lower among scholars. It is a question people don’t like being asked in Bahrain – the most earnest, but unapologetic, response we get from an Islamic financier is that the scholars represent “a very well informed cartel” – and bankers give particularly short shrift to any suggestion that such a small and influential group of people could be influenced in their decisions by the commercial aspirations of the banks they advise.