Tuesday, July 31, 2007

Indonesian Islamic banking growth

Shari'ah-compliant banking in Indonesia is expected to triple by the end of next year from 1.7 percent of total banking assets to 5.25 percent by end-2008, according to the Indonesian central bank. The Islamic banking sector accounted for 1.42 percent at the end of 2005 and 1.55 at the end of 2006. The underdevelopment in Islamic banking in Indonesia is well recognized so the potential for fast growth exists, but in order to triple to 5.25 percent the percentage of assets with Islamic banks will require incredibly rapid growth. The growth rate in 2006 was 9%, which has increased to an annualized 22% so far this year. In order to reach 5.25 percent by the end of 2008, the annual growth rate needs to be 84% per year and this is growth in excess of overall banking asset growth.

Monday, July 30, 2007

JBIC sukuk

The Japan Bank for International Cooperation (JBIC), the Japanese government's overseas lender plans to issue Islamic bonds (sukuk) backed by products traded on the London Metals Exchange (LME). Although the contrasts were not specified, the sukuk price would be based on the performance of a company created to manage the funds in the LME.

Islamic finance critique, sukuk and ETFs

The Washington Post has an article describing a few critiques of Islamic finance.

Financial Times' Lex column notes the lack of use of Islamic finance in some countries like Indonesia, although sukuk now represents 76 percent of all bonds issued in Malaysia.

Japan's second-biggest securities firm, Daiwa, will list a Shari'ah-compliant exchange traded fund on the Singapore exchange which tracks Shari'ah-compliant Japanese equities.

Friday, July 27, 2007

CSR, takaful, Islamic indexes & wire transfers

Islamic values support corporate social responsibility.

MSCI Barra will launch the Islamic indexes which it announced in April.

UAE-based Dana Gas decides to postpone its convertible sukuk it announced in June due to 'global credit market weakness'.

U.K. Muslims prefer takaful, but most specify that their demand is based not only on Shari'ah-compliance, but also cost and level of cover.

Western Union will offer wire transfer services in Jordan through the Jordan Islamic Bank.

Thursday, July 26, 2007

Retakaful, sukuk and a new Islamic bank

MNRB Holdings will become the first retakaful operator in Malaysia (Business Times Malaysia) when it begins operating on August 1st. The takaful industry has struggled in the past because it has relied upon conventional reinsurers because that was the only option available for takaful providers.

A description (Zawya) of the recently launched Investment Dar Bank in Bahrain.

Kuwait will allow sukuk (AMEinfo).

Wednesday, July 25, 2007

Technology & Islamic finance

The rise of the sukuk has posed a challenge on a technological level because of a lack of standardization. Because each sukuk must be individually reviewed by the Shari'ah board. According to Jamil bin Hassan, principal consultant at i-flex solutions, an IT consulting firm focusing on the financial services industry,
"No one had come up with good system to originate sukuk because the market is still small and there has not been the volume to justify the spend on technology".
The problem is aggrevated because the existing sukuk issues have occurred across a number of countries and therefore require even more specific treatment. The difficulties grow once more controversial products like derivatives. PricewaterhouseCoopers' Mohammed Amin says:
“There is a lot of debate about derivatives. I have seen lawyers who are experts in terms of standards stand up in conferences saying there is no such thing as Islamic derivatives, while others are setting up funds to transact derivatives. It is a grey area. The challenge is that to the extent that people have these structures, they regard these structures as proprietary and therefore they don’t publish or write about them, so it is very hard for other people to unpick them and evaluate whether they really are Shariah-compliant or not.”
I believe the last sentence of Mr. Amin's thoughts are germane to the entire industry where it is easy to find many firm's fatawa online which certify Shari'ah-compliance, but do not explain how the product works and why it is Shari'ah-compliant.

Monday, July 23, 2007

Growth of Islamic finance in Scotland & Sri Lanka, Islamic finance education standards

One of the challenges in Islamic finance is education standards across the globe (Reuters), with different training programs in Malaysia, Bahrain and the U.K.

Islamic finance is growing in Scotland (The Scotsman, U.K.).

ABC Investments, a new Islamic investment group, will expand to other areas within Sri Lanka (Lanka Business Online, Sri Lanka) besides Colombo, the only area in which it currently operates. Mohammed Razeek, the firm's managing director, explaining a new plan for funding construction of middle-class housing describes "We will not go into providing luxury apartments as a lot of companies already have done that.”

Standard Chartered Bank Malaysia Bhd, the Malaysian subsidiary of the large U.K.-based bank, wants to expand its banking assets in Malaysia (Business Times, Malaysia)with a focus on Islamic banking.

"The Securities House [of Kuwait] announced that it has incorporated a wholly-owned public limited company in the UK, which is currently applying for a license from the Financial Services Authority (FSA) to act as a deposit taking banking entity within the UK regulatory environment. The new company intends to establish itself in London as a Shariah compliant wholesale investment bank, focusing on the Islamic capital markets, Islamic treasury business and asset management." Securities House Press Release, July 18, 2007

The Toronto Star (Canada) has an article about the growth of the halal industry in Canada over the past 30 years as the Muslim population has grown from 70,000 in the 1970s to 850,000 today. The potential for Canada to be a global hub in halal products will be difficult given the attention the halal industry receives from the Malaysian government.

Friday, July 20, 2007

Shari'ah-compliant ETFs, DIFX sukuk

Malaysia's government committee on exchange traded funds (ETFs) recommended the development of Shari'ah-compliant ETFs.

The Dubai International Financial Exchange (DIFX) saw its sukuk listings increase from $7.63 billion to $12.78 billion, a growth of 40 percent.

"This industry doesn't need more players, what it needs is size. The need is to create mega banks,"--Salman Younis, Kuwait Finance House (Malaysia) Bhd Managing Director

Thursday, July 19, 2007

U.K. Islamic finance industry

Unlike the U.S. where the dominant players are all small (mostly community) banks, the U.K. has a large bank, HSBC Amanah, which serves much more of the country, for example, the town of Batley

Islamic microfinance

There is a good article written by Dr. Mohammed Obaidullah, a senior economist at the Islamic Development Bank, about the connection between Islamic microfinance and conventional microfinance in terms of the 'best practices'. The one comment I have is about the statement that "Often the poor own high-market-value assets, such as, land in a prime city location without being able to derive income or benefit from the asset." One of the major problems the urban poor face (particularly if they are migrants from rural areas) is that they have no ownership of the land they occupy (see, for example, this article about the removal of the poor from urban land on which they are squatting in the Philippines). I believe that microfinance based on Islamic principles will be successful and the IHI is working on a nondenominational model based upon Islamic principles.

Wednesday, July 18, 2007

French firm to use Shari'ah-compliant financing for dam

French renewable energy firm Velcan Energy will issue Shari'ah-compliant bonds (sukuk) to Middle Eastern investors to finance the construction of a dam in India. The rationale for using sukuk is that a dam provides a perfect asset for sukuk because it provides stable, long-term returns.

Awqaf, Islamic financing of a Chinese energy city, conference on Islamic development finance

The Dubai International Financial Centre (DIFC) and the Dubai Islamic Bank (DIB) are working together to provide Shari'ah-compliant trusts (awqaf).

Gulf Finance House is building a $5 billion residential & industrial city in China. Similar projects are underway in Qatar and India.

A Malaysian government minister encourages Japanese firms to gain exposure to Islamic banking through Malaysian banks.

A conference is planned by the Central Bank of Bahrain (CBB) and the UN Economic & Social Commission for Western Asia (UN-ESCWA) focusing on the role Islamic financial institutions can play in development finance.

Monday, July 16, 2007

Islamic finance may enter the Netherlands, IDB/ICIEC, Brunei issues 1-year sukuk & offshore banking

The Dutch goverment will look into ways to attract Islamic finance to the Netherlands, a country which has seen its Muslim population grow significantly to almost 6% of the total population.

The Islamic Corporation for Investment Guarantees and Export Credit (ICIEC) opened its first office outside of Saudi Arabia in Dubai. The Islamic Development Bank (IDB) approved grants for projects including education and healthcare totaling $833.8 million.

Brunei issued $30 million of one-year Islamic bonds. The issue is the first of one-year bonds; previous Islamic government bonds were 91-day issues.

Current structure of Islamic finance has encouraged competition between offshore hubs for registration of the special purpose vehicles (SPVs) and asset management firms. By allowing dual English-Arabic registration the Cayman Islands has increased the appeal of it over other offshore locations.

Saturday, July 14, 2007

IDB working to introduce Islamic finance to Central Asia

The Islamic Development Bank is working with the Central Asian member states (Kazakhstan, Kyrgyzstan, Turkmenistan, Uzbekistan and Tajikistan) of the Organization of the Islamic Conference (OIC) to bring Islamic finance to these countries. Until now, there has been little if any access to Islamic financial services in these countries.

Friday, July 13, 2007

Islamic mega-bank and real estate fund

Shari'ah-scholar Nizam Yaquby believes that the Islamic finance industry needs a mega-Islamic bank because "IFIs do not cooperate and no collective efforts are seen at the institutional or regulatory levels to formulate a strategy on developing liquidity management tools".

Kuwait Finance House (Malaysia) and AmanahRaya Investment Bank will start an Islamic real estate fund called Al-Nibras. the investments will be in Malaysia, Singapore, Thailand & China.

Thursday, July 12, 2007

Forbes' critique of Islamic finance & the "Dubai of Southeast Asia"

Forbes has an article on Islamic finance in which it presents many of the critiques of Islamic finance. However, the title, "Don't Call It Interest" mirrors the theme of the article which suggests that, because there are many practices in Islamic finance which mirror conventional finance (or even are benchmarked to an interest rate), that the whole industry is a farce. It is a shame that the article focuses on "Islamic hedge funds" and ignores the resemblance between Islamic finance & socially-responsible/ethical finance and the concern for equity and fairness in business transactions. Forbes could have used the article to present a look at the positive and negative attributes of Islamic finance but instead saw a few products which may be considered doubtfully Shari'ah-compliant and used these to condemn the entire industry as an inefficient exercise in financial engineering.

Brunei wants companies to issue sukuk in order to boost its bid to be a hub of Islamic finance. The Brunei Times describes hopes of becoming to the 'Dubai of Southeast Asia'.

Tuesday, July 10, 2007

Sukuk, manager-of-manager Islamic funds & Malaysia as a hub of Islamic finance

Investors from outside the Middle East are buying most of the sukuk issues in order to gain exposure into the region's economies leaving proportionately few sukuk available for local investors.

Zawya provides much needed information on sukuk, which will increase the transparency of Islamic capital markets.

SEI launches an Islamic manager-of-manager Islamic investment fund, the SEI Islamic Investments Fund Plc (SIIF).

Salman Younis, managing director of Kuwait Finance House (Malaysia) says that although Malaysia has been overtaken by Dubai in the area of Islamic finance, this does not mean it can no longer be a hub of Islamic finance, also noting its proximity to China, India and Indonesia.

Monday, July 09, 2007

New Islamic Bank in the U.K., musharaka financing for Aston Martin

There will be a new Islamic bank in London. Boubyon Bank, a Kuwaiti Islamic Bank will be an investor in a new Bank of London and Middle East (BLME). BLME will "first offer corporate and investment banking services, Islamic treasuries and spot foreign exchange trading, with private banking to be offered as well early next year." The bank will join the European Islamic Investment Bank and the Islamic Bank of Britain in serving the country's 1.8 million Muslims.

The new owners of Aston Martin used musharaka-based financing to fund future expansion.

Friday, July 06, 2007


Saudi Arabian Basic Industries Corp. (SABIC) plans to issue $5 billion in sukuk to expand the company which recently bought General Electric's plastics business.

Khazanah Holdings issues $850 million sukuk on the Dubai International Financial Exchange.

Telekom Malaysia uses Shari'ah-compliant financing for one-third of its debt.

Thursday, July 05, 2007

Islamic banking in Malaysia, home finance in New Zealand, Bloomberg TV on Islamic finance

Islamic banking has over 12% of the banking market and takaful has 6% of the insurance market in Malaysia.

"The [Islamic banking] industry has reached a point where, in some product areas, it can provide a credible alternative to traditional banking products" according to a report by Financial Insights.

Bloomberg television will have a show with a focus on Islamic finance this weekend.

Islamic home finance becoming possible in New Zealand.

Monday, July 02, 2007

Islamic banking, durra and IFC investment in Islamic finance

The International Centre for Education in Islamic Finance (INCEIF) held a conference in Yemen about the challenges facing Islamic banks. Another conference in Bahrain discussed the growing prominence of Islamic banking. In Kenya, the lack of a Shari'ah-compliant interbank money market raises questions about the viability of Islamic banks in the market, particularly the recently opened First Community Bank.

Women in the UAE's Islamic finance industry are pushing for a greater number of female senior executives.

The International Finance Corporation (IFC), the private sector arm of the World Bank, will invest in Islamic mezzanine notes issued by Tamweel. The issue will be the first Shari'ah-compliant multitranche mortgage-backed security in the UAE. IFC hopes its investment will help "develop long-term capital markets in the GCC and expand availability of Islamic finance products" according to Lee Meddin, the IFC Deputy Treasurer and Global Head of Structured Finance.

The Waqf Fund established by the Central Bank of Bahrain in 2006 will have a special fund to support Islamic finance education & training.

Gulf Finance House GDR priced at $2.5 per share.