Friday, August 31, 2007

Islamic hedge funds, Malaysia & newspaper supplements in China

An interesting take on the possibility of Islamic hedge funds. One issue though is to determine whether hedge funds attaching the 'Islamic' label are "using markets wisely" and not "speculate, play passing the parcel as long as it's someone else" and deal with the fact that many of the interpretations used by many of the Malaysian firms are not accepted widely outside of Malaysia.

Malaysia is "losing a lot of experts in Islamic banking and finance" to other countries, says PM Badawi

Malaysia will cease to issue Islamic banking licenses to foreign investors. New foreign entrants will need to partner with local firms.

Indian Banks Association waiting on Reserve Bank of India to decide on the "regulatory framework for introducing sharia- compliant products"

A supplement in today's China Post promoting Malaysia as a center of Islamic finance.

Thursday, August 30, 2007

Moody's projects growth of Asian-originated sukuk, INCEIF conference

The issuance of sukuk originating in Asia should grow significantly over the next few years as sukuk begin to flow from India, Indonesia, Pakistan and Singapore, Moody's describes in a recent report.

The Malaysian Prime Minister Abdullah Badawi gave a speech at the INCEIF Global Forum in Kuala Lumpur in which he called for "new Islamic financial products" and looking "towards how to enlarge and strengthen Islamic financial institutions".

Speaking at the same conference, Prince Andrew spoke about how the "UK and Malaysia are pre-eminently well-placed to work together". An article describing the Prince's speech from the UK is available here.

Dr. Zeti Akhtar Aziz, central bank governor at the Bank Negara Malaysia, speaking at the INCEIF conference, described the need for efficiently priced Islamic finance products. One example she provided was pricing ijara sukuk using the rental rate of the underlying asset, which she concluded would lead to prices changing with supply and demand. Her criticism may have been motivated by recent price fluctuations in sukuk which mirrored changes in conventional bond prices as well as a common trend where sukuk returns are benchmarked to an interest rate, frequently the London Interbank Offered Rate (LIBOR).

Tuesday, August 28, 2007

Islamic banking enters Syria

The first Islamic bank recently opened in Syria. The Cham Islamic Bank opened in Damascus with $100 million in starting capital.

Monday, August 27, 2007

Shari'ah-compliant index in Doha, Islamic banking in Pakistan, Malaysia

The Doha (Qatar) Securities Market has a new index tracking the Shari'ah-compliant securities listed on the exchange. The index is created by the Doha Investment House and is called the 'Investment House Islamic Index'

Pakistani Prime Minister Shaukat Aziz says the government is actively promoting Shari'ah-compliant banking in Pakistan.

The Malaysian Industrial Development Finance Bhd (MIDF), designed to promote the development of the nation’s industrial sector through the provision of financing for manufacturing-based small and medium enterprises, may convert into an Islamic bank.

Dual Arabic-English registration in the Cayman Islands highlights the reliance of the Islamic finance industry on offshore financial centers.

Thursday, August 23, 2007

Islamic banking, sukuk tax changes hailed, IF education scholarship fund

A good article by the Assistant Editor of CFR.org, the website of the Council of Foreign Relations about the growth of Islamic banking.

The British organization the Tax Incentivised Saving Association (TISA) is supportive of moves by the British government to change tax rules to put sukuk on equal footing with conventional bonds.

EONCAP Islamic Bank makes the first contribution to the INCEIF scholarship fund, the "Fisabilillah Trust Fund". The contribution is for RM400,000 (US$114,669).

Wednesday, August 22, 2007

300th post: INCEIF, halalness of forex trading

International Centre for Education in Islamic Finance (INCEIF) is seeking donors to fund scholarships for students needing assistance while completing their Certified Islamic Financial Professional (CIFP) program.

A workshop is being held in Brunei to discuss the 'halalness' of foreign exchange trading.

An article in Epoch Times (an online newspaper) about Islamic finance and a recent IMF paper discussing how Islamic finance fits into the regulatory systems which were designed for conventional financial institutions.

Monday, August 20, 2007

Islamic LBOs continue, BIMB partners with European Islamic finance firm & new conferences

Arcapita, the Bahrain-based Islamic investment firm will purchase the German firm HT Troplast, which manufactures PVC window and door fittings in a leveraged buy-out despite the problems in the conventional market for credit. The Financial Times suggests that the relatively lower impact upon Islamic investment firms of the credit crisis is "because Islamic investment firms tend to use lower levels of debt to fund their acquisitions [than conventional firms]".

Bank Islam Malaysia Bhd is working on a partnership with an unnamed Islamic bank in Europe

New conferences have been added to the IHI conference listing page for September & October.

Friday, August 17, 2007

Islamic Finance Experts Group, Takaful & sukuk

The group meeting to assess the feasibility of the U.K. government issuing a sovereign sukuk had its first meeting and the members of the group were announced.

Takaful Malaysia Bhd is planning to expand into the Middle East working with an unnamed financial firm in Dubai.

The government of Brunei issued new short-term sukuk, something which it began doing in April 2006 to raise its profile in the global Islamic finance industry.

Thursday, August 16, 2007

Islamic securitizations, Islamic branding

Islamic finance is moving from asset-based sukuk where noteholders cannot claim underlying assets to asset-backed securitizations where they do. However, as Mahmoud El-Gamal notes, until there is a large sukuk default, we won't know how accurate ratings and sukuk pricing.

One lesson from the sub-prime meltdown: it is unrealistic to assume that pricing can be accurate where there is not a large secondary market actively trading asset being priced.

HSBC Amanah is waiting for a rule change allowing majority foreign ownership of Islamic banks before it enters Brunei's market.

Another article about Islamic branding

The Aga Khan is visiting Africa to check on his foundation's work, including the microbusiness program

Wednesday, August 15, 2007

It's not all about taxes

The head of the newly-established Asian Finance Bank (70% owned by Qatar Islamic Bank) describes the challenge facing the Malaysian Islamic financial industry: "It's not all just about tax [exemption]. The challenge is to define clearly the target segment, the products that we want to deliver and the capability in delivering them". Malaysia has reduced taxation on Islamic financial institutions to attract foreign financial institutions to the country and has reduced barriers to Islamic banking in foreign currencies.

A new S&P/Citigroup index will track Arab Shari'ah-compliant property companies.

70% of all sukuk are issued in Malaysia.

Tuesday, August 14, 2007

Islamic banking growing in Brunei, attracting new money in Malaysia

HSBC sees potential for growth in Brunei, even if returns are lower than conventional investments (although they are sometimes higher).

Malaysia succeeding in attracting Middle Eastern investments.

Monday, August 13, 2007

Islamic financing in the U.S., Mauritius

Muslims in New York and Nevada feel the challenge of lack of availability of Shari'ah-compliant home finance.

Mauritius' government grapples with the unique challenges in adapting a regulatory system designed for conventional financial institutions to be flexible enough to accomodate Islamic banks.

Thursday, August 09, 2007

Islamic banking flagging in Egypt, India could be the source of future growth

The lack of demand for Islamic banking in Egypt provides a stark warning for other countries' Islamic finance industry about enforcing adequate supervision & regulation. In the 1980s, many Islamic banks folded, taking the savings of many Egyptians with them. This produces a skepticism of Islamic banks generally among the population. In order to avoid a similar fate, other countries with Islamic banks need to take the utmost care to ensure that their country's Islamic banks are not taking excessive risk which could threaten their survival. One banking analyst in Cairo described the failure of many Islamic banks as "a social crisis," adding that "the image of Islamic banks still is not great"

Islamic banking has an additional challenge: fighting against perceived (and assumed) connections with terrorism through lengthy court battles.

Overlooked until now, India could be the next growth center of Islamic finance.

The Financial Times provides its take on the rapid growth of the sukuk market.

Wednesday, August 08, 2007

Africa and India on Islamic banks' sites, Turkish IPO & IFIS sukuk report

Standard Chartered, an emerging markets bank based in the U.K., plans to expand its Islamic finance offerings, particularly in India and Africa, two regions underserved by Islamic banks. The article describes the current activities of the bank in the Shari'ah-compliant market as:
"The bank offers current accounts and other shariah-compliant products in five markets and has just launched credit cards in UAE, Pakistan and Bangladesh. In its wholesale bank, it is active in sukuks (asset-based Islamic bonds) and in the first half was the lead arranger for four out of the five local currency sukuk bond issues in Pakistan."

Kuveyt Turk, the third-largest Islamic bank in Turkey 62 percent owned by Kuwait Finance House is planning an initial public offering of roughly 20 percent of tis shares later this year.

According to an Islamic Financial Information Service (IFIS) report, Malaysian bank CIMB Islamic Bank Bhd is the largest bookrunner of sukuk while sukuk issuance in the UAE is driving the market.

Tuesday, August 07, 2007

Islamic finance expands to Japan, sukuk and 'innovation'

Farhan Bokhari, a correspondent of the Financial Times, writes on FT.com about the many challenges Islamic finance will face entering Japan. Between conservative markets and a large language barrier between Japanese and Arabic, there has only been a small entry made by Japanese firms like Daiwa into Islamic finance.

There have been $24.5 billion of sukuk issued so far this year, 75% more than last year.

Two buzzwords in the Islamic financial conference industry are 'innovation' and 'standardization'. But really what 'innovations' are created and why is 'standardization' beneficial. These topics are rarely addressed, in large part because many of the 'innovations' may not be in the long-term interest of the states goal of moving from Shari'ah-compliant products to Shari'ah-based products. The historical track of Islamic finance has been towards replication of conventional finance with different contractual forms which avoid interest. This path is understandable when trying to create a new basis for financial transactions, but may not lead to the desired end result. In a similar way, standardization may hamper development of new products and more efficient, more Shari'ah-based methods by forcing a cookie-cutter framework which reinforces the present state of the Islamic finance industry. Instead of 'innovation' and 'standardization', the industry would do better to promote 'transparency' and 'differentiation' by creating new products, serving new groups of clients and developing a substantive difference between itself and the conventional financial industry.

Monday, August 06, 2007

Hong Kong moving to open an Islamic bank

Recently, reports emerged about the desire of the government of Hong Kong to become involved in Islamic finance, the story from Bernama describes the Finance Secretary of Hong Kong's visit to Malaysia. Because Hong Kong does not have much experience in Islamic finance, they are seeking assistance from Malaysia, one of the global hubs of the Islamic finance industry, particularly in "Islamic legal and accounting systems".

Saturday, August 04, 2007

Secondary markets grow for sukuk

Although conventional wisdom holds that the secondary trading markets for sukuk are weak, the amount of trading has increased significantly in the previous year. Barclay's Capital, which claims to be the largest market makers in sukuk, says that between $15 million and $20 million in sukuk are traded each day.

While the article focuses primarily on the growing liquidity of sukuk, it also addresses one of the current weaknesses in Islamic finance (both among banks that provide financing and those which issue sukuk), the lack of transparency.
"Also, the companies issuing such sukuk also have to change their mindset as they enter the global debt markets. "By tapping this new source of funding, companies will have to become far more transparent in terms of disclosure of information, and be more open with corporate governance issues, as investors are very conscious about these matters," says [head of credit research at HSBC, Chavan] Bhogaita.

Friday, August 03, 2007

Takaful and Brunei's first Islamic university

Standard & Poor's released a report on takaful which highlighted the greater development of the legal and regulatory environment in Malaysia than in the Gulf Cooperation Council (GCC) countries.

Brunei's first Islamic university will start classes this month.

Thursday, August 02, 2007

Singapore, halal marketing & sukuk response to financial shocks

Singapore is positioning itself to absorb excess petro-liquidity from the GCC states, relying both on its stability and relative neutrality to attract funds from the Middle East.

The Economist has an article describing the demand for halal 'food, finance and packaged goods'. The article focuses primarily on food and packaged goods and does not mention halal finance at all.

Although sukuk are structured differently from conventional bonds, they respond in a similar way to conventional bonds in response to changes in the financial shocks like the subprime mortgage turmoil.