Islamic finance unpacked

THE National Treasury is considering issuing Islamic bonds and has asked interested banks to submit bids. Some local banks and the JSE already offer sharia-compliant financial instruments. These include the JSE Shariah All Share [JSE:J203] index and the JSE Shariah Top 40 – (Tradeable) [JSE:J200].

Other instruments include Mudarabah, a form of investment partnership between banks and businesses that shares the risk and losses. There is also Murabah, a transaction in which the bank buys the asset then immediately sells it to the customer at a pre-agreed higher price payable by instalments.

Kokkie Kooyman, head of Sanlam Investment Management: Global, said the Treasury’s Islamic bond issue would be part of a bid to “tap into” the unds from the Muslim countries that are shariah-compliant.

“I am sure this was at the request of those Middle Eastern countries because SA has a small Muslim population,” Kooyman told Fin24, adding the shariah products and funding are made attractive by the fact that they are not interest rate sensitive.

FNB Islamic finance offers shariah-approved banking options that are not limited to Muslims. They help FNB clients manage their day-to-day finances, whether they need an account for personal use or a number of products for their business.

Standard Bank Group [JSE:SBK], Africa’s biggest bank by assets, does not offer Islamic banking services in South Africa yet, according to Erik Larsen, the head of media relations at the bank.

In 2010 the bank launched its first Islamic savings and current account in Tanzania. In July last year Stanbic, a unit of Standard Bank, won approval from Nigeria’s central bank to provide Islamic banking services there.

Nedbank Group [JSE:NED], South Africa’s fourth-biggest bank, does not offer any Islamic banking products in South Africa. Absa Islamic finance offers businesses current and retail accounts. Its offerings range from savings, investments, term deposits and commercial asset finance.

Kooyman said the sharia-compliant offerings are worth pursuing because the end result or return is the same as that of conventional banks. “The returns are also not much different for ordinary investors,” he said. Pros and cons But Islamic banking, like conventional banking, has its advantages and disadvantages.

In terms of banking charges, clients of Absa Islamic banking and FNB Islamic finance pay the same fees as Absa and FNB clients banking conventionally; both banks are well known for charging high fees. In Islamic financing, loans for a house or a car offer fixed repayments, which are an advantage to many. This is not the case with conventional banks.

Banking experts said the introduction of more Islamic finance products into South Africa would improve the size of the economy. They added this would also help diversify the banking sector’s funding and investor base.

Steve Meintjes, a senior banking analyst at Imara SP Reid, told Fin24: “If people that have been using Islamic banking have been happy all the time, let us have (more) of it.”

Meintjes said: “The SA economy needs more finance. Islamic banking will enhance the productive capacity of this economy.” He warned, however, that investors who are interested would have to do a bit of homework to understand the products on offer.

Tom Winterboer, a banking analyst at PwC, said Islamic finance products can be accessible to investors beyond the Muslim population. Only 2% of South Africa’s population is Muslim but the demand is coming from non-Muslims, according to Absa.

“It must be a good thing to happen to South African investors. It is a different principle from the domestic finance we have come to know,” Winterboer said, adding however that it needed a different expertise. “But South African banks have this expertise.”

The government is also keen on opening the doors to Islamic finance banking in South Africa. It has proposed a tax amendment in a bid to put Islamic banks in South Africa on an equal footing with conventional banks.

Morocco to promote Islamic finance

The issue of Islamic finance has taken centre stage in Morocco after the Justice and Development Party’s (PJD) electoral triumph.

Supporters of sharia-compliant banking pin hopes on the new government to create the first Islamic bank in the kingdom.

The PJD has talked of promoting Islamic finance on a number of occasions. Just a few days after his appointment as prime minister, Abdelilah Benkirane received a visit from Sheikh Khalid Bin Thani Al Thani, president of the Qatar International Islamic Bank (QIIB), who set out plans for establishing an Islamic investment bank and insurance company in Morocco.

Bank Al-Maghrib Governor Abdellatif Jouahri said last month that Morocco was interested in Islamic finance and viewed the idea of creating Islamic banks as part of the new financial platform in Casablanca.

A chapter on finance to meet the demands of sharia law will be included in the new banking law, he said.Meanwhile, economic analysts are critical of Morocco’s delay in enforcing Islamic banking.

According to economist Slimi Noureddine, the political will to promote Islamic finance is lacking. He insisted that Morocco should take the matter in hand to benefit from Arab investment, particularly from the Gulf states.

According to Bank Al-Maghrib, the worldwide market in Islamic finance will double in 2015, with a predicted value of $2.8 trillion (2.19 trillion euros). In Morocco, transactions coming under the umbrella of Islamic finance barely accounted for 800 million dirhams (72 million euros) in the third quarter of last year, which is a drop of 100 million dirhams (9 million euros) from 2010.

Officials blame this reduction on the reluctance of Moroccan banks to set up institutions which specialise in alternative finance, Noureddine said. He added that the expenses of alternative products can also be prohibitive, in addition to the slow-down in the housing market in recent months.

The analyst commented that Morocco should draw inspiration from successful experiences in other countries, so that this sector can be developed to meet public aspirations.

The African Development Bank, he said, has just published a report on the current situation of Islamic finance in North Africa.

“The report underlines that Islamic banking services in these countries, including Morocco, are struggling to develop, and looks at their future prospects and the extent to which they could contribute to economic development,” Noureddine said.

According to PJD Assistant Secretary-General Lahcen Daoudi, there has been much talk about the theory of Islamic finance in Morocco, but now the time has come to explore this channel which could bring considerable amounts of capital into Morocco.

He added that the sector is calculated to be worth more than a trillion euros worldwide.”Morocco needs to bring in regulations dedicated to this sector to attract a large part of it,” Daoudi said.

ITS ETHIX – Financial Solutions Awarded 'Best Technology Provider of the Year' by Islamic Business and Finance Award

Dubai – The International Turnkey Systems Group (ITS) has realized a new regional achievement by obtaining the “Best Technology Provider of the Year” award at the Islamic Business and Finance Awards ceremony.

This award was presented in recognition of ITS for providing the latest technological solutions and services that would meet banks present and future needs. ITS solutions also enabled Islamic banks to face growing challenges of competition in the local and regional financial markets.

ITS has provided banks with a number of ETHIX main banking services and solutions, including Islamic banking, automation of branches management, online banking services, and technological services related to treasury and management of Islamic in-vestments and documentary credits.

Khaled Jasim Al Amiri, Assistant General Manager of ITS, received the award at a prestigious ceremony at Emirates Towers Hotel, Dubai.

Al-Amiri commented on being selected for this award: “Once again, ITS confirms its superiority by the testimony of others through obtaining one of the top regional awards and is highly recognized by companies and institutions in various sectors.”

He added: “For more than 30 years (the lifetime of the company), our human resources have played a prominent and important role in realizing these achievements. They have helped position the company to enable it to compete strongly within the market and most importantly, to distinguish itself through groups of solutions, products and services, which have ultimately become the hallmark of ITS.”

Subsequently, ITS also has been awarded “Systems Integrator of the Year” at the Ara-bian Business awards which is considered among the most notable and important awards presented to the business sector in the region.

Banking and Investment Sector

The ITS ETHIX financial solution is a recognized solution in meeting the requirements of Islamic and traditional banking and Islamic finance. ETHIX has assisted many banks and financial institutions to minimize their operational costs in responding to the increased demand of customers for both traditional and Islamic products and services.

In addition, through the use of the most advanced and developed technological solutions in the world, ETHIX Financial solutions is ranked globally as the premier total banking solution, fully compliant with Islamic Shari’a catering to Tier1 banks.

The successful strategy of the ITS Group has enabled the company to double the ceiling of its returns and achieve significant company growth. By increasing total returns and the company’s equivalent in profits, ITS have been able to make both regional and strategic expansions, highlighting the role of HR in ITS.

Qatar Islamic Bank to buy IBQ's Islamic assets

Dec 28 (Reuters) – Qatar Islamic Bank will acquire the sharia-compliant corporate portfolio of International Bank of Qatar(IBQ), the Islamic lender said on Wednesday.

The agreement will see IBQ’s Islamic corporate financing facilities and its deposit accounts transferred to Qatar’s largest sharia-compliant bank by assets, according to a statement.

No value for the acquisition was given.The move comes ahead of the Dec. 31 deadline, imposed by the Qatar central bank, for conventional banks to stop offering sharia-compliant banking services amid worries of overlaps between the two.

The ban, announced in February, calls for conventional institutions to close their Islamic banking arms – although they could continue to manage existing assets beyond the deadline.

In August, IBQ sold the retail portion of its Islamic banking operations to Barwa Bank, the first such sale of assets by a conventional bank since the edict.

IBQ is 30 percent owned by the National Bank of Kuwait , Kuwait’s biggest lender.QIB’s shares closed down 0.1 percent, before the announcement came.

Banks to benefit from loan growth next year

MUSCAT: Local banks are likely to benefit from a robust growth in loan book next year, although challenges are ahead due to the imminent entry of two Islamic institutions, said a brokerage house in a research report released yesterday.

With spending on mega projects, over RO10.4 billion investment planned in construction sector by 2014 and investments worth RO386 million in oil and gas projects in the pipeline, banks will comfortably show healthy loan books, said Al Maha Financial Services in its ‘banking sector – performance overview.’

“We believe that favourable demographics would continue to act as a key driver for growth in consumer lending segment and expect the banks to benefit from higher disposable income levels of the youth population,” noted the report.

However, Al Maha said next year is likely to be a challenging period for local banks as two new banks are expected to start Islamic banking services. “However, banks are gearing up and take this as an opportunity to offer new variety of products and services,” noted the report, which was jointly prepared by Suresh Kumar, Radhika Gadhia and Kushboo Badlani.

Though the expected reduction in the interest rates and the ceiling on consumer loans are likely to impact the banks’ interest income, it is likely to help the banks to minimise the default risk and in turn improve the asset quality.

Al Maha also noted that half of the listed banks are expected to raise new capital in order to comply with the regulatory capital requirement of RO100 million.

“The banks are also likely to raise additional capital through other means such as rights issue, private placements and subordinated debt to fund the growing credit demand.”

Al Maha report said the total loans and advances of the six listed banks stood at RO10.36 billion by end-September, 2011 as compared to RO9.07 billion a year ago, registering an increase of 14.2 per cent year-on-year. BankMuscat continued to remain as the market leader in terms of gross loans and advances.

The bank’s market share grew from 45.3 per cent by end-September 2010 to 45.8 per cent for the same period this year. Oman International Bank underwent a challenging phase during this time with its market share declining to 7 per cent from 7.65 per cent a year ago.

Healthy growth

The loan book of the banking sector witnessed a healthy growth, both in the corporate and consumer segments, during the last one year.

The corporate credit grew by 16.5 per cent year on year from RO5.22 billion to RO6.08 billion during the period under review, with major companies like Oman Cement, Raysut Cement, Renaissance Services, A’Saffa Foods availing credit to fund their capital expenditure programmes.

The consumer segment witnessed a growth of 12.9 per cent, year on year to reach RO4.28 billion by end-September 2011.

The increase in disposable incomes owing to the hike in remunerations of employees was one of the major drivers for the incremental demand in the retail segment.

Referring to liquidity, Al Maha report said the customer deposits, including certificates of deposits, of the six listed banks stood at RO10.24 billion by end-September 2011 from RO8.22 billion for the same period a year ago, showing a growth of 24.6 per cent year on year.

The banking sector witnessed marginal improvement in the interest spread irrespective of the drop in yield, as a result of the decline in interest rate. Cost of funds also showed a drop during the first nine months of this financial year compared to the same period last year as a result of banks’ endeavour to access low cost funds.

This has resulted in improvement of the spread from 2.73 per cent in the first nine months of 2010 to 2.85 per cent for the same period this year.

Omani banks showed an impressive performance in the first nine months of this financial year by improving their profitability, the report said, adding; “The six listed Omani banks together have achieved a year-on-year growth of 19 per cent in net profits in the first nine months of this year.”

“Total profits of the listed banks reached RO179.6 million during the nine months ended September, 2011 from RO150.8 million reported during the same period last year.” Also, all the three quarters of this year witnessed better profitability compared to their respective quarters in the last year.

“Total profits of the listed banks reached RO179.6 million during the nine months ended September, 2011 from RO150.8 million reported during the same period last year.” Also, all the three quarters of this year witnessed better profitability compared to their respective quarters in the last year.

Ghana positive on starting Islamic banking

The central bank of Ghana says it will consider giing a license for the regime of Islamic banking in the country if a formal request is made.

According to the governor of the Bank of Ghana (BoG), Mr Kwesi Amissah-Arthur, the Bank will consider such a regime if a “formal request is made”.

“For now there has been no request for us to consider Islamic banking from any group,” Amissah-Arthur told journalists in Accra December 21, 2011.

“I think when a request is made – we should be able to consider it,” he adds.

Mr Amissah-Arthur noted that his fellow governor in Nigeria, Lamido Sanusi, is trying to get him to attend one of the country’s Islamic Banking association conferences.

But governor Amissah–Arthur said he doesn’t know that as a fact  but some of the wealthiest persons in Northern Nigeria are objecting to the system.

Islamic banking (or participant banking) is banking or banking activity that is consistent with the principles of Islamic law (Sharia) and its practical application through the development of Islamic economics, according to Wikipedia.

Sharia prohibits the fixed or floating payment or acceptance of specific interest or fees (known as Riba or usury) for loans of money. Investing in businesses that provide goods or services considered contrary to Islamic principles is also Haraam (forbidden). While these principles may have been applied to historical Islamic economies, it is only in the late 20th century that a number of Islamic banks were formed to apply these principles to private or semi-private commercial institutions within the Muslim community, added the user-generated content site.

In neighbouring Nigeria with a population of over a 150 million the central bank had granted approval in principle to Jaiz Bank International Plc to operate as the country’s first Islamic bank, news publication ThisDay reports June 21, 2011 citing Elombah News.

It is expected that the regime will bring about 70 million muslims to particpate in the banking industry in Nigeria.

In line with its plans to entrench Islamic Banking culture in the country, the apex bank had early this year rolled out its guidelines on Sharia governance for Islamic Banking, according to ThisDay.

Sanusi Lamido Sanusi – Nigeria Central Bank governor

But the introduction of Islamic banking in Nigeria is bringing some divide within the country’s religious (both Christians and Muslims) leaders.

A Voice of America (VOA) report July 15, 2011 indicates some sects, especially Christians are saying the move violates the country’s secular constitution.

The Christian Association of Nigeria says the move violates the country’s secular constitution and comes at a dangerous time when security forces are battling Islamic fundamentalists who are fighting for an independent nation ruled by Islamic law, reports the VOA.

A Catholic priest named Father Paul Anyansi of the the St. Peter Claver Catholic church told the VOA that he recognizes the potential economic benefits of Islamic banking but believes its dangers are far greater.

The Standard Chartered Bank has also hinted of starting Islamic banking services in Oman and Nigeria with talks with regulators ongoing, the BusinessDay news publication reports December 12, 2011 citing Wasim Saifi, StanChart’s global head of Islamic banking as telling reporters.

World Islamic Banking Conference

Manama, Nov 4 (ONA) — The Kingdom of Bahrain will host on November 21st the 18th Annual World Islamic Banking Conference 2011 under the title of “Competing for Global Growth” and lasts for three days.

The World Islamic Banking Conference, Which will be held this year, reflects the impact of the geographic expansion of the Islamic finance and the increased presence of the Islamic financial institutions that provide great opportunities for the global trade and investment flows which come in line with the Islamic provisions.

The conference will focus on stressing the strategies for management of globalization challenges and enhancing the joint cooperation to ensure providing powerful International capabilities for the banking services and Islamic finance sector.