BankDhofar set to launch Islamic banking

MUSCAT BankDhofar has appointed Deloitte and Touche for a market assessment and feasibility study into launching of Islamic window services at the bank, a press release said.

The bank has also appointed a new head of Islamic banking to prepare it to handle the new service.

BankDhofar is planning to implement Islamic financial services and has already invested in training programmes for executives, providing them with insights into planning and executing Islamic banking products and services.

This study is in response to the Royal Decree issued last year by His Majesty Sultan Qaboos Bin Said.

“At BankDhofar we are planning to offer customers Sharia compliant products and services through dedicated service channels,” said Mohamed Redha Jawad, general manager, Wholesale Banking.

“The feasibility study will enable us to offer customers the best services possible and to ensure that we are abreast of all new regulations and standards for Islamic financial services,” he said.

With assets worth around 1.5 billion rials, BankDhofar, is ranked number 1, as the “Best Bank in Oman 2010” by the Oman Economic Review-Gulf Baader Capital Markets, Business Today’s ‘Banks & NBFCs’ survey conducted by Ernst & Young and “Best Bank in Oman” by the pre-eminent international finance magazine Euromoney.

Islamic bond may be linked to third bridge

Turkey may issue its first sukuk, an Islamic finance tool, to be linked to the toll revenues of a planned bridge over the Bosphorus, daily Vatan claimed without quoting sources. The Treasury has already started a study on the issue, the newspaper said.

The paper said Deputy Prime Minister Ali Babacan’s Jan. 30 speech at a Capital Markets Board (SPK) meeting in Istanbul was a signal for the attempt. Turkey may issue its first sukuk this year, Babacan said at the meeting.

“The financing of the investment will be provided somehow,” Babacan told local broadcaster CNBC-e during last week’s Davos meeting, commenting on Turkey’s bid to build a third bridge over the Bosphorus to ease traffic in the city.

Turkey’s first attempt to find a contractor for a 414 km highway project that includes the third bridge failed as all of the 18 registered companies for a build-operate-transfer model tender failed to place a bid by the deadline of Jan. 10. The government then decided to divide the project into two pieces to ease financing for possible contractors.

“The project will be limited to the third bridge and its link roads. So the cost of the project will come down to $2.5 billion from $6 billion,” Babacan said at Davos.

The new tender date has been set as April 5 for the Northern Marmara Highway Project.

Closed bids will be received no sooner than seven days before the tender date.

With the shift in the initial scheme, only the bridge and 60 km of link roads will be built by the build-operate-transfer scheme. The remaining parts will be financed from the public budget.

Dubai's Majid al Futtaim announces sukuk roadshow

Dubai’s Majid al Futtaim will begin meeting investors on Sunday ahead of a potential Islamic bond, or sukuk issue, a statement from the lead managers said on Tuesday.

The mall developer, which is the sole franchise for Carrefour in the Gulf, will meet investors in Abu Dhabi and Dubai on January 29, before a second day of roadshows in London and Kuala Lumpur on January 30, it said.

Abu Dhabi Islamic Bank, Dubai Islamic Bank , HSBC and Standard Chartered are the lead managers for the potential transaction, which would be the company’s first debt capital markets issue.

The company has been eyeing global debt markets for several months, completing a series of roadshows for a conventional bond in June but not going ahead with a print because of the impact of market volatility on pricing.

It then set up a sukuk programme to have the option to tap Islamic liquidity and take advantage of healthy demand for sharia-compliant assets amid ongoing global risk aversion.

A senior executive told Reuters in November the company hoped to raise between $350 million and $500 million from its debut sukuk offering.

This would be the first issuance by a private corporate firm in the Gulf and is regarded as a vanguard for other private sector companies in the region who, hit by limited liquidity in the loan market, are searching for new finance streams.

The unlisted firm raised $1 billion loan from a group of banks in July which was used for refinancing of a $1 billion loan maturing later this year.

MAF’s revenues grew by 10 percent year over year to 18.7 billion dirhams ($5.09 billion) last year and its net debt was around 7.5 billion dirhams.The developer expects to open around 15 new Carrefour hypermarkets and about 25 to 30 new supermarkets in 2012.

Islamic finance values hold key to innovation

In the aftermath of the global financial crisis which was precipitated inter alia by the conduct and perceived greed of bankers chasing profits and bonuses seemingly at any cost, there has been a revisiting of the philosophy of banking and finance especially its relationship to the public good and the real economy.

In Islamic economics and finance, the concept of the Public Good (Maslaha) is well established. Islamic finance in essence should also pursue Maqasid Al-Shariah – the objectives of the Shariah relating especially to financial transactions, relationships and contracts.

Islamic finance, stress academics such as Professor Hashim Kamali, has provided sufficient evidence that the Shariah has enormous potential to contribute to the Public Good. One manifestation is the proscription on investments in speculative derivatives and transactions such as CDOs which were the bane of market capitalism in the recent financial crisis.

The concept of Maslaha is not confined to Islamic finance per se, but also to wider governance, governments and public life, although the application of Maslaha must be genuine, all inclusive and have no conflicts with Shariah injunctions.

Indeed, at a recent 5th International Islamic Capital Markets Forum which was held at Lanai Kijang in Kuala Lumpur, Zarinah Anwar, chairman of the Securities Commission Malaysia, urged that the virtues of Islamic finance – public good, ethics, shared values, governance, real and tangible contributions to the economy – need to be unlocked further, and they hold the key to innovation and growth of the industry.

Pertinent to this year’s forum theme, “Risk-sharing — A Way Forward to Public Good”, Zarinah emphasized that “the pursuit of profits guided by a higher social purpose will create not just economic returns but also comply with universal values shared by all of mankind.

Indeed it is possible to derive profits from doing good. Putting this in place will strengthen the universality and acceptability of Islamic finance, enabling it to offer a distinctive value proposition.”

Islamic finance like any other industry must create a distinctive value proposition that meets the needs of its customers. To a certain extent, Islamic Finance has managed to transcend religious, political and geographical boundaries and today serves not only the needs of the Muslims but it is also gaining the interest and acceptance of non-Muslims.

But, she warned that there are challenges that could pose threats to the entire value chain. Islamic finance products have had universal appeal due to its ability to replicate its conventional counterparts. But replication has its dangers.

“Replicating the conventional banking products means that the industry is importing the same issues and concerns faced by conventional finance. Conventional finance recognizes debt as the basis of all financing structures whilst Islamic Finance has risk participation as its cornerstone. Blending the two, which has been the popular practice, has to some extent diminished the value and the spirit of the Shariah.

And as a consequence we see increasing legal uncertainties and concerns over investor protection. But there is also a school of thought that says a close resemblance is permissible,” she explained.

The forum covered concepts such as Maslaha (the public good); Tayyib (wholesome, the best); risk-sharing and public policy; a legal perspective of risk-sharing contracts; corporate governance and corporate social responsibility; an inter-disciplinary approach to Islamic finance; and linking Maqasid Al-Shariah (the objectives of Shariah) to the economy.

Zarinah emphasized three important propositions – the early development of Islamic finance which saw largely the Shariah-compliant replication of conventional products; the emergence of risk sharing in Islamic finance which integrates risk management with value creation; and the importance of achieving Maqasid Al-Shariah to offer a distinctive value proposition to the global financial system and society per se.

The industry has achieved double-digit growth rates; there has been increasing acceptance of Islamic finance not only in the Muslim-majority countries but also in non-Muslim jurisdictions; and the market has seen increasing participation of multinational corporations, multilaterals and conventional institutions in sukuk issuances.

Adapting conventional products to make them Shariah-compliant with the hope that these would eventually evolve and become more closely aligned with the principles of the Shariah was necessary in the early development of the industry, and has facilitated acceptance of these products and has been instrumental in getting Islamic finance to where it is today.

However, according to the SC, the emphasis on Shariah-compliant products has also meant that there has been less urgency to develop Shariah-based products. Furthermore, adaptation has resulted in direct comparisons being made between conventional and Islamic products in terms of risk-return profiles, cost structures and legal, tax as well as regulatory considerations. Often and not unexpectedly, such comparison would result in Islamic products being seen as less attractive.

The SC Chairman contended that for Islamic finance to flourish and sustain its long-term growth, it must be able to offer a more distinctive value proposition that is universal and all-encompassing. In this regard, risk-sharing is one of the cornerstones of the Shariah.

Risk-sharing contributes to fairness and collaboration, both of which are universal values. More concerted efforts to facilitate the expansion of Islamic finance toward risk-sharing structures will  therefore provide Islamic finance with a distinctive value proposition which will not only broaden its customer base to include investors seeking risk-participatory instruments, but also offers innovative product structures to provide diversification benefits.

But although the form of contracts for conventional and Shariah compliant financial transactions differ, the problems and challenges are not dissimilar. “Continued reliance on debt-based structures perpetuates the element of inequitable risk sharing by virtue of the risks in debt based transactions being largely transferred to the client or investor. The subprime crisis serves to remind us of the fragility of a debt-based system,” she added.

Risk-sharing integrates risk management with value creation. The Islamic concepts of Musharakah and Mudarabah, for example, target value creation and are good ways of managing risk. Risk-sharing also encourages entrepreneurship.

While risk-sharing fosters strong commitments, it must have deterrent features that can effectively address any violation of the applicable principles or arrangements. “Only in this way,” emphasized the SC chairman, “can we have a system that is competitive and allows for profit-maximization.

Risk-sharing structures by their very nature will foster greater self and market discipline, thus allowing the regulators to focus on their core business of investor protection, ensuring fair and orderly markets and minimizing systemic risks. The risk-sharing concept, therefore, leads to the attainment of public good and promotes ethical and responsible corporate conduct.”

Modern finance, agreed Chairman Zarinah, has contributed immensely toward global economic and social development. New ethical dimensions have been introduced into the financial services industry, such as CSR programs, socially responsible investing, green-financing, application of the equator principles which ensure the commitment of conventional institutions to the pursuit of public good.

Ethics and public good are inherent in the Islamic concept of risk-sharing. The ultimate objective of Islamic finance must be to fulfill the objectives of the Shariah. Indeed, the prohibition of Riba, leverage, speculative risk-taking and Gharar are meant to realize the ideals of social justice and to prevent exploitation. Thus the motivation for partaking in Islamic finance should therefore also include considerations beyond just the rationale that funds are from permissible sources, transactions are asset-backed, forms are Shariah-compliant and greater transparency are apparent in the structures.

Malaysia, said Zarinah, is well-poised to take Islamic finance to the next level given its success as an established Islamic financial centre where the government, regulators and industry all work hand-in-hand to support Islamic finance initiatives.

“Under our Capital Market Masterplan 2, the widening of the international base of the Islamic capital market has been identified as a key growth driver. In this respect, successful implementation of initiatives and strategies to facilitate and expand the Shariah-based approach, with its underlying qualities of promoting ethical and equitable economic and social developments that have universal appeal, will be crucial in supporting the sustainable growth of the Islamic capital market,” she concluded.

Deutsche names new Islamic finance officials

Deutsche Bank has appointed Salah Jaidah as the chairman of Islamic Finance and Ibrahim Qasim as the head of Islamic Finance Structuring.

Ashok Aram, CEO of Deutsche Bank for the Middle East & North Africa, said: “Deutsche Bank is committed to the development of the Islamic Finance industry and will continue expanding its Shari’a compliant product offerings and solutions.

“Salah’s appointment will be instrumental in solidifying Deutsche Bank’s position as a leader in Islamic Finance. He brings key leadership, wealth of experience and deep insight into the Islamic Finance market contributing to Deutsche Bank’s long term commitment to the Islamic Finance industry.

His expertise and relationship in the industry will be key in driving Deutsche Bank’s long term growth plans.”

Salah is a board member of a number of Islamic Finance Institutions in the Middle East and South East Asia and will continue to lead Deutsche Bank´s operations in Qatar as chief country officer and vice chairman for the Mena region.

Aram added: “Ibrahim has contributed significantly to the formation and development of Deutsche Bank’s Mena structuring and Islamic Finance platform over the last five years and brings a wealth of hands-on execution experience across a wide array of Shari’a compliant products and asset classes.

Ibrahim will elevate our focus and drive the commitment to innovate and execute key products, solutions and initiatives in the Islamic Finance space. He will be supported by a strong team of Islamic Finance specialists located in Dubai, Riyadh, Malaysia, London, and Singapore.”

Ibrahim has over nine years of industry experience in structuring and executing transactions in the global capital markets ranging from Sukuk and structured financing solutions to Shari’a compliant investment, risk and liability management products.

Deutsche Bank is committed to working with industry participants and stakeholders to further develop the Islamic financial markets, and to be an industry leader in developing and implementing bespoke Shari’a compliant products and solutions serving Islamic clients globally, said a statement.

Brokers expand as demand for Islamic finance soars

Private client interest in Islamic financial products is growing at record levels, the Middle Eastern head of Saxo Bank said today.

The Danish bank and online brokerage has begun offering Middle Eastern investors access to internationally-listed Islamic equity products, aiming to capitalise on the booming demand for Shariah-compliant cash and exchange-traded fund products.

The bank has partnered with Middle Eastern fund manager IdealRatings to identify compliant stocks and equity-based ETFs across 25 international exchanges, offering local clients access to a broader range of investment options. All stocks must be passed by a Shariah Review Bureau before being offered to investors, Saxo said.

Jakob Beck Thomsen, chief executive of Saxo’s Dubai office, said: “Middle Eastern flows are growing strongly. There’s a big local appetite for international equities and products, from both private and institutional clients.

“Mena activities now account for around 6% of our total revenues – double what they did a couple of years ago, even at a time of significant growth for us elsewhere. We continue to have a strong focus on the region and ambitious growth plans.”

Under Shariah law, Islamic banks are forbidden from charging interest on loan products. Excessive speculation or the creation of financial uncertainty for investors is also prohibited.

Not all states are subject to such doctrinaire rules, however. Iran, under its ruling Shia regime, offers investors open access to equities, commodities and a limited number of equity derivatives on its Tehran-based exchanges.

Other international brokers are known to be upping their headcount in the region, keen to offer investors access to the Middle East’s vast oil reserves and solvent capital markets, and offer local clients exposure to international products in return.

GFI Group, the US interdealer broker, has ramped up headcount in the region this year. Its Middle East franchise pioneered international investor access to Islamic bonds.

Thomsen added: “Islamic finance is still in its infancy. There’s still a lack of standardisation and agreement of investment rules. Despite that, the market is still growing at some 25% a year. There’s now more than $1 trillion invested globally in Islamic financial products.”

New reforms to help capital market growth

MUSCAT Oman’s capital markets are primed for expansion as a wave of key reforms in the Sultanate’s financial services sector gain pace, according to the Executive President of the Capital Markets Authority (CMA) HE Yahya Bin Said Al,markets,jabri,oman's,capital markets,al marhoon,family holdings,oman's capital market ,al jabri

Global publishing, research and consultancy firm Oxford Business Group (OBG) has quoted Al Jabri as saying that the legislative changes and incentives aimed at encouraging family holdings to list would play an important role in attracting investors to the Sultanate.

Al Jabri stated that activity on the Muscat Securities Market (MSM) would rise in the coming months, with a number of new companies set to be listed. Further, the launch of Islamic banking in Oman would contribute to the expansion of Oman’s capital markets.

“We have witnessed a 6 -7 per cent growth on the MSM over last year, which shows that the capital markets have recovered from the world financial crisis,” Al Jabri said. “Investors are returning to pump in funds in the market,” he added.

The Director General of the MSM Ahmed Saleh Al Marhoon agreed that Oman’s capital markets were ripe for further growth.

“We are optimistic about the capital markets, particularly the prospect of new IPOs which look set to be listed in the near future. We’re preparing ourselves for a real take-off,” said Al Marhoon.

Al Jabri and Al Marhoon gave these opinions to OBG to assist it in compiling ‘The Report: Oman 2012’, the Group’s forthcoming guide on the Sultanate’s economic activity and investment opportunities.

OBG’s report will offer a detailed, sector-by-sector guide for foreign investors, alongside interviews with the most prominent political, economic and business leaders, including His Majesty Sultan Qaboos Bin Said and Deputy Prime Minister for the Council of Ministers HH Sayyid Fahd Bin Mahmoud Al Said.

The report will feature a chapter on Oman’s capital markets which will include an interview of the chairman of the MSM.

Leading international personalities, such as the Prime Minister of Singapore Lee Hsien Loong, Director General of Unesco Irina Bokova, and the President and CEO of the National US-Arab Chamber of Commerce David Hamod will also feature in the report speaking about Oman’s economic development.

He hoped that incentives, such as reducing the floating percentage for IPOs for family holdings from 40 per cent to 25 per cent, would also lead to greater activity on the MSM. “We have asked banks to get involved and inform customers with family holdings of the benefits of listing their company,” Al Jabri said and added that with many international banks expected to step up their requirements for transparency in Oman’s family businesses, corporate governance should remain a key focus for both private companies and government entities.

By Oman Tribune