CIMB Singapore aims to approve S$100 mln Islamic loans for SMEs

KUALA LUMPUR: CIMB Bank, which started its Islamic commercial banking operations in Singapore last year, aims to approve S$100 million this year for the small and medium enterprises (SMEs) in the republic.

“We are targeting about S$100 million for SME financing this year.

“At the moment, we already have about S$30 million on our balance sheet with a healthy pipeline for the full year.

“The take-up rate of Islamic financing for SMEs has been encouraging although it is very early days for the industry in Singapore,” said Badlisyah Abdul Ghani, CIMB Group’s head of group of the  Islamic banking division.

He said the bank’s Islamic commercial banking operation has been growing in Singapore although the Muslim community makes up less than half of the population.

“It is not about whether you are Muslim or non-Muslim. It’s all about value proposition.

“When customers see there is good value in our Islamic finance products, they’ll take up these products,” he told Bernama in an interview.

The bank plans to roll out its Islamic retail offerings soon as it has put in place a new core banking system that caters to its operations.

“We are looking at bringing to the market sometime in the third quarter, our pioneering Islamic retail deposit products as well as our award-winning Islamic structured products first before looking at any retail financing products,” Badlisyah said.

In Indonesia, CIMB has rolled out close to 60 Islamic financial products over the last two years, which included products that were re-launched.

“When we first started, we have only about 11 products in CIMB Niaga Syariah.

“We have now included Islamic trade finance, Islamic commercial banking, corporate banking offerings and many more.

“As for retail offerings, we undertook a segmentisation exercise so that we can target different consumer segments.

“Our ArRahnu business launched last year has had good traction and we now have about 100 outlets across Indonesia,” he said.

Badlisyah said this year, the bank’s Islamic banking business in Indonesia would focus on building up the portfolio as it has all the relevant products in place for all types of consumers.

He also said that CIMB Niaga Syariah, the Islamic finance window under PT Bank CIMB Niaga Tbk, had staged another record year for its financial year ended Dec 31, 2011.

“The bank posted 70 per cent growth both in deposit and financing assets on year-on-year basis and is looking to do better in 2012,” he said.

CIMB Niaga Syariah is now the fifth largest Islamic financial institution and the largest of all Islamic windows, in terms of assets in Indonesia. There are 34 Islamic players in the market comprising stand-alone Islamic banks and Islamic windows. — Bernama

Event to shed light on latest trends in Islamic finance

MUSCAT: Under the patronage of Darwish bin Ismail bin Ali Al Balushi, minister responsible for financial affairs, the Sultanate of Oman will host the first ‘Islamic Finance & Banking Conference’, from January 23 to 24, at Al Bustan Palace Hotel, here.


The event, organised by Al Iktissad Wal-Aamal Group, in collaboration with the Central Bank of Oman, will highlight key issues relevant to the Islamic finance industry, which includes policies and regulatory perspectives of Islamic finance, Islamic banking growth and international expansion, Islamic finance and capital market activities, supervisory and regulatory role of Sharia boards and the socio-economic accountability of Islamic finance.

Prominent speakers who will speak on the latest trends in the sector include Hamood Bin Sangour Al Zadjali, executive president of the Central Bank of Oman; Sultan bin Nasser Al Souwaidi, governor of the Central Bank of the United Arab Emirates; Raed Charafeddine, first vice-governor of the Central Bank of Lebanon; and Adnan Youssef, chairman of the Union of Arab Banks.

Dr Ahmad Mohammed Ali, president of the Islamic Development Bank, will be heading a high-level delegation. He will deliver a keynote speech at the conference’s opening ceremony.

400 participants

Conference sessions will reveal latest research and studies accomplished by a group of prominent specialists, academics and senior staff in the financial and Islamic banking sectors, from diverse regional and international leading organisations and corporations in the Islamic financial industry.

About 400 participants will gather at the event from various Arab and Islamic countries including Islamic and commercial banking leaders, fund managers, Sharia and legal experts, representatives of foreign banks and investment firms and world-level consultants, in addition to a large number of participants interested in Islamic banking. The conference is sponsored by Al Ahli Bank, Oman, Diamond sponsor, among others.

Benchmark a major step for Islamic finance

Last month, the world’s first Islamic interbank benchmark rate (IIBR) was launched. It was the result of a collaborative approach taken by many Islamic financial institutions, industry associations and Sharia scholars over the course of 24 months to address a decades-old industry challenge:

how to decouple Islamic finance from a conventional western pricing benchmark (Libor) when an “Islamic” alternative was not available. The objective was to support and preserve Islamic finance authenticity.

The IIBR is an interbank benchmark that offers a reliable and realistic standard to better measure the cost of funding for Islamic financial institutions. As contributed pricing for Sharia-compliant funding, it represents the DNA of an Islamic banking industry that is today focused on commercial banking over investment banking.

IIBR brought together more than 20 Islamic finance institutions to create a proprietary Islamic pricing benchmark. It is a major indication to the world that Islamic finance has come of age and can be seen as a sustainable and rapidly developing feature of global financial markets.

The benchmark is designed to be used to price a number of Islamic instruments including common overnight to short-term treasury investment and financing instruments such as murabaha, wakala and mudaraba, retail financing instruments such as property and car finance, and sukuk and other Sharia-compliant fixed-income instruments. It can also be used for the pricing and benchmarking of corporate finance and investment assets.

We expect the benchmark to grow organically as industry use and acceptance increase. As the industry gets used to the idea of its own proprietary benchmark and its scope becomes more global, we expect to see banks use the rate to price their interbank liquidity placements.

As that gains traction, banks will start to use it for their corporate and retail banking facilities. The rate has reached its full potential when we see investment banks providing syndicated Islamic financing (loans) and debt (sukuk) issuance using the rate.

Since the launch of IIBR, it has received much attention around the world for the positive step that it is.

Understandably though, the significance of IIBR and what it means for the Islamic finance industry, indeed the very position of Sharia-finance in Islam and the wider world, means that it provokes strong opinion and debate.

And we must address the critics if we are to achieve the full potential of this initiative. After all, these commentators are important additional stakeholders.

All collaborations start with open minds and transparent dialogue, and so here I hope to address some of the key points raised.

What is the difference between IIBR and Libor – the London interbank offered rate? Put simply, IIBR measures expected profit while conventional benchmarks such as Libor measure interest rates.

The IIBR question for contributors explicitly refers to the cost of raising Sharia-compliant funding and is therefore based on returns generated by Islamic assets.

The IIBR rates represent the aggregate risk profile of Islamic financial institutions, by way of their assets on the balance sheet, and the geographies in which they operate. This is important for two reasons.


On an economic level, now more than ever, conditions in Europe or the US do not necessarily reflect the conditions in the Middle East funding market, although there will inevitably be a connection as global financial markets are always intertwined.

How is IIBR representative and reflective of global Islamic finance treasury funding costs?

This is only a beginning. At present, we have a strong base in GCC countries, we have three major Malaysian banks and are in conversations with others, and we have started conversations with banks in Turkey, Pakistan and other jurisdictions.

How will IIBR address cross-border funding costs?

The precondition for cross-border funding is establishing local rates, and we are starting a dialogue with more countries with established Islamic banking industries. The more important point is that a transparent process or methodology is in place for price contributions, and its integrity is overseen by our benchmark committee with rules that will punish banks, including expulsion, that violate the agreement they have signed.

Why are only murabaha contribution rates used?

Murabaha is the predominant form of funding for Islamic banks. However, the IIBR is instrument-neutral as decided by the Islamic benchmark committee, and in the future, when other instruments such as wakala or mudaraba become more widespread, a higher proportion of contributions could be derived from other rates.

Is IIBR only for Islamic financial institutions?

IIBR, like Islamic finance, is for all people and institutions for all times. As an accurate and transparent measure of market activity, it is suitable for a variety of uses in the modern financial markets of the world. With IIBR, conventional banks will now have more confidence in their counterparty Islamic banks because their rates will be benchmarked and publicly available.

HSBC Amanah set to tap huge opportunities in the Middle Eas

Dubai: HSBC Amanah provides a full range of Islamic financial services to the retail, corporate and institutional customers in the Middle East, Asia and the UK.

It has a team of dedicated Islamic banking professionals in most major financial centres such as New York, London, Riyadh, Dubai, Hong Kong, Malaysia and Singapore. With the size of the Muslim population expected to reach 2.2 billion by 2030, or 26 per cent of the world population, HSBC Amanah expects huge growth in their target markets.

In a recent interview with Gulf News, Razi Fakih, Deputy CEO of Global HSBC Amanah, said that about 80 per cent of the world’s Muslims live in Asia and the Middle East. Given that these regions are set to grow faster than the world average, Islamic finance is thus likely to continue growing faster than conventional banking.

Gulf News: What are your expectations for the overall growth of Islamic banking, especially in the region?

Razi Fakih: The Islamic banking industry has been growing at double-digit compounded annual growth rates over the past few years. Markets such as Malaysia, Turkey and the GCC (Gulf Cooperation Council) countries in particular, have been beneficiaries of the strong growth. Growth is likely to extend beyond the traditional markets of Saudi Arabia and the UAE as more countries adopt regulations that are friendly to Islamic finance.

Looking at the recent trends, do you expect to see a long term surge in sukuk issuance?

Sukuk sales have definitely rebounded. With a healthy pipeline of mandates, we expect the number of issues HSBC Amanah manages in 2011 to beat last year’s and our record year in 2007. The market has been incredibly active. At one point in May 2011, three sukuk were launched in one week in Mena alone. HSBC Middle East’s sukuk was a landmark issue for various reasons. Besides being the first benchmark sukuk by an international bank, it uses a new structure which paves the way for other financial institutions to issue sukuk.

How do you assess HSBC Amanah’s performance in the region in recent years?

We are the leader in Islamic debt capital markets and we intend to keep this position. For GCC sukuk, we are the No 1 underwriter with a 40 per cent market share. HSBC Amanah has also witnessed significant growth in our commercial banking business in the Middle East this year. Customers are increasingly turning to Islamic finance because the proposition is now on par with conventional banking.

Our retail banking and wealth management business continues to do well after the launch of HSBC’s new international Islamic banking. HSBC Amanah’s fund management business is also doing well. With the largest range of Islamic equity funds globally, we are a leading international Islamic asset manager.

What will be the role of Islamic markets and institutions in global trade and trade finance?

HSBC’s recent Trade Forecast report sees global trade jumping 73 per cent to $49 trillion by 2025, with Malaysia, Indonesia and the UAE emerging as major trade players. Muslim countries such as Malaysia, Indonesia, the UAE, Saudi Arabia and Egypt are expected to account for 5 per cent of the world’s trade by 2025, with Egypt likely to play a larger role in Islamic trade finance.

Emerging and Islamic markets are expected to lead growth in global trade volumes over the next 15 years as non-traditional markets in Asia and the Middle East drive demand. To realise the full potential, however, key concerns raised by exporters and importers through HSBC’s Trade Confidence index need to be addressed.

What is your assessment Islamic banking in the region in the post Arab Spring?

Post the Arab Spring, countries in the Middle East will be looking to rebuild themselves. Key projects will be infrastructure and basic social facilities such as roads, hospitals, power plants and schools so that people can enjoy a minimum standard of living.

To finance these projects, governments and private sector developers should consider Islamic financing since Islamic banks have stronger balance sheets and are better able to fund these multi-billion dollar projects at a time when the liquidity pool is shrinking given tightening credit lines and higher regulatory requirements for banks.

For many Middle Eastern countries and corporates, sukuk has become a mainstream source of financing. The outlook for sukuk is strong because there is high liquidity and more importantly, it has performed really well in the after-market.

Islamic banks offer shelter in the storm

Having emerged from the global debt crisis relatively unscathed, the Islamic finance industry is looking to corporate business as the next big growth driver, but for small investors the retail offerings are also proving competitive.

Since the first modern Islamic Bank opened nearly 40 years ago, Islamic finance has expanded from a small idea that gave Muslims a way to do business according to Sharia law to a mature, fast-growing industry with an estimated US$1 trillion (Dh3.67tn) in assets.

More than 70 Islamic banks and windows (Islamic services offered by conventional banks) are now in operation across the GCC as both Muslim and non-Muslim, corporate and retail customers look to include Islamic finance into their investment and funding mix.

With its lack of exposure to sub-prime or credit-default securities, the Islamic finance industry withstood the first wave of the global financial crisis relatively intact.

Later, however, as global credit dried up and the impact of the crisis on the real economy hit markets and real estate prices, it found itself facing similar challenges to conventional banking.

But Islamic institutions are on the rebound and as news concerning the future of European and US banks see-saws on an almost daily basis, Islamic banks appear to many to be a stable alternative.

Noor Islamic Bank (NIB), which launched in January 2008, a few months before the full force of the economic crisis hit the region, attributes its ability to survive the tough economic times to its competitive services and prices.

The bank’s international growth plans were put on hold as the full extent of the crisis became apparent, but, after redirecting its efforts to the local market and improving efficiencies, the bank has shown a profit in the first half of 2011, six months ahead of schedule.

What is growing the industry, says Hussain Al Qemzi, the chief executive of NIB, is the ability of Islamic banks to compete by offering better services, better deals and prices and a growing number of products for retail and corporate clients.

Islamic financing can no longer be seen as just a low-risk, ethical or religious alternative, Mr Al Qemzi says, noting that about 40 per cent of the bank’s retail and corporate clients are non-Muslim.

“Perhaps in other markets people look at [the Islamic banking] model as one with religious foundation, but not in the UAE,” he says.

“Here, Islamic banks compete with all kinds of customers. We have managed to create a good level of one-to-one service. We have good technology and a lot of products.

“Some people may take the view that Islamic banks are a good ethical banking option, but I believe the growth that’s happening today is about competition.”

Mashreq opened its Islamic window, Al Islami, in 2007 and, like NIB, was forced to refocus its direction when the financial crisis hit.

“We refocused into commercial banking; that was where we saw the biggest expansion,” says Moinuddin Malim, the chief executive of Mashreq Al Islami.

“Last year was tough for all the banks in the UAE, including Islamic, but this year we’re growing and hope to outpace other Islamic banks.

Our solutions are structured properly and are much more efficient, our credit is much more streamlined because we’re part of a conventional bank and we don’t have any operational issues.”

The retail market has also recovered and in the first six months of this year, both the GCC and Al Islami’s retail trade grew between 33 per cent and 35 per cent.

Now, 12 per cent to 15 per cent, or US$2 billion (Dh7.35bn) of Mashreq’s loan book is Islamic.

Al Islami is focusing its target on small-to-medium enterprises (SMEs). “SMEs like dealing with Islamic banks; they feel more equitable, which raises their comfort levels,” Mr Malim says.

“Islamic banks are relatively new, so we spend a lot of time with our customers, whereas commercial banks are settled. They don’t have to run for their clients.

“Our prices are competitive and we’re very transparent. We put everything very clearly. When you do this for your client, you build a comfort level.” Internationally, Islamic banking is also gaining ground as a competitive alternative.

The Financial Times last month reported that Islamic banks were providing the best returns on cash deposited for two, three, four and five years, encouraging more UK customers to put money into Sharia-compliant accounts.

Since advertising profit rates of up to 4.8 per cent on comparison sites such as, Bank of London and The Middle East (BLME) has seen a four-fold increase in customer deposits, most of which derived from non-Muslim investors, Nigel Denison, BLME’s executive director, told the Financial Times.

But there is a catch.

BLME, one of the main providers of Islamic finance in the UK and arguably the largest Islamic bank in Europe, sets a £50,000 (Dh296,265) minimum deposit.

But the majority of Islamic retail banking is not as high end and the real growth driver in the retail market is expected to come from countries such as Turkey, Syria and Egypt in the Middle East and Indonesia in Asia, where millions of Muslims are transitioning from a cash economy and looking for halal financial dealings.

Currently, there are more than 300 Islamic financial institutions in 51 countries around the world, including the UK, Singapore, the US, South Africa and Kenya, as well as the Middle East.

London, the Islamic banking hub of Europe, is already bigger than Pakistan’s and is preparing to get even bigger as its Muslim population of about 2 million grows. It has six Sharia-compliant banks and 17 financial institutions.

In Germany, a 2010 survey showed 72 per cent of its 4 million-plus Muslim population was interested in Sharia-compliant products. France and Spain are also modifying laws to open the way for Islamic banks. In Australia, Crescent Wealth is planning to establish a range of Sharia-compliant equity and property funds and superannuation products.

Modern Islamic banking is based on five pillars: no interest; no uncertain speculation; no financing of companies involved with goods and services deemed haram; the sharing of profit and loss; and the understanding that all financial transactions must be backed by tangible assets.

The big difference between conventional and Islamic banks is that conventional banks pay a guaranteed interest rate on savings and fixed accounts, while Islamic banks pay the depositor a profit depending on the deposit amount.

But the biggest attraction the industry has to big business today is its liquidity. At a time when credit is hard to come by, Islamic finance is offering a new wealth stream.

“Islamic finance brings something ethical to the table. It brings more efficiency, but most importantly it brings liquidity,” David McLean, from MEGA, an umbrella company representing some of the world’s biggest Islamic finance conferences, said last month on the sidelines of the International Summit on Islamic Corporate Finance in Abu Dhabi.