The ICD-Thomson Reuters Islamic Finance Development Indicator announces initial findings

Thomson Reuters announced today (27 October) the initial findings from its collaboration with the Islamic Corporation for the Development of the Private Sector (ICD), the private sector development arm of the Islamic Development Bank (IDB).

Earlier this year, Thomson Reuters and ICD announced the creation of the ICD-Thomson Reuters Islamic Finance Development Indicator (IFDI), a numerical measure representing the overall health and growth of the Islamic finance industry worldwide.

The ICD-Thomson Reuters Islamic Finance Development Indicator announces initial findings

The ICD-Thomson Reuters Islamic Finance Development Indicator announces initial findings

The IFDI, which will be officially launched at the Global Islamic Economy Summit, aims to expand the scope of Thomson Reuters’ universe of Islamic finance content, research and news analysis and to develop an unbiased multi-dimensional barometer for the development of the Islamic finance industry. The indicator measures five key components – quantitative development, governance, social responsibility, knowledge and awareness.

Russell Haworth, Managing Director, Middle East & North Africa, Thomson Reuters, said,  “This indicator, the first of its kind for the Islamic Economy, will provide companies with much needed unbiased and reliable multi-dimensional analysis regarding the development of the Islamic finance industry.  The development of Islamic finance educational infrastructure will be a key driver for the establishment of the Islamic finance industry, which is why we chose the topic for our first IFDI analysis.”

Based on its analysis, the IFDI has found that the UK is the global leader in Islamic finance education with over 60 institutions offering Islamic finance courses and 22 universities offering degree programs specializing in Islamic finance.

Malaysia and the UAE, both established global Islamic finance hubs, followed the UK in terms of a comprehensive Islamic finance education infrastructure. Malaysia has 50 course providers and 18 universities offering degree programs, whilst the UAE has 31 course providers and 9 universities offering degree programs. Pakistan was placed fourth, with 22 course providers and 9 universities offering degree programs. The IFDI recorded 420 institutions offering courses in Islamic finance and over 113 universities offering Islamic finance degrees.

Malaysia also led in terms of research published on Islamic finance in the last three years, with 169 research papers, of which 101 were peer reviewed. The UK and USA followed with 111 research papers (56 peer reviewed) and 73 research papers (39 peer reviewed) respectively. A total of 655 research papers were issued globally on Islamic finance in the last three years, of which 354 were peer reviewed.

Khaled Al-Aboodi, Chief Executive Officer, Islamic Corporation for the Development of the Private Sector, said, “Today’s findings are a perfect example as to how and why the IFDI can identify the critical growth components of the Islamic Finance industry.  Our research shows that countries that build their educational infrastructure can benefit most from the growth of their Islamic finance industries.  Through their research and thought leadership countries, like the UK, Malaysia and the UAE have the potential to significantly influence the direction of the regional Islamic finance sector.”

Dr Sayd Farook, Global Head of Islamic Capital Markets for Thomson Reuters, said, “Research is an important metric used by the IFDI to assess the depth of knowledge dimension within the Islamic finance industry.   Our initial research indicates that the industry lacks the availability of in-depth research which, in turn, limits innovation and development.  Thomson Reuters is committed to leading the charge in information and analysis to support the global Islamic finance industry.”

The Global Islamic Economy Summit, organised by Thomson Reuters and the Dubai Chamber of Commerce & Industry, will take place on 25th & 26th November 2013 in Dubai, United Arab Emirates.

Islamic funds forum is a major success

Delegates and speakers from 25 countries took part in the eighth Annual World Islamic Funds and Financial Markets Conference which closed at the Gulf Hotel yesterday. “This has been by far the most international edition of this event that we have hosted so far and that is a reflection of the spread of Islamic finance from just the Muslim world to further afield,” said organiser MEGA Events managing director David McLean.

“We are not just talking about financial institutions here because what we saw this year was a strong representation from corporate entities who are turning from conventional finance to Islamic institutions when it comes to looking at ways to raise money.

“We have had leading institutions from as far apart as Ireland and Luxembourg taking part and a strong showing from Malaysia which has been dominating the sukuk market in recent years,” he added.

He said he believed the quality of speakers was again extremely high and the feedback he had so far was very positive.

“We are committed to bringing this conference back to Bahrain next year and we have already had a lot of delegates asking about how they can sign up for the ninth edition,” he added.

“Islamic finance may remain fairly small compared with conventional finance but it is a fast growing industry which is attracting more international interest across a wide range of financial service sectors.

“One of the fast growing sectors is Islamic insurance and because of that we will be launching a dedicated conference on takaful in Bahrain in October this year as well as returning with the World Islamic Banking Conference towards the end of the year,” he added.

Islamic funds forum is a major success


Islamic finance still has to achieve critical mass if it is to address problems of liquidity, according to KPMG Fakhro Bahrain partner “The sukuk market is definitely growing but it has yet to reach the necessary critical mass.

“The industry needs sukuk and interbank lending to meet its liquidity needs but unfortunately the bigger banks that have excess liquidity are not over keen to lend to smaller banks that do not have ratings.

“We will need to see more consolidation in the banking market and that is something that we are already seeing,” he added.

He said that while the sukuk market was expanding, almost 100 per cent of the issuance in 2011 was in Malaysia.

He added that the other problem the industry faced was a lack of standardisation on how banks deal with each other and on the issue of regulation.

“The industry is moving forward in developing standardisation but it is a slow process compared with the growth in the industry,” he said.


India opts to befriend rather than sanction Iran

INDIA SAYS it is determined to continue importing oil from Iran despite EU and US sanctions aimed at stopping trade until Tehran stops what the West insists is a military nuclear programme.

Reacting to US secretary of state Hillary Clinton’s comments that the US was engaging in “very intense and very blunt” conversations with India and others such as China and Turkey to stop oil imports from Iran, New Delhi officials indicated yesterday that they would not be coerced.

India’s finance minister Pranab Mukherjee recently rejected pressure from the Obama administration to join the US-EU led sanctions against Tehran.

India imports about 12 per cent of its oil and gas requirements from Iran for an estimated $12 billion (€9 billion), and maintains it will abide only by UN sanctions and not implement those imposed by individual nations or groupings such as the US and the EU.

India recently used Chabahar port in southeastern Iran for the first time to transport 100,000 metric tonnes of wheat to Afghanistan as part of its humanitarian aid to the war-torn country.

India helped build Chabahar a decade ago to provide access to Afghanistan and central Asia – prohibited over land by neighbouring nuclear rival Pakistan – and is involved in building a 900km rail link from the Zabul iron ore mines in southern Afghanistan to the Iranian port. With Iran and Afghanistan, it has agreed that Indian goods headed for Central Asia and Afghanistan will benefit from tariff discounts at Chabahar.

In addition to its oil needs, India wants to cement ties with a besieged Tehran so as to retain access to Kabul in the run-up to the US withdrawal from Afghanistan and to the Asian republics, where there are vast hydrocarbon reserves that could fuel India’s economic development.

Over the past few weeks a defiant India has been examining ways to step up trade with Iran amid trouble in settling its oil bills as sanctions closed down banking routes.

Much to Washington’s ire, New Delhi is sending a large trade delegation to Iran later this month to explore business opportunities created by western sanctions.

The Associated Chambers of Commerce and Industry in Delhi said the Islamic republic offered massive potential for Indian exports: more than $10 billion (€7.5 billion) a year.

“The potential of trade and economic relations between India and Iran can touch $30 billion by 2015 from the current level of $13.7 billion,” association secretary general DS Rawat said.

An Iranian central bank delegation is currently in Delhi to examine options for India to pay for crude imports. It is negotiating to offset a proportion of this bill in exchange for oil-refining machinery, heavy engineering goods and pharmaceuticals, all badly needed in Iran.

Until recently Indian firms were routing payments through Turkey’s Türkiye Halk Bankasi AS, after EU pressure last year forced German-based Europäisch-Iranische Handelsbank AG to stop handling the payments. It remains uncertain how long this arrangement will continue.

Islamic finance industry set for ‘a big leap’ in Oman

MUSCAT: Oman’s First Islamic Finance and Banking Conference opened yesterday with a call to stake holders to take effective steps in promoting Islamic finance in their countries.

Speaking as the chief guest, Darwish bin Ismail bin Ali Al Balushi, minister responsible for financial affairs, said, “with an annual growth of 20 per cent and total assets worth a trillion US dollars the Islamic finance industry is poised for a leap in the coming years and time is opportune to lend it a push.

He said that a study conducted in Oman revealed that 85 per cent of people favoured buying Islamic products and 70 per cent would opt for deposits in Islamic savings account whenever they are made available. This suggests the volume of interest shown by people in Oman in pursuing Islamic finance.”

The conference is organised by Al Iktissad Wal Amal Group (Lebanon) in association with the Central Bank of Oman.Delivering a key-note address, Dr Ahmed Mohamed Ali, president of the Islamic Development Bank (IDB), said that the conference provides a good opportunity for business leaders and decision-makers from different countries to interact and offer effective solutions to some challenges facing the Islamic finance industry.

He pointed out that major international agencies — Standard & Poor’s, Fitch Ratings and Moody’s — have given IDB the highest ‘AAA’ credit rating. He said that the IDB had provided total finances of more than $800 billion towards short-term and long-term projects in member countries since its establishment in 1975.

Dr Ahmed said, “The Islamic Corporation for Insurance of Investments and Export Credits (ICIEC) was formed with the objective to enlarge the scope of trade transactions and investment flows among the member countries of the Organisation of Islamic Conference (OIC);

Islamic Corporation for the Development of the Private Sector (ICD) was established to complement IDB through the development and promotion of the private sector, as a vehicle for economic growth and development in member countries while the Islamic Research and Training Institute (IRTI).

IRTI was established to help the Bank in discharging its functions in the fields of research and training assigned to it by its Articles of Agreement.” Mohammed Jamil Berro, chief executive officer, Al Hilal Bank, focused on Islamic banking growth by international expansion.

He said, “Al Hilal Bank has 28 branches in the UAE and its revenue crossed Dh1.73 million.” The bank has around 50,000 customers. With 10 per cent Muslim GDP and only one per cent global Islamic assets penetration, the global Islamic finance presents significant growth opportunities.”

Abdel Kader Askalan, CEO, Oman Arab Bank, said, “A central authority on Islamic Finance has to be established under OIC (Organisation of Islamic Countries) to develop regulatory legislation. Islamic finance has achieved remarkable growth in the past few years in the GCC region with 450 institutions worldwide of which 40 per cent are based in the Arab region.”

“GCC alone takes two-third of the world assets worth $ 700 billion. Islamic finace should be ready to face requirements of globalisations.”

KPMG holds training on Islamic finance

MUSCAT — KPMG, a leading international firm offering audit, tax, and advisory services recently organised a training at Crowne Plaza Hotel, Muscat on Islamic finance products and their accounting treatment under IFRS.

This training was organised by KPMG for its clients and members of professional staff. The objective of the training was to educate participants about the characteristics of various Sharia compliant financial products and how to deal with their accounting issues under IFRS and under standards issued by association of auditing and accounting standards of Islamic financial institutions.

As part of the introduction Khalid Ansari, partner, KPMG Oman mentioned that the training is part of KPMG’s endeavour to equip its professional staff and clients with the best of professional knowledge so that they are prepared in advance to deal with the developments that are taking place in the field of Islamic Finance.

The training was conducted by Mohammed Tariq, partner responsible for Islamic finance in the Lower Gulf practice of KPMG and he was supported by a Senior Manager, Samiuddin Siddiqui of Islamic Finance unit based at the KPMG unit in UAE.

The full day training course included topics on ‘introduction to Islamic banking and business model’, ‘challenges faced by the Islamic banking’, nature and salient features of Sharia compliant products like ‘Murabaha’, ‘Modaraba,’ ‘Musharika’, ‘Wakala’, ‘Tawarruq’ and ‘Sukuk’. There was a separate session dedicated to Sharia compliant insurance product ‘Takaful’.

Shakaib Mahmood, Director responsible for Islamic finance at KPMG, Oman stated that as the regulatory authorities are now getting closer to issuance of regulations and framework for the Islamic financial industry, the clients and professionals need to make advance preparations to be fully ready to deal with Islamic finance products in Oman.

Overall, I think the training was well received by the clients and staff of KPMG, said Shakaib Mahmood, and I look forward to an increasing number of participation from our clients in our forthcoming Islamic finance seminars and training sessions.

After the formal presentation there were plenty of opportunities for questions and answers. A number of participants shared their own experiences and perspectives.

KPMG is a global network of professional firms providing audit, tax and advisory services. We operate in 146 countries and have 138,000 people working in member firms around the world.

In the Lower Gulf, comprising Oman and UAE, KPMG employs more than 700 professionals and operates from five offices in Muscat, Dubai, Abu Dhabi, Sharjah and Jebel Ali.

Bangladesh banks have weak cushion against risks

Bangladeshi banks’ strength in terms of capital to losses is the lowest among the major South Asian countries, according to the first-ever Financial Stability Report (FSR) released yesterday.

The capital adequacy ratio (CAR), which sets the minimum cushion of capital a bank must keep to absorb losses and promote stability, was 9.3 percent in Bangladesh at the end of 2010. The CAR of Indian banking industry was 14.6 percent as of end-March 2010, 14 percent in Pakistan and 14.9 percent in Sri Lanka.

“Banks’ CAR must increase from the present level,” SK Sur Chowdhury, executive director of Bangladesh Bank, told reporters at the launch of the report.

The CAR has to go up to 14 percent under Basel-II requirements. The major three South Asian countries have more capacity than the regulatory need under the Basel-II.

The BB released the FSR 2010 yesterday at its office. The FSR has checked the health of the Bangladesh financial system and accordingly, advised the banks and non-banks to enhance capacity to absorb shocks.

The report was based on the data of 2010, but it used stress-tests of 2011 to assess the resilience of the financial system to adverse domestic and global macroeconomic developments.

The FSR observed that the domestic financial system remained stable in 2010 despite an adverse international backdrop. Market participants and stakeholders reposed their confidence in the stability of the domestic financial system and stress testing. The FSR, however, pointed out some weaknesses that need to be addressed.

Though the report found a resilient local financial system supported by congenial macroeconomic environment in 2010, it identified a risk arising from the global economic vulnerabilities and its spillover impacts on the economy.

“The financial sector has to make buffer in the wake of a deteriorating global financial condition. The banks should have a liquidity contingent plan,” Chowdhury said.

He cited an example of cash withdrawal during the Eid festivals. “Can a bank remain liquid if it faces 2 percent more withdrawal than that of normal transactions?” he questioned.

He also asked the banks to be more vigilant on the asset-liability mismatch.

The report found banking sector’s balance sheet recorded a sizeable growth in 2010. Assets and loans were not concentrated among a small number of banks. The provision shortfall was also reduced significantly, it said.

Banking industry’s operating and net profit increased by about 47 percent and 54 percent respectively in 2010 than 2009. The return on assets and equity also increased in line with net profit.

Though the non-performing loan ratio has been on a downward trend, the banks have to pay due attention to bring down the ratio to the minimum level, said the report.

The FSR found no big risk in the equity and currency markets during the period under review. However, the local currency was devalued by nearly 15 percent in 2010.

Islamic banks showed a remarkable growth in 2010. Its asset base grew by 27.35 percent, deposits by 25.69 percent and investments by nearly 30 percent in 2010 than 2009. The CAR of five Islamic banks out of seven was higher than the regulatory requirement of 9 percent.

Non-bank financial institutions have also been growing. The total assets of the NBFIs increased by 30 percent in 2010 compared to 2009. The volume of term financing by the NBFIs rose by more than 61 percent in 2010 than the previous year.

However, the non-performing assets (NPA) of the NBFIs increased by over 8 percent in 2010. But provisions maintained against the NPA showed a surplus over required provisions, said the FSR.

The payment and settlement systems in Bangladesh remained resilient and continued to operate smoothly throughout 2010. There was a remarkable shift from paper-based payments to the electronic form, but cash and cheques remain popular, said the report.

On the capital market, the report blamed lower pace of investment activities, reduced interest rates on deposits and savings certificates and over-crowding for the huge flow of capital in the stockmarket in 2010.

Goldman Sachs Sukuk Row May Dent Industry Lure: Islamic Finance

Dec. 21 (Bloomberg) — Goldman Sachs Group Inc., the fifth biggest U.S. bank by assets, has become entangled in a debate about how Shariah compliant its $2 billion Islamic bond program is, which may diminish the allure of Islamic debt.

Goldman Sachs’ sukuk program, blessed by eight of the world’s top scholars, is criticized by some Islamic advisers for not ensuring the debt will be traded at par value as mandated by Islamic law. Advisers including Riyadh-based Mohammed Khnifer of Edcomm Group Banker’s Academy in New York and Dubai-based Harris Irfan at Cordoba Capital have also said it’s unclear on how Goldman will use the funds it raises.

The debate highlights the struggle of Islamic finance’s standard-setting bodies to formulate rules that apply globally. Companies and governments aren’t bound by the regulations set by organizations including Manama-based Accounting & Auditing Organization for Islamic Financial Institutions and Kuala Lumpur-based Islamic Financial Services Board.

“The industry needs to welcome key global financial institutions if it wants to strengthen and further entrench Islamic finance globally in order for it to become a viable and competitive alternative,” Rizwan Kanji, a Dubai-based debt capital markets partner at King & Spalding LLP said in a telephone interview Dec. 15. “That said, new entities looking to Islamic finance as a source of financing should work hard to answer queries by the Islamic finance community.”

Islamic Bond Demand

Islamic bond sales, which jumped 68 percent to $26 billion in 2011, are still below 2007’s record $31 billion and are dwarfed by the $764 billion in bonds sold globally this year. Shariah restricts investors to transactions based on the exchange of assets rather than money alone because interest payments are banned.

Goldman Sachs set up a sukuk program based on a so-called commodity murabaha structure, or a cost plus mark-up transaction, that was approved for listing on the Irish Stock Exchange by the Central Bank of Ireland in October. Murabaha certificates can only be bought and sold at par value because they represent a future claim on the underlying assets.

“The commodity murabaha structure is already under fire from much of the Islamic community who consider it a shallow attempt to mimic conventional debt structures, and using such proceeds to fund conventional banking activities is ludicrous,” Irfan, managing partner of Cordoba Capital, an Islamic finance advisory company, said in an e-mailed response to questions Dec. 7.

Tawarruq Contracts

Edcomm’s Khnifer, a sukuk structurer and strategist, drew parallels between Goldman Sachs’ Islamic bond structure and the reverse Tawarruq contract, which was banned in 2009 by the Jeddah-based unit of the 57-member Organization of Islamic Cooperation. International Islamic Fiqh Academic hasn’t deterred issuers in Malaysia from using Tawarruq.

He also says Goldman’s program doesn’t ensure the commodity murabaha certificates are only traded at par, as per shariah law, especially since the program is listed on the Irish bourse.

Goldman Sachs says it has done its due diligence. The bank is “entirely confident” in the certification of its program as Shariah compliant, New York-based spokesman Michael DuVally said in an e-mail Dec. 7.

The bank, which hired Dubai-based Islamic finance advisory Dar Al Istithmar Ltd. to help set up the program, said it plans to use the funds it raises ”for its general corporate purposes and to meet its financing needs,” according to details offered in the program. It didn’t specify whether the money would be used in compliance with Shariah law, which would prevent it from paying interest and investing in businesses associated with gambling or alcohol.

Scholars Approve

Scholars involved in overseeing the sukuk program deemed it to comply with Shariah guidelines, Chairman of Dar Al Istithmar’s Shariah board, Hussain Hamed Hassan, said in a Dec. 19 e-mailed statement. Hassan sits on more than 15 boards, including Dubai Islamic Bank PJSC. Additional scholars mentioned in Goldman Sachs’ program include Mohammed Elgari and Sheikh Abdullah Bin Sulaiman Al Manea.

The sukuk structure is “a Murabaha, pure and simple,” Asim Khan, London-based managing director and head of structuring at Dar Al Istithmar, said in an e-mailed response to questions. A listing on the Irish Stock exchange would offer tax benefits, added Khan, whose said his comments reflect his own views rather than those of his company.

With Islamic bond sales increasing globally, investors may yet overlook the controversy and buy the bonds. South Africa invited banks Dec. 6 to submit proposals for the sale of its first Islamic bond, and Senegal plans to start investor meetings before year-end for the possible sale of sukuk.

Appetite for Goldman

“There will be an appetite from the market as Goldman Sachs is still one of the largest financial institutions in the world,” said Hakim Azaiez, head of capital markets in the Middle East and North Africa at London-based Dinosaur Securities. Still, “if its main aim is to achieve lower funding costs through this deal, then this won’t offer much value for investors as there will be comparison with its conventional bonds,” he said in an e-mailed response Dec. 19.

The yield on Goldman Sachs’ 5.375 percent dollar bonds maturing March 2020 jumped 88 basis points in 2011 to 5.79 percent today, according to Bloomberg prices. The average yield on Islamic bonds in emerging markets has fallen 65 basis points so far this year to 4.09 percent yesterday on the HSBC/NASDAQ Dubai US Dollar Sukuk Index. The debt returned 6.7 percent in 2011, compared with a loss of 0.1 on Goldman Sachs’ debt.

The yield on Dubai government’s unrated 6.396 percent sukuk maturing November 2014 dropped 59 basis points so far this year to 5.98 percent today, lowering the extra yield investors demand to hold Dubai’s sukuk over Malaysia’s 3.928 percent debt maturing in June 2015 26 basis points in the period to 312, according to data compiled by Bloomberg.

‘Fine Mess’

“We got ourselves into this fine mess, and have no one else to blame,” Safdar Alam, chief executive officer of Manchester, U.K.-based Solum Asset Management, said in an e- mailed response to questions Dec. 15.

On the one hand the Islamic finance industry encourages issuers to use structures as debt instruments “in clear contradiction of one of the most prominent facets of our industry — the prohibition of Riba” or interest, he said in an e-mailed response to questions Dec. 15. “Then on the other hand we disagree with how some entities use this product, because it is not ‘right’ or ‘good’, according to a definition of those words I am not familiar with.”

Halal industry 'must make strategic global acquisitions'

Dubai: With Ramadan well under way, the development of the halal food industry in terms of financing and brand-building has assumed importance.

This year, Al Islami Foods has launched the ‘Shine This Ramadan’ promotional campaign to create awareness about various aspects of halal slaughter.

Gulf News speaks to Saleh Abdullah Lootah, managing director of Al Islami Foods about the halal industry in the UAE and the wider Arab world.

Gulf News: The halal industry always seems to emphasise emotive terms such as trust, integrity and cleanliness, why are these concepts so important?

Saleh Lootah: The objective of the halal industry is to highlight not only the importance of halal in terms of Sharia, but also emphasise the other benefits of halal, including from a hygiene and health perspective. From farm to fork, halal is simply better meat, free from bacteria, blood and tender. So the true benefits to consumers that we are trying to highlight go further than the religious aspect. Continue reading

Islamic finance industry valued at $1.14tr

The global Islamic finance industry is valued at $1.14 trillion and is growing at a rate of 10 per cent annually.

This was contained in the just released Global Islamic Finance Report for 2011.

The industry, the report observed, is gradually building the depth, quality and quantity of its product portfolio and entering into new, previously unfounded fields in the financial markets.

Editor-in-Chief of GIFR 2011, Professor Humayon Dar, said : “In the aftermath of the global financial crisis there is a pressing need for an alternative financial paradigm, one that is imbued with a sense of social responsibility whilst maintaining a profit maximisation objective. Islamic finance presents such an alternative. Since its inception 40 years ago, Islamic finance has grown and is still growing at a precipitous rate. More Muslim and non-Muslim countries are adopting Islamic finance services highlighting a BRight future for this once niche industry”

“There are new fangled Shari’a compliant derivatives, innovations in asset and wealth management, improvements in efficiency of banking and the creation of products which satisfy regulatory requirements.”