Jordan Islamic Bank Co PLC : Distributing cash Dividends by 15 % and 25%bonus shares

Jordan Islamic bank (JIB) achieved net profits before tax reached JD 39.7 million at end of financial year 2011 compared to JD 40.7 million for the year 2010 whereas its net profits after tax reached  JD28.3 million at end of 2011 .

H.E. Mr. Adnan Ahmad Yousif,  Chairman of the Board of Directors of Jordan Islamic Bank stated that the Board approved the financial statements and recommended to be presented in the General Assembly  ordinary meeting that will be held on 25/4/2012 by distributing cash dividends to shareholders by15 % of the bank’s capital. The Extraordinary General Assembly recommended to increase the bank’s capital from  JD100 million / share to JD 125 million / share by distributing bonus shares by 25%  after amending the articles of association , the company’s internal system and completing the official  approvals from Ministry of Industry and Trade and Financial Securities Commission.

Yousif added that despite the crises that global economy and surrounding area witness and their negative impacts on the national economy , Jordan Islamic Bank continued its mission in Islamic banking, achieving pleasing successes by  getting many credit ratings and global prizes which indicate Jordan Islamic bank’s strength, flexibility and its ability to confront the difficult and fluctuated political, financial situations worldwide. In addition, they show the management’s ability to implement a package of banking policies and Islamic financial solutions that keep abreast of the developments that Islamic banking industry witnesses in accordance with sharia principles.

Concerning the most prominent financial indicators of JIB ,Mr. Musa Shihadeh,  Vice Chairman& General Manager of JIB, said the bank was able to strengthen its position in the Jordanian banking sector through the obvious growth reflected in its financial indicators till 31/12/2011. The total clients’ deposits reached at end 2011 JD 2.635 billion compared to JD 2.344 billion in 2010  with an increase of JD 291 million by a growth of 12.4%. Thus, this indicates the extent to which clients are confident of Jordan Islamic bank in various activities offered in accordance with the provisions of Islamic Sharia.

The bank runs money in specified investment, investment portfolio and investment by proxy that reach around  JD 252 million. Shihadeh added that clients’ deposits with the managed accounts added to (specified investment accounts, Muqarada Bonds, investment by proxy accounts) reached at end 2011about JD 2.86 billion compared to JD 2.59 billion at end 2010 .

Shihadeh indicated that the increase in finance and investment at end 2011 reached about JD 87 million to become about JD 1.550 billion compared to JD 1.463 billion as at end of 2010 and with a growth of 6%,  asserting  the development of  the bank’s activities in the various investment and financing activities.

The total assets at the end of 2011 reached about  JD 2.898 billion compared to JD 2.604 billion as at the end of 2010 with an increase reaching JD 294 million and with a growth of 11.3 %.

The total of the bank’s balance sheet including the managed accounts ( specified investment accounts, Muqarada bonds, investment by proxy accounts) reached as at the end of 2011 about JD 3.150 billion compared to JD 2.881 billion.

Shihadeh added that Joint investment profits before distribution reached about JD 110 million, the general percentage for distributing profits to JD accounts reached 3.35% and in foreign currencies 0.69% .

Capital adequacy ratio (CAR) reached at the end of 2011 about 24. 48% compared to about 21.57% at the end of 2010,according to  capital adequacy standard of Islamic banks issued by Central Bank of Jordan(CBJ)  based on the standard issued by Islamic Financial Services Board ( IFSB)

Shihadeh stated that Shareholders’ equity at end 2011 reached about JD206.9 million compared to JD193.6 million at end of 2010 and with a growth of 6.9%. The rate of return on average shareholders’ equity before tax reached 19.8% and after tax 14.2%. The rate of return on paid up capital reached 28.3%.

Shihadeh added that the Bank continues to accomplish further development and updating in the field of banking techniques, most notably: Implementation of the new banking system in more branches and cash offices in parallel with the banking system being used by the Bank . However, the new banking system has been applied in 33 branches and 7 cash offices up till now , in addition to Install and operate newAutomated Teller Machines (ATM) whose numbers  reached 108 and  expand in providing Short Messages Services (SMS) and the banking services provided via internet (I-Banking).

It is worth mentioning that the share of our bank to the total assets of banks working in Jordan at the end of 2011 reached 8.4%, to the total of  other banks’ saving schemes 11.6%, and to the balances of finance and investment for other banks reached 11.2%.

Path Solutions implements iMAL Islamic banking solution at Cihan Bank

Path Solutions announced the successful go live of iMAL at Cihan Bank, Erbil. Cihan, the first privately owned bank in Kurdistan first partnered with Path Solutions in October 2009 on this multi-lingual, multi-currency and multi-channel implementation.

Specifically in this deployment, Path Solutions implemented the following scope in line with the bank’s expectations: Retail Financing, Treasury, Investment, Branch Automation, Trade Finance Operations, Islamic Profit Calculation and Central Bank Reporting.

Cihan is a running Retail Bank with a paid up capital of 150 Billion IQD i.e. 127 million USD. It has been operating since April 2009, providing its services through 7 branches all over the country. The bank is a member of Cihan Group which is one of the biggest groups in Iraq, with business lines spread in many fields such as cars trading, construction, education, media, insurance and general trading.

“The implementation at Cihan Bank encountered major challenges mainly due to the Iraqi banking environment in general and specifically in Erbil. The bank was operating without the existence of a banking system and therefore most of the operations were executed and maintained manually. The challenges were of a different kind, where lots of efforts and time were spent on convincing the end users to rely on a banking system prior to convincing them to go with iMAL “, explained Alain Abou Khalil, SVP Professional Services, Path Solutions.

Abou Khalil continued: “We are excited to see the successful go live of iMAL – our first live user in Erbil out of 4 customers we have in Iraq. We pride ourselves on being able to support the specific needs of Cihan Bank, and ensuring we can serve their local requirements. iMAL will allow Cihan Bank to quickly deploy innovative Islamic banking products to an expanding customer base”.

Path Solutions’ iMAL provides a 360-degree view of customer relationships and transactional information across channels, allowing Cihan Bank to understand customers’ needs and rapidly identify cross-selling and up-selling opportunities.

The highly scalable infrastructure of iMAL Islamic banking solution will enable Cihan Bank to meet its projected expansion plans, whilst contributing to the economic growth of the country.

Naz Bajger, Director – Head of IT, Cihan Bank said: “We needed a very reliable banking solution that could provide us with the means for next generation growth. With the successful implementation of the best-of-breed iMAL Islamic banking solution, we now have a robust platform that will grow and evolve with us and will help us manage efficiently our network operations. I would like to thank the teams for their professionalism and constructive efforts in the implementation and support of this project particularly the Project Managers Abbas Aljawahiry and Dina Moh’d who were dedicated on a full time basis to deliver quality output. I am very glad to see that the joint efforts led to the success of this project”.

At a time of greater market regulation and increasing customer demands, Islamic banks need to reposition themselves. The seamless rollout of the iMAL Islamic banking solution at Cihan Bank illustrates nicely the performance of iMAL in boosting the bank’s competitiveness as well as the broadest experience of Path Solutions’ PS team in managing such challenging implementations.

Path Solutions announced the successful go live of iMAL at Cihan Bank, Erbil. Cihan, the first privately owned bank in Kurdistan first partnered with Path Solutions in October 2009 on this multi-lingual, multi-currency and multi-channel implementation.

Contracting GDP

The Egyptian economy contracted by 0.3% in the fourth quarter ending a politically-momentous but economically-forgettable year for the country.

“Though private spending jumped 5.1%year-on-year in 3Q11 up from 3.5% a quarter earlier; the drastic fall in investments by 23%YoY kept GDP growth at a low level of 0.3% – below 2Q11 of 0.4%. Investments in 4Q11 is expected to see even higher year-on-year drop of 38% – triggered by the escalated tension during this quarter,” says CI Capital research in a note.

While the USD3.2 billion loan from the International Monetary Fund is going to boost sentiment, the country has a long way to go to reach stability.

“Egypt’s economic situation remains challenging. Growth has stalled and this is hurting the Egyptian economy and the Egyptian people,” said Gerry Rice, Director of External Relations at the Fund. “In addition, foreign exchange reserves have dropped substantially, reducing the authorities’ margin to maintain macroeconomic stability.”

The country’s foreign reserves have dropped 53% year-on-year in January to USD16.4-billion, as capital fled the economy last year.

In addition, foreign direct investment remains depressed.

“Social and political unrest in Egypt is still weighing on FDI inflows. In 3Q11, FDIs retreated to USD0.4bn vs. USD1.6bn a year earlier,” notes CI. “This came above our expectations of USD0.2bn. Moreover, huge foreign selling in equities and bonds shifted portfolio investments to a net outflow of USD1.7bn, vs. a net inflow of USD5.9bn in 3Q10.”

The Institute of International Finance (IIF) expects countries such as Egypt, Tunisia and Libya – all of whom saw the end of their dictators’ rules in 2011 – to continue to see weak growth over the next 12-18 months.

It is clear that in Egypt economic policymaking will remain subservient to political issues. There is definite lack of clarity surrounding the economic policy framework and great difficulty in forging political consensus due to the diversity and multiplicity of political parties in the new governing coalition.

As a result, the IIF expects the economy to perform only modestly in the coming 2-3 years.

“Egypt… could be heading towards an economic crisis if growth rates do not take off unemployment that does not begin to show meaningful declines,” the IIF said

Indeed, the political situation looks messy at the moment with many disgruntled stakeholders.

The Muslim Brotherhood’s Freedom and Justice Party won 47.2% of the parliament seats with the Salafist Al Nour party winning nearly 25%, leaving the liberals way behind.

This political turnaround has left many liberal Egyptians, who led the Tahrir Square revolution last year, feeling disillusioned as the country takes a more religious turn in its political and social life.

“Real and honest moderate Egyptian Islam has receded in the face of Wahhabi Islam coming from Saudi Arabia and the Gulf countries,” wrote Alaa Al Aswany, a best-selling Egyptian author and columnist in a recent blog.

“For thirty years masses of oil money has been used to drown Egypt in Wahhabi ideas. The purpose of this support for the Wahhabi school of thought is basically political, in that the Saudi system of government depends on an alliance between the ruling family and the Wahhabi sheikhs. Hence spreading the Wahhabi ideology reinforces the political system in that country,” Mr Al Aswany wrote in his blog.

Analysts have accused the majority Freedom & Justice Party for colluding with the Salafists and the army to ensure the ‘status quo’ of miltiary dominance remains; any changes, they feel, are merely cosmetic in nature.

The final piece of the political puzzle will be put in place in the next few months when nominations for presidential elections start on March 10 to April 8.

The spoardic clashes between the army and protestors and the football stadium tragedy which saw 70 people killed, shows the situation remains volatile in the country.

Meanwhile, Egypt’s relations with the United States and its client state Israel are also worrisome.

“The current US-Egypt military relationship could become a casualty of rising nationalism in Egypt, the prosecution of democracy workers in the country, and the likely marginalisation of the armed forces. A breaking point this spring could come amid economic crisis in Egypt, with destabilising results,” said a note from Oxford Analytica.

The Muslim Brotherhood has also warned that it could review relations with Israel if the U.S. reduced military aid to Egypt.

“U.S.-Egyptian ties have withstood serious tensions in the past. Yet in the present political context in both countries, a bilateral crisis is possible — with broader ramifications for Egypt’s stability,” noted Oxford Analytica.

This may be an exaggeration given that Egypt will likely forge closer ties with its Sunni neighbours the rich Gulf states, who could step in financially if the U.S. aid stops.

But the 80-odd million Egyptians are finding a way to keep the economy moving. CI Capital outlines some of the major economic deveopments over the past few weeks:

  • The Central Bank of Egypt set a 100bps raise in deposit rate and 50bps increase in lending rate – putting its support for the local currency ahead of backing investments.
  • The IMF USD3.2bn loan is to be signed in March 2012 bearing an interest of 1.2%. The loan will be received this loan over three phases; by which one third of the loan will be received upon signature, while the second tranche will be received after 3-month period; and the last tranche after six months from signing the loan.
  • Apache Corporation has agreed with the Government of Egypt (GoE) to invest USD1bn in oil and gas explorations in Egypt in 2013.
  • The World Bank approved an USD240mn loan to develop the Giza North power project as part of an USD600mn loan approved in 2011.
  • Egypt signed a soft loan with the World Bank worth USD200mn with an interest rate of 1.2%. The loan is to finance the second phase of the waste water project with an investment cost of USD310mn.
  • The government decided to offer PPP projects in the infrastructure and sewage projects worth EGP11bn.
  • The PM allocated EGP175mn for the development of slum areas throughout Egypt – scheduled to start immediately. The budget includes EGP100mn from the Slum Development Fund and EGP75 mn from the general budget.
  • Egypt signed gas export agreement with Jordan over the new prices to be applied retroactively as of January 2011and is due to be revised mid 2013 and every two years after.
  • Japan granted Egypt USD12mn to support the agriculture sector through applying maintenance to the irrigation and potable water networks.

Meanwhile, the Egyptian stock exchange which was rocked last year by the political unrest and saw a 47% decline, has surged 41% in the first six weeks of the New Year, making it the best performing market in the region.

Market data shows that emerging markets funds are taking another look at the Cairo market, given its low PE valuations and the long-term prospects of the country.

This growth is even more commendable given that Standard & Poor’s recent lowered the country’s credit rating to B with a negative outlook.

The Egyptian Central Bank interventions–to support the Egyptian pound in the face of significant capital outflows and double-digit annual inflation–have resulted in a sharp decline in net international reserves. These were USD16-billion at end-January 2012, down from USD36-billion at the start of 2011, the ratings agency said in its review.

“Historically, our assessment of Egypt’s external score has been a relative strength to the rating; this is now being eroded. We estimate that net international reserves, excluding gold, now cover less than three months of goods and services imports compared with more than six months at the start of 2011,” said the agency.

In addition, S&P warned that if the government fails to stem the decline in reserves, or an uncertain policy environment and weak institutions emerge from the ongoing political transition, the rating could be lowered further.

“The political transition process could be undermined over the coming year as the constitution is redrafted and a new president is elected–currently expected by June 2012–after which a new government would be formed,” said the agency.

“In our view, the transition to more-participatory political institutions in Egypt could falter, leading to weaker political institutions and rising domestic conflict.”

Nigeria: Islamic Development Bank to Invest U.S.$6 Billion in the Country – Executive Director

The Islamic Development Bank (IDB) was formed in October 1975 to foster economic development and social progress of member countries in accordance with Islamic principles. It currently has 56 member countries, Nigeria being the most recent (in 2005) country to become a member. Gambo Shuaibu is an Executive Director at the bank as Nigeria’s representative. In this interview, he said the bank plans to make cumulative investments worth $6 billion in Nigeria in the next three years.

The bank assists member countries in accordance with Islamic principles. Does that mean you don’t give loans? If you do, don’t you charge interest? How does the bank get its investment back?

The bank supports its members in various forms, financially and through technical assistance. It could be grant. There is loan too. The loan is broken into two, ordinary loan and concessionary loan and also through consultancy. Now, when you say in accordance with Islamic principles, it has to do with the way its products are packaged. Interest is forbidden in Islam.

All IDB does is to ensure that its own financial products are packaged in compliance with Islamic laws and basically there is no interest element and they do not finance things that are forbidden Islamically like gambling, prostitution. That is why even hotel business has not been attracting the attention of IDB much due to sale of alcohol. But it does not discriminate against the beneficiary. Only that it has to be structured in a way that it will not contravene the Islamic principles.

There are a number of predominantly Christian countries who are members of the IDB. It doesn’t discriminate who benefit. It is the packaging that differs. In the conventional banks, when you go there to take loan to purchase a house maybe, the main component is interest that you have to pay.

Nigeria has increased its subscription in the bank. How much is that and what is Nigeria’s position in the bank in terms of ranking?

When we first joined, it was at a very insignificant level of 2.2 percent. The increase now is at the level of 7.6 percent of the ordinary shares capital. The figures I gave the other day was the authorized capital which is $30 billion. The shareholding fund of the bank is just about 6.3 billion Islamic dinar which is equivalent to about $10 billion. The shareholding fund includes reserve and profit. The paid up capital is $4.6 billion.

When you are calculating the capital of a multilateral development organization, you have to be very careful. Even that includes cash payment and callable shares. Callable share is the portion of the capital that is just there, that you have subscribed to in principles but there is no financial commitment. In the event, the bank is to raise money in the market, the shareholder supporters are called to provide the money.

That is a basic standard. If you were to do the calculation, it should be half of 7.5 percent of the paid up capital which is at present a little over $6 billion. When the last increase of the paid up capital was done in 2006, a substantial portion of it, 70 percent, is payable over a period of 10 years.

Basically, in the next 10 years, the investment of Nigeria in the bank will be in the region of $400 million. I can assure you, given the project that will be financed by the bank in Nigeria, in the next three years; IDB will have invested $2billion in different facilities in the country. This will be used in education, poverty alleviation and other human capital development related projects.

If IDB is investing $2 billion in Nigeria, it has the capacity to generate counterpart funding up to $4billion. That means, we are targeting $6billion investment in the next three years in Nigeria.

You had spoken about some key projects in certain states where IDB is playing some roles. Can you expatiate on them?

The focus of the bank is economic and social development of the member countries. But before you benefit as a member country, you have to apply. Just as any other bank will not come to you and say ‘come and take loan.’ It’s based on your need that you will apply. Since becoming member and the advocacy that has followed some of the 36 states (in Nigeria) have applied. IDB relates with countries on the basis of sovereignty.

Although, it has affiliates that takes care of private sector interest. IDB deals with the federal, state and local governments. A number of facilities were granted and prominent among them is the ones given to the federal government of Nigeria. At the time of president Obasanjo, there was this food crisis. One of the approaches agreed by the Nigerian government was to work with multilateral agencies; African Development Bank, World Bank, European Investment bank and similar ones that were interested in supporting Nigeria including the Islamic Development Bank. A project called food security was established. It is basically to support food production.

The states applied to get loan from the World Bank, some European banks and the Islamic Development Bank. The states that the federal government approved to access the IDB facilities are Gombe, Yobe, and Anambra states. It was mainly to do with food production; agro allied and anything that will improve the activities of the farmer such as access roads, research institutions, and development of small earth dams, irrigation facilities and warehousing.

These state governments came up with their own project concepts based on their needs and the initial estimate was $50 million for the first phase of the project for the three states. It was after thorough review that the project which takes about 5 years, was reduced to $38 million made available. The states and federal government will also contribute by way of counterpart funding. Then, the figure will become higher.

Kaduna state, when the Vice president was the governor, came up with the Zaria water works which is under construction. The African Development Bank and IDB have interest in it. And also science model schools in each of the three senatorial zones as well as comprehensive health centre are to be built in Kaduna. Facilities were approved for these projects.

The federal government had to come in and also the national assembly for a final clearance. At the moment, it is at the national assembly to get the final clearance for the loans.

We also have Jigawa rural integration project as it is one of the poorest states in Nigeria. IDB is all out to give assistance. Osun and Oyo states, last years, made submissions. That is being worked on now by the bank. There are a number of other states that are talking to IDB.

IDB is planning a business forum in Nigeria next month. What is the bank up to in this direction?

It is normal to inform the general public about the presence of the IDB and its activities. The forum is a form of enlightenment campaign, showcasing IDB as a group. Given the transformation agenda of the federal government there is a prominent role for the private sector. To that extent there is need to ensure that the private sector is adequately involved. The forum is to further enlighten Nigerians on the activities of the IDB and its affiliates especially on how to access its facilities.

Islamic banking recently took off in Nigeria. Given the opposition it is facing especially from the leadership of the Christian Association of Nigeria (CAN), do you think the bank has got prospects of survival?

I think more of an abandoned prospect for the project. If you can recall, the minister of finance and coordinating minister of the economy, Mrs. Ngozi Okonjo-Iweala, when she appeared before the senate committee, this question was asked. She said Islamic banking in Nigeria is another window of banking. That it is quite beneficial. It is not only in Nigeria but even in developed economies.

In the UK, there is the Islamic banking window, also in the United States, Germany, and France. Like the minister said, it is another window of banking allowing some unbanked people to be in cooperated into the sector. Many people because of their belief had refused to participate in banking in Nigeria. This is an opportunity to get them in. Any money that is in the bank is available for the development of the economy.

There is a CBN guideline that states there shall be no discrimination against a beneficiary on the basis of culture, race, religion, language and even in employment, it doesn’t discriminate. That is why there are Christians who are shareholders of the Islamic bank in Nigeria. It is on the basis of this that I feel there is good prospect for the bank.

Is Nigeria rated high at the bank?

Out of the 56 members of the IDB, 27 are from the African continent. Nigerian being a member of OPEC, other members in the gulf region and North Africa also members of the OPEC have been relating with Nigeria before we became member. The membership of Nigeria improved the bank’s assistance to Africa. It will be a voice that once heard will be taken seriously. It is like with Nigeria now, the influence of Africa has gone up at the bank and if you have that influence, then you can also channel the available resources to support the members. The bank has special fund for the development of Africa. It was started in 2008.

I remember the President of IDB, Dr Ahmed Muhammed when I had a meeting with him, what he told me. He said whatever we can do to improve on the position of Africa, in Africa, we will do so. In the course of my discussion with him, he told me that I reminded him of his encounter with the late Nigerian head of state, General Murtala Muhammed in Jedda (Saudi Arabia). They went to market the bank to him for Nigeria to become a member. He said Murtala told him that, ‘ yes, it is a good idea, good concept but Nigeria will only be ready to join if it is in a position to influence the activities of the bank in a way that will aid the development of Africa.’

The special fund for the development of Africa is to mainly focus on the development of the continent. Under the first phase, the Bank has a budget of $12billion; $4 billion directly from the bank and $8 billion from the development partners. Due to the rating of the IDB, any project it is identified in, it attracts the participation of other partners.

South Africa all set to introduce Islamic Bonds

Johannesburg: Plans by South Africa’s National Treasury to introduce Islamic bonds are gaining a strong support in the African country, amid expectations the move would help boost the state’s economy.

“I am sure this was at the request of those Middle Eastern countries because SA has a small Muslim population,” Kokkie Kooyman, head of Sanlam Investment Management told Fin24.

The National Treasury has announced plans to introduce Islamic bonds as part of efforts to get a share of the booming Islamic banking industry.

Other financial instruments planned by the Treasury 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 installments.

The Sharia-compliant Islamic finance is not new to South Africa with different banks and investment companies offering these products. Several banks as the First National Bank and ABSA bank offer Sharia-compliant services.

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.Islam forbids Muslims from usury, receiving or paying interest on loans.

Transactions by Islamic banks must be backed by real assets — not shady repackaged subprime mortgages and banks cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.

Sharia-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.

Investors have a right to know how their funds are being used, and the sector is overseen by dedicated supervisory boards as well as the usual national regulatory authorities.Analysts opine that offering Islamic bonds will help South Africa lure investments from the Middle East and the Gulf region.

“If people that have been using Islamic banking have been happy all the time, let us have (more) of it,” Steve Meintjes, a senior banking analyst at Imara SP Reid, told Fin24.The banking expert said the introduction of more Islamic finance products into South Africa would enhance the economy.

“The SA economy needs more finance. Islamic banking will enhance the productive capacity of this economy,” Meintjes said.Tom Winterboer, a banking analyst at PwC, noted that Islamic finance products can be accessible to investors beyond the Muslim population.

“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.”

Starting almost three decades ago, the Islamic banking industry has made substantial growth and attracted the attention of investors and bankers across the world.

A long list of international institutions, including Citigroup, HSBC and Deutsche Bank, are going into the Islamic banking business.Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2013.

Thomson Reuters, Crescent Wealth to launch Islamic Australia Index

Starting in early February, Thomson Reuters and Australia’s Crescent Wealth are jointly launching Islamic Australia Index – a research-based index that will offer local and international investors a tool to help invest in the Australian market in accordance with Islamic investment principles.

The initiative comes ahead of an expected government proposal to change tax guidelines to help open up the local market for Islamic investment products, though there remains some concern about the market’s growth potential.

Called the Thomson Reuters Crescent Wealth Islamic Australia Index, the measure will cover 143 stocks with combined market capitalisation of $160 billion. The companies are screened to ensure they adhere to sharia law.

Islamic finance prohibits the earning of interest, choosing to focus instead on the buying and selling of tangible assets such as property under the principles outlined within sharia law.Thomson and Crescent Wealth said in a joint statement.

“Creation of the index is a key step toward positioning Australia as an attractive destination for global Islamic investment funds. It is estimated Islamic banking assets globally now exceed $US1 trillion, and that there is $US50 billion in managed funds investing in equities according to Islamic principles.”

Egypt May Sell Foreign-Currency Sukuk, Deposit Certificates

Jan. 18 (Bloomberg) — Egypt may issue an Islamic bond or alternatively certificates of deposit in foreign currency for Egyptians abroad, the finance minister said.

“We are studying issuing sukuk,” or Islamic bonds, Mumtaz el-Saeed said today by telephone in Cairo. “We are comparing the benefits of issuing certificates of deposit with those of sukuk for Egyptians abroad,” adding that his preference is for the certificates. The government hopes to issue one or the other during the current fiscal year ending June 30, he said.

Egypt is struggling to recover from a year of unrest in the wake of the uprising that ousted President Hosni Mubarak last February. The economy grew 1.8 percent in the last fiscal year, the slowest pace in at least a decade, as income from tourism and foreign investment dried up. Tourist arrivals fell 33 percent in 2011, while international reserves are at the lowest level since March 2005.

The government formally requested a $3.2 billion loan from the International Monetary Fund on Jan. 16. An agreement is expected “within weeks,” Fayza Aboulnaga, minister of planning and international cooperation, told reporters.

Egypt turned down a similar arrangement with the fund in June, with officials saying they didn’t want to burden future governments with debt. Foreign currency reserves dropped 32 percent in the following six months while yields on all treasury-bill maturities rose this quarter to the highest since Bloomberg started tracking the data in 2006.

‘Sound Fundamentals’

El-Saeed said today the government would prefer not to increase the amount it requested from the IMF.

The economy “despite its solid and sound fundamentals,” faces challenges that have to be addressed by an economic program that safeguards stability and “creates conditions for a strong recovery,” the IMF’s mission said in an e-mailed statement today.

A program drafted by the Egyptian authorities is being discussed “with emerging political parties to ensure broad political support,” the IMF said. The mission met with the economic committee of the Muslim Brotherhood’s Freedom and Justice Party, and also talked to members of other parties and with the civilian body advising the ruling military council, it said.

The Brotherhood’s party gained the most votes in elections for the lower house of parliament, which is due to convene on Jan. 23, two days before the anniversary of the start of the uprising that led to the ouster of Mubarak. It is still unclear what authority the assembly may have. Activists have called for mass rallies on Jan. 25 to call on the country’s ruling generals to hand over power to civilians immediately.

‘Historic Transition’

The IMF’s meetings this week “provided us with a cross- section of views about Egypt’s current economic and political situation, and possible avenues to address the challenges facing the economy,”the fund said. “It also gave us an opportunity to explain the role the IMF could play in support of Egypt’s historic transition.”

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.

Parsoli shuts broking unit to cut costs, to shift to advisory business

MUMBAI: Caught in a web of legal wrangles and business losses, listed NBFC-cum-broking firm Parsoli Corporation, has decided to shut its core stock broking business.

The company will, from now on, confine to investment advisory, Zafar Sareshwala, managing director of Parsoli Corporation, told ET.

“It’s difficult to work in such rigid regulatory environment… Also, it’s not worth the while to do broking anymore. We’d earn more money if we just withdrew all our guarantee money, margins and security deposits and put them in bank fixed deposits,” said Sareshwala, managing director of Parsoli Corporation, which got listed on the BSE in 1995.

Besides broking, Parsoli specialised in Shariah-based investment advisory business. Over 39% of Parsoli shares are held by the Sareshwala family, as on June 2011. Germany’s Baader Wertpapierhandersbank, Gulf Investment Services and Oman Commercial Services top the list of non-promoter shareholders – with 24.8%, 19.2% and 4.9%, respectively, – in Parsoli Corporation. Retail investors hold over 7%. The company suffered a loss of 88 lakh in Q2 on a turnover of 36 lakh.

“There’s nothing left in broking anymore… Turnover has been a big problem for most brokers; No one is making money doing broking these days as commissions have gone below floor-levels. Shutting our broking vertical is more of a business decision,” Sareshwala said.

Parsoli intends to cut costs by shutting its broking business. It will continue to function as an Islamic investment advisory business. The decision was taken in consultation with major shareholders of the company, Sareshwala said.

“We’ll be saving huge costs by shutting our broking business. We’ve got mandates to advise a few Islamic banks on investments in Indian companies. We’ve shut broking to be away from any regulatory system,” Sareshwala said.

But besides a dismal market, the company’s latest decision may be attributed to its brush with the capital market regulator, Sebi. In 2008, Sebi auditors unearthed instances of fraudulent transfer of shares and price manipulation. In June 2010, it restrained Parsoli from dealing in shares and acting as a broker.

The charge against the broking firm was that Parsoli promoters had transferred 9.61 lakh shares held by them to unrelated persons. This corporate action and the resultant change in shareholding pattern were not disclosed to the BSE. Another charge against Parsoli, according to Sebi judgment, is its failure to report an earlier dividend announcement.

“This transfer of shares happened in 2005; but the Sebi booked us first in 2008. In fact, there was no investor complaint against us with regards to the transfer of shares. We had paid investors the damage (money) when we spotted the mistake in transfer of shares,” Sareshwala said.

Parsoli Corporation and main promoters Zafar and Uves Sareshwala appealed to SAT for a reprieve against the Sebi order. The tribunal, however, upheld the Sebi order and ruled against Parsoli. The promoters went on to challenge Sebi in the Supreme Court but dropped the case mid-way.

“There was no point in pursuing the case any further. It’s not worth to spend so much money on legal recourse. If we had won, we’d still be doing broking which, in any case, is not ringing in any money. What’s the point in fighting for a lost cause?” he said.

Parsoli has not decided if it wants to give investors an exit route. The company’s shares touched a peak of 259 per share in January 2008, when banking and NBFC shares were the flavour. The exchange suspended trading in Parsoli shares in July 2010, when the stock was trading at 18 and the company’s m-cap was 50.5 crore.

“We’re cutting our losses as of now… We’ll be profitable in two years’ time. We’ll put our capital to better use from now on,” Sareshwala said.

Competitors and other practitioners of Islamic finance are not surprised at the turn of events at Parsoli. The group was doing too many things rashly, said one of them. “Parsoli lost a lot of clients because of portfolio losses in 2008 and 2009.

They were trying to do a lot many things too fast,” said the head of another investment firm specialising in Islamic finance.

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.