HK, Malaysia eye closer Islamic finance ties

Bankers in Hong Kong and Malaysia are strengthening ties to boost Islamic business by focusing on the issuance of Islamic bonds and mutual funds to target investors in both markets.

HK, Malaysia eye closer Islamic finance ties

HK, Malaysia eye closer Islamic finance ties

A private-sector forum hosted by regulators this week is part of growing efforts to boost cross-border business between the two Asian financial centres, as competition heats up for a slice of Islamic finance business.

Identifying potential sukuk issuers which can benefit from broadening their funding sources is one area of focus, said a joint statement from Malaysia’s central bank and Hong Kong’s Monetary Authority.

Those plans are being spurred by Hong Kong enacting a tax bill in July to facilitate sukuk issuance, while regulators aim to present a bill in the first quarter of next year to allow the government to issue sukuk of its own.

Islamic finance, centred in southeast Asia and the Middle East, follows religious guidelines such as a ban on interest and monetary speculation. Such transactions often need clarification on their tax status as they can face heavy taxation because they involve multiple transfers of the assets backing them.

Getting traction on Islamic funds is another priority, capitalizing on a mutual recognition agreement signed in 2009 between both regulators.

Malaysia is already encouraging funds to be marketed to the Gulf region through a similar agreement with the Dubai Financial Services Authority.

Malaysia has the largest base of Islamic mutual funds in the world, with 210 retail and wholesale funds that had 79.6 billion ringgit ($24.6 billion) in assets under management as of December 2012.

The forum was attended by eight commercial banks and three fund management companies, with a conference in Hong Kong now planned for the first half of next year to raise awareness of Islamic finance.-Reuters

Islamic finance to grow more

Issac John / 30 November 2013

$1.4b industry’s expansion seen at double-digits, with Malaysia and GCC to lead.

Islamic finance to grow more

Islamic finance to grow more

The industry in the GCC constitutes 28.7 per cent of assets at $445 billion as of 2012. — KT file photo.

Led by Malaysia and the GCC — the two regional heavyweights and pioneers of the industry — the $1.4 billion global Islamic finance industry is set for a double-digit growth.

“Undeterred by the uncertain recovery elsewhere in the world’s financial markets, global growth of the Islamic finance market has continued unabated this year,” Standard & Poor’s said.

In its report “Islamic Finance 2014: We Expect Continued Double-Digit Growth, And A Push For Regulation And Standards”, S&P said worldwide, Shariah-compliant assets are estimated at upward of $1.4 trillion are likely to sustain double-digit growth in the coming two to three years.

Despite more than a decade of heady growth, the industry is still in a formative stage. “But we believe it’s only a matter of time before it achieves critical mass, as the pool of assets broadens and deepens, and enhances liquidity,” said Zeynep Holmes, regional head of Eastern Europe of Middle East and Africa at Standard & Poor’s.

“Nevertheless, the speed at which the industry matures and joins the mainstream comes down to how market participants address a classic imbalance between supply and demand.”

S&P pointed out that Islamic finance remained a demand-driven market, with scarce supply, still hampered by a limited range of Islamic financial centres and their various regulatory frameworks.

“In our view, expansion and enhancement of existing centers, and a more transparent regulatory environment could build the momentum for the growth needed to break into the mainstream.”

The ratings agency said it believed that regulatory efforts to accommodate Islamic finance and the establishment of additional industry bodies at national levels will take centre-stage starting in 2014. Interestingly, newcomers in the industry — such as Oman, Turkey, and Nigeria, for instance — have started to trace the footsteps of fast-growing pioneers, such as Malaysia.

Rasameel confident on sukuk pipeline

DUBAI — Kuwait-based Rasameel Structured Finance expects a flurry of Islamic financing activity in the Gulf next year, in particular from corporations looking to tap the market for Islamic bonds, its chief executive said.

“There is an increase in activity, Dubai in particular and in the region in general, so we see a recovery coming up and I would expect to see more corporates come to market,” said Issam Al Tawari, Rasameel’s chairman and managing director.

The firm is working on corporate deals mainly in Kuwait and Dubai, including a sukuk for a healthcare company in the UAE that will fund the completion of hospitals and a research centre, he said in an interview. — Reuters.

“Right behind the newcomers, a long line of countries is aspiring to enter the market, with the continent of Africa in the forefront.”

“The gradual building out of local and regional regulatory frameworks and establishment of standards ought, in our opinion, to minimize the barriers that are preventing the industry from achieving its full potential. Globally accepted standards, we believe, are necessary for growth of the industry,” Holmes said.

According to Ernst & Young, Islamic banking assets are to grow to $1.8 trillion in 2013 and beyond $2 trillion by 2014. The industry in the GCC constitutes about 28.7 per cent of assets at $445 billion as of 2012 and registered a growth of 14 per cent over 2011.
Global sukuk issuances reached about $140 billion in 2012. Worldwide year-to-date issuance dipped 25 per cent from last year to $77.4 billion, as of September 22, 2013.

The global Takaful market is estimated at $12 billion as of 2011, and it is expected to touch about $25 billion by the end of 2015. Takaful insurance premiums in the GCC is expected to reach about $15.38 billion by the end of 2016.

TheCityUK’s UK Islamic

Malaysia’s third Royal Award for Islamic finance calls for global nominations

Malaysia’s Royal Award for Islamic Finance (The Royal Award) commences the third global search to honour an exceptional individual in the field of Islamic finance, with the opening of nominations.

Malaysia’s third Royal Award for Islamic finance calls for global nominations

Malaysia’s third Royal Award for Islamic finance calls for global nominations

The Royal Award, which was inaugurated in 2010 as a biennial award, is spearheaded by Bank Negara Malaysia and the Securities Commission Malaysia in support of Malaysia’s Islamic finance marketplace.

The Royal Award focuses on an individual’s record of achievement and outstanding contribution to the advancement of Islamic finance globally. Previous recipients recognised for their efforts in expanding Islamic finance were ShaikhSaleh Abdullah Kamel, founder of the SalehKamel Centre for Islamic Economy, at Al-Azhar University, Egypt, and Iqbal Khan, presently Chief Executive Officer of Fajr Capital.

An independent seven member international jury, chaired by former Malaysian Deputy Prime Minister and Chairman of the World Islamic Economic Forum Foundation, Tun Musa Hitam, will select the deserving individual.

The selection criteria of The Royal Award for Islamic Finance encompass both qualitative and quantitative aspects of an individual’s exceptional contribution towards Islamic finance globally.

This includes financial innovation and pioneering work, exceptional leadership, adoption and acknowledgement within the industry, and inspiration and influence towards future progress and development of Islamic finance.

The closing date for nomination is 31 January 2014, and interested persons and parties can submit their nomination online via the website or via email [email protected]

Malaysia plans to be the first Islamic financial superpower

Could a new upstart be about the join the likes of London, New York and Tokyo as a global financial superpower? The Malaysian government would like to think so, at least.

Malaysia plans to be the first Islamic financial superpower

Malaysia plans to be the first Islamic financial superpower

Recently it announced bold plans to transform the country’s capital Kuala Lumpur into a major financial centre in a bid to raise its profile and spark greater international trade and investment.

The proposed new financial district, covering 70 acres and featuring 11 new buildings with 25 or more floors, has been dubbed “Asia’s Canary Wharf”. Known as the Tun Razak Exchange (TRX), the government believes this project is the foundation on which Malaysia will compete with regional financial superpowers such as Singapore and Hong Kong.

So is this a dream or can it be transformed into a reality? The Global Financial Centres Index, a research-informed measure of the competitiveness of a range of cities worldwide highlights the challenge that lies ahead for emerging centres like Kuala Lumpur.

In the most recent rankings the city dropped one place to 22nd globally but still featured in the Asian top 10. With London and New York ahead of the pack, Singapore and Hong Kong already in strong positions and the dynamism of Shanghai and Shenzhen to contend with, gaining ground on the superpowers will be tough for Malaysia.

And it may be too tough, unless TRX turns to a more niche approach and builds on the country’s established strength in the rapidly growing Islamic financial marketplace.

Islamic strengths

Demand for Islamic financial services is growing both regionally and globally, and Malaysia has been well placed to take advantage of this. It is Islamic finance that provides Malaysia with its advantage over neighbouring financial centres, and those mapping out the country’s future business model would be wise to play to their strengths.

According to its central bank, Malaysia’s Islamic banking assets total US$168.4 billion, a quarter of its banking system. This in turn accounts for over 10% of the world’s total Islamic banking assets.

The country’s Islamic financial sector is characterised by a robust and shariah-compliant regulatory system. It has a strong sukuk (Islamic bond) market – over 60% of the global total – making Malaysia one of the world’s leading Islamic capital marketplaces. This attracts institutions from across the globe and an associated pool of liquid cash.

Banking on finance

Malaysia is banking on the TRX to be a dedicated international financial hub, promoting Kuala Lumpur as a new nucleus of global economic growth. The project is seen as a crucial to the government’s economic plans, creating the critical mass needed to significantly boost productivity and accelerate Malaysia’s growth. The aim is to become a high-income economy by 2020.

But, if Malaysia is to join the top flight of international financial centres, it must leverage its status as an established Islamic finance hub. And it must address the challenges associated with the supply of high quality human capital.

The performance of international financial centres is underpinned by the quality of people, of the business environment, access to international markets, infrastructure and general competitiveness. To outperform Asian rivals on these attributes will be a challenge; there are continued concerns about the quality and employability of graduates, and while the World Bank says the ease of doing business has improved, there are still problems with infrastructure and general competitiveness. And the country’s ability to access international financial markets may depend on attracting major players away from established rivals.

Authorities are confident, however, that they will be able to attract these new players. The central bank estimates that up to 56,000 new finance industry positions will be needed in the next decade, including up to 40,000 jobs in Islamic finance.

However poor scores in international student assessments, declining English language capabilities and persistent concerns about the employability of graduates do not augur well.

Malaysia still has a people problem. Yes, the government may be able to build world-class facilities in Kuala Lumpur and offer tax breaks and other incentives to companies looking to operate from the new district. And yes, Islamic finance will still give the country a profitable niche to exploit.

But without a supply of educated, English-speaking workers, hopes of challenging regional neighbours in Hong Kong and Singapore may be little more than a Malaysian pipe dream.

Malaysia and UAE tie up to boost economic ties, Islamic finance

(Reuters) – The central banks of Malaysia and the United Arab Emirates signed a pact on Friday to foster closer economic ties between the two countries, including in the area of Islamic finance.

The pact signals stronger cooperation between the two financial hubs, which held a combined $181 billion in sharia-compliant banking assets as of 2011, despite growing competition for a share of Islamic business.

Malaysia and UAE tie up to boost economic ties, Islamic finance

Governors of both central banks signed the memorandum of understanding on the sidelines of the International Monetary Fund and World Bank annual meetings in Washington.

It follows stronger cooperation between the Islamic finance centers, in particular the Gulf and Southeast Asian regions, despite traditional differences in the design and implementation of sharia-compliant financial products.

Both central banks are key backers of the Malaysia-based International Islamic Liquidity Management Corp, an institution tasked with addressing a shortage of interbank lending products for Islamic banks.

Malaysia and UAE tie up to boost economic ties, Islamic finance

Malaysia and UAE tie up to boost economic ties, Islamic finance

Last year, Malaysia’s securities commission revised its guidelines for screening equities that qualify for Islamic investment, moving them closer to the approach used in the Gulf.

The global Islamic banking industry is expected to tip $1.3 trillion by year-end. It follows religious principles such as a ban on interest and pure monetary speculation.

(Corrects to fix spelling of Malaysia in headline)

(Reporting by Bernardo Vizcaino and Al-Zaquan Amer Hamzah; Editing by Clarence Fernandez)

Raja Teh: The West could learn a lot from the principles of Islamic financial practice

Malaysia boasts women in chief executive posts; the target for women in the workforce is set at 55%.

The recent banking crisis in the West has thrust Islamic finance into the limelight as we seek alternative models that will be robust in the face of further credit onslaughts. Much has been written about how Islamic banks withstood the financial assault when compared to their conventional counterparts. If that is true, shouldn’t the world embrace the principles of Islamic finance? Wouldn’t it make the world a safer and better place?

Raja Teh: The West could learn a lot from the principles of Islamic financial practice

Raja Teh: The West could learn a lot from the principles of Islamic financial practice


Without trying to oversimplify the issues surrounding the 2008 financial crisis, I would say that had the world adopted the wisdom and philosophy of sharia (Islamic laws) governing finance, which promotes equity and justice, it is unlikely we would be experiencing same troubles today. Islamic finance disallows interest-based activities, gambling and speculation. Financing (or lending in the conventional term) is allowed only to fund real economic activity.

An example would be the trading of derivatives. While Islamic finance recognizes the use of derivatives for hedging purposes (capital preservation/risk mitigation), it disallows naked trades of those instruments, as that is deemed a speculative act. Had we all known how the 2008 crisis would start, we would have been able to appreciate the wisdom guiding Islamic banks in such dealings. It is interesting to note that estimates have placed the face value of all derivatives at more than 14 times the entire world’s annual GDP.

As a proponent of the industry, I hope that we will be able to showcase at this week’s World Islamic Economic Forum in London, the importance and relevance of Islamic finance in enhancing trade, cutting across borders, race and religious beliefs. According to an Ernst & Young report, 10 of the world’s 25 fastest growing markets are in Muslim majority countries. The use of Islamic financial tools can only boost trade between the Muslim and non-Muslim world. To date, global Islamic finance assets stand at $1.2trn and are expected to reach $2.6trn by 2017, according to PwC.

Malaysia has proved that Islamic finance can flourish alongside conventional financial markets. The sukuk (Islamic bond) market was key in the development of Malaysia’s infrastructure and economy over the past two decades, constituting more than 65 per cent of its private debt securities. Islamic banking assets now make up 24.1 per cent of Malaysia’s total banking system, double the amount a decade ago. The systems work in parallel.

London is no stranger to Islamic finance. The UK is Europe’s premier centre for Islamic finance, with $19bn (£12bn) of reported assets. It has the highest number of Islamic financial institutions in a Western country and has undertaken reformation of its tax laws to facilitate Islamic finance. And it can play a role in promoting the use of Islamic finance worldwide. In addition, opportunities in terms of employment in the industry are also plentiful. And they are gender neutral.

A few years ago a journalist came to Kuala Lumpur from New York to do a story on Islamic finance: she ended up writing a piece on women who were serving in senior positions in the Islamic financial industry in Malaysia instead. It was a revelation to many.

The Malaysian Central Bank governor is a woman (who has been accorded “Grade A” among the heads of central banks for the 10th time by Global Finance magazine) and is the country’s foremost supporter of Islamic finance. The former head of the Securities Commission is a woman, who also is strong advocate of the industry. Malaysia also boasts female sharia scholars (a rarity, if not unique). Engku Rabiah Adawiah Engku Ali is a professor of law at International Islamic University Malaysia, who has inspired a whole generation of female sharia scholars. And Malaysia also boasts women in chief executive posts at Islamic banks.

The development of the role of women in the workforce sits high on the government’s agenda. Under the 10th Malaysia Plan, a target to raise women’s participation in the workforce has been set at 55 per cent.This may seem surprising to many who often view Islamic countries as not being supportive of female emancipation, a view which is not entirely baseless.

Malaysian women are fortunate that gender diversity and inclusion is embraced enthusiastically in the country (perhaps too enthusiastically, quipped the elders, as the proportion of female students entering public universities hit 65 per cent).

This bodes well for the development of the Islamic finance industry, as it is often said that diversity is a key driver of innovation and a critical component of globalisation. I hope Malaysia’s story will inspire others to promote the development of the industry for the greater good.

Raja Teh is chief executive of Malaysia’s Hong Leong Islamic Bank. She will be speaking at the World Islamic Economic Forum in London, 29 to 31 October

Talent gap overshadows Malaysia’s Islamic finance growth

Finding a job is often harder than expected for graduates hoping to enter Malaysia’s Islamic banking industry, the world’s second-largest with $124 billion (RM390 billion) in assets – employers are proving choosy about qualifications.

Talent gap overshadows Malaysia’s Islamic finance growth

Talent gap overshadows Malaysia’s Islamic finance growth

Thousands of students, a large number of them Muslims from across the globe, have flocked to the many Islamic finance courses offered in Malaysia, seeing them as springboards to a career.

Malaysia has an estimated 50 course providers and 18 universities which offer Islamic finance degrees, and it boasts the largest academic output globally.

The country has published 169 research papers on Islamic finance in the last three years, according to data from Thomson Reuters.

But while the Malaysian Islamic banking industry’s output in monetary terms is growing about 20% annually, employment in it is expanding at less than half that rate – even though an additional 22,400 jobs are needed to support the growth, according to a blueprint for the financial sector prepared by the central bank.

Malaysia is experiencing a problem faced by Islamic finance sectors around the world: training and qualifications often do not provide the levels of specialism and sophistication that employers need.

The problem is limiting growth of the industry and, some say, stifling innovation that is necessary to bring Islamic finance fully into line with religious principles, and prevent its products from merely being pale reflections of conventional financial instruments.

“A common misunderstanding of these young graduates is that they believe there is such a thing as a generic job in Islamic finance. In reality, the industry is looking to employ specialists,” said Raymond Madden, chief executive of the Asian Institute of Finance (AIF), set up by Malaysia’s central bank to develop human capital for the region’s financial industry.

This means graduates are often inadequately equipped, and few in the industry are actively trying to solve the problem, he said. “It’s a major issue – nobody wants to take ownership of training graduates in areas that are most needed by the industry,” added Sofiza Azmi, AIF’s head of strategy and development.

The Islamic finance sector’s need for specific skills in risk management as well as internal audit and governance, plus a basic grounding in sharia law, is not being communicated, she said. “Moving forward you need to understand where the banks are going, how they are going to expand, what their plans are.

Then you can map out their talent needs.” One reason for the skills mismatch in Islamic finance is the youth of the industry; it was born in its modern form in the 1970s, and in many countries has only become a mainstream industry in the past decade.

The industry has moved into relatively complex areas, such as Islamic money market instruments and hybrid Islamic bonds with equity-liked characteristics, only in the last few years.

The fragmentation of Islamic financial regulation, with sharia boards and national regulators in various countries taking different approaches to some core products and concepts, may also be an obstacle to effective training.

Employers could provide some of that specialised training, but banks in Malaysia have so far been reluctant to do so because of the time and cost involved. Instead they tend to poach skilled staff from rivals, a quicker and cheaper alternative.

“The banks will have to step up. If they need people specialising in areas, they will have to train internally,” Azmi added. Universities also need to revamp their curricula to suit industry needs, but it inevitably takes a long time to evaluate and implement changes, she said.

Malaysian authorities have responded by trying to intervene directly in the job market; the International Centre for Education in Islamic Finance (INCEIF) was set up by Malaysia’s central bank in 2009 to help with training.

But Syed Othman Alhabshi, INCEIF’s chief academic officer, said the centre’s signature Chartered Islamic Finance Professional qualification, a one-year postgraduate programme, had only attracted a handful of industry executives to its staff.

Only five of the centre’s full-time lecturers boast actual exposure to the sector and most have retired from active involvement in the corporate world, he said. The centre’s 12-member professional development panel, which meets quarterly, has only two Islamic bank heads, from Bank Islam and OCBC Al-Amin.

About 60% of INCEIF’s graduates find employment within six months, according to an internal survey, the centre said, declining to provide further details of the survey.

While the centre’s programmes have evolved over time, its graduates are not designed to be specialists, so the task of further training falls on banks, said Syed. “Our first job is to train them. If they can get a job here, its fine. But if not, we can’t do much. It’s up to the employer whether they want to take the extra mile.”

Syed added that job opportunities for Islamic finance graduates were limited partly because companies such as Maybank Islamic, the largest Islamic bank in Asia, did not need large workforces as they could leverage staff from their parent firms – in Maybank’s case, Malayan Banking. AIF hopes a new advisory panel comprising representatives from across the industry can close the gap.

A new Financial Services Talent Council, being planned by the central bank, is to include individuals from the education ministry, Islamic banks and universities, in the hope of setting a national agenda for the industry’s talent needs.

“If you’ve got this diversity of people to discuss a particular issue, you’ll be able to come up with a better solution,” Azmi said. Many foreign students expect easy access to Malaysia’s job market when they obtain local Islamic finance qualifications, but some are turned down because banks face costly, time-consuming visa requirements to hire foreign students.

“They waste one year here, and many of them are upset with this,” said Omar Alaeddin, an INCEIF graduate and current member of its student representative council. So many students return to their home countries with Malaysian Islamic finance qualifications.

This has the benefit of spreading knowledge globally, but the students can also have difficulty finding jobs back home.

“At the beginning they come here thinking there are hundreds of banks and employees,” said Alaeddin, who teaches risk management and sharia auditing at Universiti Kuala Lumpur. “Then some go back and work in their previous jobs, which have nothing to do with Islamic finance.” – Reuters, October 29, 2013.