Islamic capital markets to provide major growth stimulus

Demand for infrastructure and investment financing.

The United Arab Emirates, Saudi Arabia and Qatar will all increase their global importance as centres of Islamic finance in the coming years, as the three markets experience rising international demand for financing.

Islamic capital markets to provide major growth stimulus

Islamic capital markets to provide major growth stimulus

Already the top three Islamic banking markets in the Gulf region, rising international demand for infrastructure and investment project financing is likely to stimulate growth in the three markets.

In particular, there is set to be strong demand from the government sector, which is increasingly working to ensure that at least a proportion of large project financing is structured in compliance with Shariah law.

The Islamic banks’ market share in domestic credit increased from 13 per cent in 2006, to 25 per cent at the end of 2012, according to the S&P report.
Global interest in the Islamic financing sector was demonstrated in October 2013, when Britain announced that it would become the first non-Muslim country to sell a bond that can be bought by Islamic investors.

Prime Minister David Cameron said that the UK Treasury is drawing up plans to issue a £200m Sukuk, a form of debt that complies with Islamic financial law.
The new sharia-compliant gilt will enable Britain to become the first non-Muslim country to tap the growing pool of Islamic investments, which is set to exceed USD1 trillion by 2014.

A Euromoney Qatar 2013 Conference will be held under the patronage of Abdullah bin Nasser bin Khalifa Al Thani, Prime Minister, State of Qatar and will discuss models for cooperation and competition.

© Emirates 24|7 2013

http://www.zawya.com/story/Islamic_capital_markets_to_provide_major_growth_stimulus-ZAWYA20131110033148/

Kingdom gaining more clout in Islamic finance

As Islamic finance/banking industry is growing at a sky rocketing growth rate of 12 percent – 15 percent per annum, Kuala Lumpur, Dubai, Bahrain and London are chomping at the bit to become the center of the industry, which currently boasts some $1 trillion in assets.

For the moment, Dubai holds the title of Islamic banking hub – but it could soon lose ground, both to traditional competitors like Bahrain, Kuala Lumpur or London or newcomers on the scene like Singapore.

But the country that really laid the foundation and basic infrastructure of Islamic Finance and paid billions of dollars by establishing the prestigious institutes like IDB, ICD and ITFC etc. and spending billions of dollars over last several decades and deserves to be global hub of Islamic finance and banking is Saudi Arabia.

Saudi Arabia, the Gulf’s largest economy and a G20 country, is the strongest and well-deserved contender for the title and has an edge. Its financial clout and the development of the King Abdullah Economic City strengthens the case.

“The only impediment is that it may not be the easiest place to obtain banking licenses especially now, given the plight of the banking industry in Bahrain and Dubai, but Saudi Arabia has always been very cautious.

The Saudi Arabian Monetary Agency (SAMA) guides and supervises the financial sector – that already made Saudi Arabia the safest haven in the world amid the current debt storm.

It would be a shame to lose this lifetime opportunity in the presence of prestigious institute like IDB, ICD and ITFC being ideally based and headquartered in Jeddah.

These institutes have already produced scores of talented bankers (in Islamic finance) that are spread now in the entire region and beyond and serving the Islamic finance and banking industry.

But this achievement wouldn’t be easy without full government support. With a strike of a degree, this industry could create thousands of jobs for Saudi men and women.

Dubai, despite its liberal policy and religious tolerance, has benefited from government support in creating a regional Islamic finance hub due to a favorable regulatory environment and strong domestic ties to Islam and Shariah.

It has more listed sukuk, than anywhere else.

What’s more, Dubai is cosmopolitan and business-friendly enough to lure talent from far a field.

The industry is not just limited to providing jobs to bankers but a lot of other support industry also flourishes like law offices, Shariah-complaint insurance companies, leasing and mortgage companies etc.

In the absence of any competition from countries like Saudi Arabia, Dubai will continue to be a major driver for Islamic finance in the near term, as it attempts to recycle the region’s petroleum wealth into real estate, tourism, technology and other anchors of a truly diversified economy.

Dubai’s attractions are many. In addition to glitzy and modern shopping malls, it boasts numerous free zones that allows for 100 percent foreign ownership, 100 percent repatriation of capital and profits, exemption from corporate tax and no import duties.

But its central role in Islamic finance isn’t assured over the long haul.

The recent financial crises have severely dented Dubai’s reputation and its financial soundness.

The Islamic finance market, that was once a local affair, deeply rooted in the Gulf region only, is now spread in Far East and Europe and somewhat in the US while Africa still remains a virgin market, offering enormous potential and unlimited opportunities.

Appreciating the potential of this $ 1 trillion and growing industry (expected to reach $2 trillion by 2013), the British government had voiced its determination to issue a sukuk and asked its Finance Ministry to start working on necessary regulatory changes by next year while it issues licenses to Islamic banks.

It has to be noted that sukuk is a $30 billion global industry.

In recent years, Islamic finance has grown rapidly across the world, conservatively estimated at 12 percent a year.

Malaysia has been strong in the Far Eastern market for the past decade. But now, Asian countries – with tiny Muslim populations – are also looking to join this process.

Japan wants to be the first nation in the G-7 to issue a sovereign sukuk bond – that is, if Britain doesn’t get there first.

Among cities outside the Muslim world, London is the strongest Islamic finance center and it leads race to be Shariah capital.

London will give Malaysia and Dubai and the rest of the Islamic world a run for its money, as London has all the strengths of a traditional financial center, from a solid infrastructure to a qualified pool of prospective employees.

Singapore, also seeking to attract Islamic capital, has the same lures but to a lesser degree.

London is already enjoying some success as a focal point for international Shariah-compliant investors, with both corporations and countries listing sukuk bonds in Britain.

London is also benefiting from New York’s relative indifference to Islamic finance, which removes from the race a traditional long-standing rival for global capital because America’s financial capital or political leadership has a narrower appetite for Islamic assets than other centers.

So far New York investors have shown an interest in Shariah-compliant equities, but not in Islamic bonds or Takaful, (Islamic insurance).

Saudi Arabia deserves all credit for its tireless persuasion to make Islamic banking industry in the world.

Saudi Arabia’s task to introduce Islamic banks into conventional banking systems was challenging and tough. Islamic banking is steadily moving into an increasing number of conventional financial systems.

It is expanding not only in nations with majority Muslim populations, but also in other countries where Muslims are a minority, such as the United Kingdom or Japan.

Similarly, countries like India, the Kyrgyz Republic, and Syria have recently granted, or are considering granting, licenses for Islamic banking activities.

In fact, there are currently more than 300 Islamic financial institutions spread over 51 countries, plus well over 250 mutual funds that comply with Islamic principles.

This industry is currently experiencing growth rates of 22 percent per annum despite a tough investment climate – and this growth trend is expected to continue.

This golden opportunity shouldn’t be missed simply because of arrogance or ignorance and this country should get what it rightly deserves.

 

http://arabnews.com/economy/islamicfinance/article569065.ece

CSL top stock in Australia's first Islamic index

The Australian financial services sector has taken another step in wooing regional investment through the creation of an Islamic equities index.

The Thomson Reuters Crescent Wealth Islamic Australia index launched today to tap the burgeoning Islamic-finance market domestically and abroad. The index is made up of 143 stocks filtered to exclude banking and traditional financial shares in favour of companies whose businesses meet Islamic principals.

“Australia has a very attractive investment climate because it combines high-quality infrastructure both as a financial market and as a country,” said Thomson Reuters global head of Islamic capital markets Sayd Farook in Sydney.

Dr Farook said the nation benefited from its status as a developed country “with a strong linkage to the growth economies of Asia.”

In fact, the federal government has promoted Australia as a regional hub for financial services in order to woo investment funds from Indonesia and Malaysia and other part of rapidly growing Asia.

The combined market capitalisation of all the stocks in the Islamic index is $160 billion.

Pharmaceutical stock CSL makes up 10.1 per cent of the Islamic index, followed by Woodside Petroleum at 9.5 per cent, and Original Energy at 8.7, per cent. The index, which has a bias toward resources and energy stock, excludes businesses involved in pornography, alcohol, cinema, insurance, gambling, hotels, music, pork and tobacco, among others.

Crescent Wealth believes Shariah-compliant investment in Australia could increase to as much as $13 billion, from a potential pool of $8 billion today. Shariah is the Muslim moral or religious code in Islam, although interpretations vary.

“There is a huge untapped potential to grow Islamic-compliant investment in Australia from investors here and in Asia and the Middle East,” said Crescent Wealth managing director Talal Yassine.

“This index gives these investors a local performance benchmark for the Australian market,” he said.

Mr Yassine said the screens applied to the index are not dissimilar to those used in many socially responsible or ethical funds. However, Islamic funds also shun interest-reliant banking stocks, or companies with high levels of debt or leverage.

To date, the other options for traditional Islamic investors have been Europe, the US and Doha, where the economic situations have not been as robust, Dr Farook said.

Islamic banking assets globally now exceed $1 trillion and could reach $4 trillion by 2020, Crescent said, estimating $50 billion in managed funds invested according to Islamic principles in equities.

Emirates steals the limelight

DUBAI – Emirates airline on Sunday made the 12th edition of the Dubai Airshow, the biggest ever biennial aviation gathering, more bigger as the carrier placed a huge order for 50 Boeing 777s worth $18 billion (Dh66 billion, which is the single biggest order in almost 100 years history of the US airplane maker.

The agreement was signed in the presence of His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai.

The airline also announced an option to buy another 20 777s as part of the order and that would push the deal’s total value to $26 billion (Dh95.4 billion).

“The Boeing 777-300 ER aircraft plays a pivotal role in Emirates development of a modern fleet to meet the demand for global air travel for the future,” said Emirates Airline and Group Chairman and Chief Executive Shaikh Ahmed bin Saeed Al Maktoum after signing the agreement with Boeing Commercial Airplanes president and chief executive officer Jim Albaugh.

The new agreement further establishes Emirates as Boeing’s best customer for the 777 as the Dubai-based airline already has 95 777s in service and already another 40 on the order books.

“The 777 has really served Emirates very well in terms of the seat cost, especially when we see that the fuel price today is very high,” Shaik Ahmed told reporters.

“With 61 777 300-ERs currently in service, this record breaking dollar value order is another milestone for Emirates and affirms our strategy to expand our long haul destinations and continue to excel as a world leading carrier, connecting the world to Dubai and beyond,” he added.

An analyst termed the deal timely and said the airline needs more aircraft to enhance its capacity and A350 delay is also another reason.

“The order is two parts reflection. Firstly its as a result of A350 delays and Emirates needs something…. to grow business. And I think the second key point to remember is that Emirates has a lot of ageing aircraft and they are going to withdraw from the fleet in the next five to 10 years. They need something to replace and 777 is better option,” FBE Aerospace founder and chief analyst Saj Ahmad told Khaleej Times at the airshow.

Shaik Ahmed said the airline’s decision to place new order for 777s has nothing to do with the delays on the A350. “It’s part of the Emirates expansion. We always find new markets,” he added.

In addition to new 777s orders from Boeing, the carrier has 73 Airbus A380 superjumbos on order, as well as 70 Airbus A350s. The airline is the largest single customer of Airbus’ long-haul airliner A380 with a purchase list of 90 units.

The airline is financially strong enough to fund the purchase of new aircraft as part of ongoing expansion plans by one of the world’s fastest growing airlines, Shaikh Ahmed told reporters.

The airline chief said he expects better results by the group in the second half of this year despite the global slowdown.

Earlier this month, Emirates President Tim Clark indicated that the carrier was looking at the more resilient Islamic finance market to fund aircraft deliveries as international banks back out of plane deals because of the eurozone debt crisis, Reuters reported.

European lenders, especially French banks, which have been major financiers for Emirates’ aircraft deals with Airbus and Boeing, have become risk-averse because of the crisis, Clark said.

“We were kind of planning for finance from European banks… but it’s just a bit difficult now,” said Clark. “We still have the Islamic finance market to go with and other funding options are always open for us,” he said, adding that issuing an Islamic bond or sukuk was “not out of the question.”

The signing was also witnessed by Emirates airline senior executives; Tim Clark, President, Emirates airline and Adel Al Redha, Emirates Executive Vice-President, Engineering and Operations as well as David Joyce, President and Chief Executive Officer of GE Aviation, whose GE 90-115B engine will power the 777-300 ER aircraft.

“This is an extremely proud moment for us as it not only underscores Emirates’ on going confidence in the 777 but also makes this the single largest order in dollar value in Boeing’s history,” said Albaugh from Boeing.

The 777-300ER will be operated in a three-class configuration with eight First Class suites, 42 Business Class seats and 310 Economy Class seats and offers an additional cargo payload of 20.1 tonnes.

“As the largest operator of the 777 in the world, Emirates has played an important role in development of the airplane and its input over the years has been invaluable in the development of the 777 programme,” he added.

“Today’s 777-300 ER order gives Emirates the ability to replace some of our older existing aircraft allowing us to maintain our leadership in fuel efficiency as well as providing our customers with an updated superior product,” said Clark.

http://www.khaleejtimes.com/DisplayArticle08.asp?xfile=data/dubaiairshow/2011/November/dubaiairshow_November29.xml&section=dubaiairshow

Halal and Islamic finance markets will converge, says Al Islami CEO

The $1 trillion (AED3.68 trillion) global Islamic finance industry is in the process of developing a road-map to converge on $651 billion (AED2.4 trillion) halal market, says Saleh Abdullah Lootah, Managing Director of Al Islami Foods.

He was speaking during the 8th Kuala Lumpur Islamic Finance Forum 2011 (KLIFF), organized by the Centre for Research and Training (CERT) just last week.

“Islamic stock exchange for both Islamic financial services and halal FMCG companies is a logical outcome and a natural relationship of the two fast growing industries. The time has come to sustain and channel this growth,” said Lootah.

“Growing Muslim population, awareness and consumers, their rising literacy and professional training, sustainable nature of Islamic economy, role of press and social media are the contributing factors for the impressive growth of Islamic finance and Halal food industry.”

From the international Halal food industry, Al Islami was the only halal food company from the Middle East invited to the international event.

Concurrent industry events were organised to cover the complete package of Islamic finance industry that included: Shariah Forum, The Takaful Rendezvous, Ethics and Finance Roundtable Exhibition, Workshops, Islamic Finance Essay Competition, and Islamic Finance Awards.

KLIFF 2011 gathered more than 1,500 delegates ranging from regulatory authorities, Shariah scholars, bankers, legal practitioners, Takaful operators, consultants, and academicians in Islamic finance around the globe.

The size of Islamic Finance Market in the GCC

According to a 2009 report titled the Development of Islamic Finance in the GCC, published by the Centre for Study of Global Governance of the London School of Economics:“the value of shariah-compliant assets is impressive in the GCC. The current size of global Islamic finance industry is at over $1 trillion (AED3.68 trillion), with GCC having $262.6 billion (AED964.5 billion).”

Islamic finance in the UAE, reports said, has been recording a steady and impressive growth in last few years with $73 billion (AED269 billion). Industry experts estimate the global industry size to rise to $2 trillion (AED7.3 trillion) in five years.

Malaysia, notwithstanding the efforts of the Gulf countries, claims the world’s largest Islamic capital market with assets rose 15 percent to $123 billion (AED452.6 billion) in 2011. The country has integrated the Islamic sector into its broader financial system, providing institutions as well as intermediaries a deep market in shariah-compliant equities, sukuk, exchange-traded funds, real estate investment trusts and derivatives.

 

http://www.kippreport.com/2011/10/halal-and-islamic-finance-markets-will-converge-says-al-islami-ceo/?bnr=

Islamic finance gaining momentum

Shariah investment convention to discuss issues of convergence and uniformity JEDDAH: Increasing popularity of Islamic funds and the revival of the Sukuk in the global financial markets will serve as a catalyst for the global Islamic finance market rediscovering the momentum it previously built up prior to the global financial crisis, organizers of the upcoming two-day International Shariah Investment Convention (ISIC) in Kuala Lumpur said.
Worldwide Shariah-compliant assets, including deposits at Islamic finance institutions, have been pegged at $950 billion by Moody’s but could grow to $1.6 trillion by 2012.
Large global financiers such as Citigroup and HSBC holdings are aggressively chasing this business via Sukuk and Shariah-approved products, said a leading industry expert.

slamic finance gaining momentum

slamic finance gaining momentum

The conference that will start on Nov. 30 will focus on enhancing Shariah-compliant instruments “so that they become more reliable, transparent, and concerned with real economic activity,” Dr. Mohd Daud Bakar, president/CEO of Amanie Islamic Finance Consultancy and Education LLC, said in a statement.
“Financial markets across the world are still recovering and are adapting their systems, processes and institutions to better insulate them against future challenges. To date, the strong interest in Islamic investments and Sukuk products has been maintained, which to date have often been subscribed by investors beyond the Muslim world,” he noted.
The Sukuk market alone saw positive developments following the global financial crisis with worldwide issuances increased to $23 billion in 2009 from $19 billion in 2008, highlighting continuing demand for the asset-class.
The market continues to show its resilience especially in Asia where big name quasi- sovereign related issues such as the Islamic Development Bank 1 billion Malaysian ringgit and the National Bank of Abu Dhabi’s 500 million Malaysian ringgit issuance.
The renewed activity in the Sukuk market will be the catalyst for the growth in the next cycle, Dr. Bakar said, citing the recent launch of a $200 million Islamic bond sale by Dubai-based Al Baraka Banking Group, which will help to fund its expansion into France and up to five other subsidiaries throughout Europe.
Amanie partnered with the Securities Commission (SC) of Malaysia and Bursa Malaysia in holding the convention.
As part of their commitment to the industry’s development, the SC, Bursa Malaysia and Amanie will bring together representatives from regulatory bodies, investors, fund management houses to discuss key issues such as the importance of establishing proper cross-border distribution channels for funds, the importance of continued expansion in Sukuk markets, and the importance of strong regulatory oversight.
ISIC will also provide a forum to discuss issues of convergence and uniformity that have been some of the major challenges impeding the growth of Islamic finance.
Dato’ Yusli Mohamed Yusoff, chief executive officer of Bursa Malaysia, said “Bursa Malaysia remains committed in furthering the Malaysian International Islamic Financial Centre (MIFC)’s agenda of making the country a global hub for Islamic finance. As such, the growth of the Sukuk listing on Bursa Malaysia is unprecedented, signaling the bourse’s appeal as the preferred listing destination for Islamic financial instruments. Over the past year, Bursa Malaysia has already witnessed major Sukuk listings by both the local and international issuers.”
Dr. Bakar added that “conventional market players will continue to adapt Islamic finance products to cater to the ever-growing demand and many sovereign nations will resort to amend their regulatory frameworks to allow Shariah-compliant structures to be used in their jurisdiction.

http://www.saudigazette.com.sa/index.cfm?method=home.regcon&contentID=2010112788066

Ireland presses on with Islamic finance tax neutrality laws

The Irish Revenue in October 2010 published its latest report on Islamic finance, namely ‘Guidance Notes on the Tax Treatment of Islamic Financial Transactions’ which relate to Islamic investment funds; leasing and hire purchase (ijara) arrangements; takaful (Islamic insurance) and retakaful (Islamic reinsurance); murabaha (credit) and diminishing musharaka; murabaha (deposits) and wakala (agency); and sukuk.

Ireland presses on with Islamic finance tax neutrality laws

Ireland presses on with Islamic finance tax neutrality laws

As such, Ireland becomes only the fourth European Union country after the UK, Luxembourg and France to introduce tax neutrality measures for Islamic financial transactions which are similar or equivalent to conventional transactions.

In fact, the Irish Revenue first mooted changes in the tax treatment of Islamic financial products in a commentary it circulated in November 2009. This was followed by the introduction of significant amendments to Irish tax laws to facilitate certain other Islamic financial transactions which had not been dealt with in the November commentary. Under the Finance Bill 2010, which came into effect in January 2010, the Irish Ministry of Finance introduced significant amendments to facilitate Islamic finance transactions in Ireland, especially the origination and issuance of sukuk.

The latest ‘Guidance Notes on the Tax Treatment of Islamic Financial Transactions’ seeks to consolidate Irish Revenue’s guidance on the tax legislation and the earlier Commentary into one comprehensive reference document.

Ireland like other EU countries is warming to Islamic finance and Dublin has emerged as an Islamic investment fund domicile to rival the Channel Islands of Jersey and Guernsey; and Luxembourg. Indeed several Shariah-compliant funds are registered in Dublin including several funds from the South African asset management company, Oasis Group, under its Crescent label including Oasis Crescent Global Equity Fund; and funds mooted by a number of Malaysian Islamic asset management companies.

The Irish government is also keen to promote the island as a more attractive location for international fund raising operations in addition to providing Irish companies with an alternative source of funding.

International market players in the Islamic finance space such as global auditing and advisory firm PriceWaterhouseCoopers (PWC) have welcomed the Irish tax neutrality initiative, stressing that the Finance Bill 2010 proposes new legislation that will facilitate several Shariah-compliant transactions including sukuk transactions by extending to this form of financing the relieving (tax neutrality) provisions which currently apply to equivalent conventional financing; and that the Guidance Notes “are extremely helpful in consolidating the Irish Revenue’s views on the legislation and practice in the area of Islamic finance”.

Islamic finance market players stress the above changes and measures will enhance Ireland’s competitiveness and attractiveness as a domicile for Sukuk issuance and the launch of Islamic equity and other such products.

The Irish Revenue is explicit in stressing that “the term Islamic Finance does not appear in tax legislation. For tax purposes, depending on the circumstances, transactions which are structured to be Shariah-compliant may or may not be treated similarly to mainstream financial transactions, which are similar in substance.

In the case of Shariah-compliant transactions and structures within the funds, leasing and insurance industries, generally the Irish tax treatment is the same as that applying to conventional transactions. Section 39 of the Finance Act 2010 provides for the tax treatment of certain credit sale, deposit and investment transactions (referred to in the legislation as “specified financial transactions”) which achieve the same economic result in substance as comparable conventional products. Although designed to cover certain Shariah-compliant structures, the legislation applies to any financing arrangement falling within the meaning of the term “specified financial transaction” regardless of whether the arrangement is, in fact, Shariah-compliant.”

According to a Tax Alert from PWC published last week, the legislation had clarified that a Sukuk should be considered a security for Irish tax purposes and that the investment return on a Sukuk should be treated as interest. This is in contrast to the UK legislation on tax neutrality for Sukuk, which are defined as Alternative Financial Investment Bonds.

However the Irish legislation fails to deal with a number of further issues which are implicit in Islamic financial transactions. According to PWC, Irish tax legislation generally contains a restriction on deductibility where interest is linked to the results of the borrower. This can be a common feature in Sukuk issuances but would not necessarily feature in a corresponding conventional financing transaction. The new legislation, stressed PWC, did not deal with this restriction on deductibility for payments to Sukuk holders which are directly linked to the return on the underlying asset but the guidance notes do now seek to rectify this by confirming that Irish Revenue will not seek to regard the Sukuk return as being dependent on the results of the issuer where a number of conditions are satisfied.

However, “while the conditions might be seen as onerous, it should be possible to commercially satisfy them in order to secure a tax deduction for the return paid to the sukuk holders which essentially represents the interest expense in a conventional financing structure,” added PWC.

The Irish Revenue has also confirmed that while the sukuk does need to be issued to the ‘public’ (retail), it does not need to be listed to fall within the legislation.

The Guidance Notes also confirm the above treatment applies in certain deposit transactions which are structured as mudaraba or wakala contracts, and that such transactions will not mean that the beneficial owner of the deposit is carrying on a trade in partnership with the deposit taker. The income earned by a corporate in such a transaction should generally be taxed at 25 percent in line with Irish Revenue’s view on the taxation of deposit interest.

In ijarah (leasing) transactions, the Guidance Notes confirm that an ijarah operating lessor of short life assets can elect to be taxed in accordance with its accounting treatment.

PWC has also identified some outstanding issues to be addressed regarding stamp duty and capital gains tax which could facilitate the issuance of sukuk in Ireland and provide a genuine alternative source from which Irish businesses can seek to raise finance.

http://arabnews.com/economy/article197574.ece