Islamic finance and food sector need convergence

The two Sharia-compliant industries could work together for their mutual benefit
Dubai’s recently unveiled strategy to be the capital of the Islamic Economy brings with it a range of exciting opportunities as well as some interesting challenges.

Islamic finance and food sector need convergence

Islamic finance and food sector need convergence

Food and finance are the two most emergent opportunities. Islamic finance has excess liquidity and limited Sharia-compliant investment opportunities; the expanding Halal food sector is under-supplied and in need of capital. So what is stopping these two from working together for their mutual benefit?
Over the past decades, the Islamic finance and Halal food industries have developed in separate, isolated silos. Despite having common roots in the Quran, (and specifically even in the same chapter, Surat al Baqarah) there has been very little interaction between these two Sharia-compliant industries.
On the one hand, there are continued reports of excess liquidity in the Islamic finance sector, albeit mostly related to institutional funds that are looking for fixed-income investments opportunities. According to data from Thomson Reuters, Islamic finance assets reached $1.32 trillion (Dh4. 8 trillion) at the end of 2012; average growth over the past four years has been at 19 per cent and sukuk market is growing at 10 per cent.
Overall, growth is 50 per cent faster than conventional banking in many of the core markets and, yet, somehow there is the feeling that something is missing; engagement with the real economy has not been achieved.

Islamic finance and food sector need convergence

Islamic finance and food sector need convergence

The food sector, on the other hand, struggles to keep up with demand from increasingly aware Muslim consumers who are becoming more vocal in terms of what products they want, as well as what they do or don’t consider to be Halal.
Level of traction
One glaring difference between the two is in terms of engagement. Over 70 per cent of the Muslim world is still “un-banked” in any shape or form, let alone with an Islamic bank. Islamic finance does not have much traction with the average man in the street, and most would not be that familiar with the technical terms.
In the food sector, it is a totally different story. Not only is the average Muslim fully engaged with the Halal food market, they also have strong opinions about what constitutes Halal compliance. Indeed, the expansion of the food sector is driven from both the consumer and producer ends, as consumers become more aware and vocal, and producers look for new opportunities in increasing saturated markets.
Another point of divergence is that in the Islamic finance industry, Sharia scholars tolerate minor amounts of interest or impermissible income, and the investment can still be considered compliant. In the food sector, any minor trace of haram ingredient would be rejected out of hand by the overwhelming majority of Muslim consumers. While there is zero tolerance among informed consumers, there is, paradoxically, a considerable degree of tolerance of the prohibited among educated Islamic finance scholars.
The Islamic Finance industry is largely controlled by Muslims, by scholars and senior executives. Yet, the common complaint within the industry is that a high percentage (one bank CEO stated as much as 85 per cent) of Sharia-compliant funds get re-invested in the mainstream interest-based markets to earn the profit that is later returned to the investor as being “Sharia-compliant”.
In direct contrast, the Halal food industry is largely in the hands of non-Muslim controlled companies, and yet the majority of them are very aware and respectful of the need to be compliant, and will convert their production lines to being 100 per cent Halal in order to secure the trust of the consumers.
As these two sectors expand, we can expect to see more avenues of convergence over the course of time. Following the example of Saudi dairy giant Almarai, major corporations in the food, personal care and pharmaceutical sectors could issue sukuk for expansion, and at the same time increase their credibility in the Halal marketplace.

Job creation
Given the real employment shortage within the Arab world — it is estimated that 60 million jobs will be needed by 2020 — one would hope the increasing focus on the Islamic Economy will be a catalyst to create more overlap between the twin pillars of food and finance. However, until there is greater awareness by governments, more transparent regulatory frameworks in the food sector, and more adventurous capital in the finance sector, one suspects that the silos may remain in place for some time yet.
From the perspective of the Islamic economy, these two sectors clearly belong together, but it will take time and some imaginative, bold moves to bring them closer together.
One gets the feeling that when and where that happens, there will be a real engine of growth kicking into gear.
CREDIT: The writer is an advisor to Thomson Reuters on matters relating to the Islamic economy.

Islamic bonds: then there was light

Islamic bonds: then there was light

It’s no fun being a bond investor these days. You either invest in safe havens like US and German bonds and get a negative return, or go on adventure in countries like Spain and can’t be sure you’ll get your money back.

So the emergence of Shariah compliant sukuk offers an appealing middle way. With the London 2012 Sukuk Summit being held on June 6 and 7, beyondbrics reviews the latest developments in the market.

First to catch the eye is a steady rise in sukuk indices in the last few months. The Dow Jones Sukuk Index, for example, which measures the total return on US dollar denominated Islamic bonds, ended higher in May for the sixth time in as many months. Since 2009, the index has performed twice as well as the Barclays Capital Bond Composite Global Index, a benchmark for bonds.

The amount of sukuk outstanding is at an all-time high. In the first quarter of this year, $40bn was added to the pile, an increase of 48 per cent in new issuance compared with the same period last year.


Islamic bonds: then there was light

 

Demand is strong for both corporate and sovereign sukuk, according to Tariq Al-Rifai, Dow Jones’ director of Islamic market indexes. A recent $4bn issuance by the Kingdom of Saudi Arabia was three times oversubscribed. A $1.75bn issue from the Saudi Electricity Company, the largest corporate sukuk of 2012, was ten times oversubscribed.

What explains this surge in popularity?

Since it was first re-introduced in Malaysia in the early 90s, the Shariah compliant bond type has enjoyed a steady rise in popularity in the Islamic world, both for issuers and for buyers. In the six years since its inception, the HSBC/Nasdaq Dubai US Dollar Sukuk Index has returned on average more than 5 per cent a year, notwithstanding the severe debt crisis in Dubai in 2009 which destroyed the value of many sukuks.

Until recently, the market was dominated by Malaysia. Now, a small sukuk renaissance is taking place in the Middle East. First banks and then companies in the Gulf region have started embracing sukuk issuance, explaining a large chunk of the increase in supply. Saudi Arabia is leading the way.

According to Nick Stadtmiller, head of fixed income research at the Emirates NBD bank, the roots for this remarkable sukuk awakening lie in the financial crisis in the developed world.

“About this time last year, a lot of Gulf-based issuers couldn’t get their traditional bonds sold because the markets in Europe were drying up,” he says.

This led some key institutions to rethink their attitude towards sukuk issuance. Before, the strict rules on sukuk made many of them conclude the game wasn’t worth the candle. Unlike bonds, sukuk have to be based on underlying assets, and they must be approved by Shariah scholars.

But the exceptional market circumstances made some issuers think again. Last year, conventional Arab banks like the First Gulf Bank and the Abu Dhabi Islamic Bank began issuing sukuk with success.

The same became true for some major Arab companies this year, such as Saudi Electricity ($1.75bn), the Saudi General Authority of Civil Aviation ($4bn) and recently the shopping mall operator Majid Al Futtaim ($400m).

The result is that sukuk supply is slowly catching up with demand, which had been increasing at the speed of sound in recent years – or better, at the speed of oil pumped out of Islamic soil.

For Stadtmiller, the fact that sukuk are now used as a replacement for a corporate loans means the market is at a “watershed moment”.

“I think we’ll see a lot more of these corporate sukuk in the future, many with a longer duration,” he says. (Sukuk can run for up to 10 years, whereas bank loans are often restricted to two or three years.)

There is no reason why the sukuk’s rise should stop at the borders of the Islamic world.

“There is also a strong appetite for sukuk among corporates in developed markets, such as GE Capital,” says Al-Rifai at Dow Jones. “If more western companies look to issue sukuk, they are bound to find a lot of interest from investors.”

That’s indeed very likely, as recent oversubscriptions suggest. Many wealthy investors in the Middle East can buy only sukuk as they want to comply with the Islamic ban on receiving interest. Western investors, from their side, don’t mind buying sukuk either. As sukuk are asset-based and many Islamic funds hold them to maturity, they are seen as a relatively safe investment.

But those looks can nevertheless be deceiving. Among all the optimism, you could almost forget that sukuk is a whole class of assets, not a homogenous product like US Treasuries.

Whether the issuers chose sukuk or regular bonds, their own creditworthiness is in the end what makes the difference. Investors who bought Dubai issued sukuk before 2009 will know what that means.

But in these uncertain times, sukuk remain highly valued among investors. With an average yield of 3.8 per cent, it is not hard to see why. Chances are the Sukuk Summit that started on Wednesday in London will only solidify that reputation.

URL: http://blogs.ft.com/beyond-brics/2012/06/06/islamic-bonds-then-there-was-light/#axzz1xCCWMT9n

Jafza mandates seven banks for sukuk to part repay old one

Jafza mandates seven banks for sukuk to part repay old one

Dubai’s Jebel Ali Free Zone (Jafza) has picked seven banks to arrange a new Islamic bond, lead managers said yesterday, with at least $500 million likely to be raised to part-repay the firm’s 2012 sukuk obligation.

Along with a $1.25 billion sukuk issued by another state-owned entity, DIFC Investments, due in June, the Jafza redemption was considered crucial to assess the ability of Dubai Inc firms to meet their debt maturities.

Dubai is trying to rebuild credibility with investors who fled the region after state-owned conglomerate Dubai World

shook markets in 2009 with plans for a $25 billion debt restructuring.

Jafza, fully-owned by the Dubai government, mandated Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, Citigroup, Dubai Islamic Bank, Emirates NBD, National Bank of Abu Dhabi and Standard Chartered to arrange a series of roadshows, a document from the lead banks said.

The investor meetings will begin on June 5 in the UAE and then take in Singapore and Hong Kong on June 7 and 8 respectively. Two days of roadshows will also be held in London on June 11 and 12.

A benchmark-sized sukuk will be issued subject to market conditions, the document added, with any issue to come from the Jafz Sukuk (2019) special purpose vehicle — indicating a seven-year sukuk is being proposed.

Benchmark-sized is understood as at least $500 million.

The proceeds from the issue will be used to help refinance the Dh7.5 billion ($2.04 billion) sukuk which had been due to be repaid in November, a source with knowledge of the matter said. Bondholders voted last week to allow Jafza to repay the deal early.

Repayment of the sukuk will come through a mixture of a loan, a sukuk and internal cash.

URL: http://gulfnews.com/business/banking/jafza-mandates-seven-banks-for-sukuk-to-part-repay-old-one-1.1030495

 

Turkey to overcome secular qualms with Islamic bond

Turkey’s government plans its first-ever issue of Islamic bonds this year, overcoming sensitivities about Islamic finance in the secular republic as it seeks to tap a rich pool of investors flush with oil money.

A sovereign sukuk issue from an economy regarded as one of the most progressive and successful in the Muslim world would signal intent on Turkey’s part to play a bigger role in Islamic finance. The size of the global sukuk market is estimated at more than $100 billion.

“It will be like ringing a bell and attracting all the attention,” said Murat Cetinkaya, deputy chief executive for treasury at Kuveyt Turk, an Islamic bank that has been a trend-setter for corporate sukuk issues in Turkey.

“Other issuances will follow the sovereign and Turkey will be on the agenda in this market constantly…as a frequent issuer.”

Despite espousing Islamic values, Prime Minister Tayyip Erdogan’s government shied away from taking the plunge with a sukuk issue during its first decade in power, out of fear of giving ammunition to critics who accuse the ruling AK Party of seeking to roll back state secularism by stealth.

“For a few billion dollars of funding there could be negative results in domestic politics,” said a deputy chief executive at a leading Turkish bank, who declined to be named because of the political sensitivity of the subject.

In 2008, the Supreme Court came close to shutting down Erdogan’s AK Party after ruling it was a centre of Islamist activity. But since then, the government has won the upper hand over old foes in the military and judiciary.

Few Turks question the AK Party’s economic management, and having overseen a near tripling in per capita income, the party was re-elected for a third term in office last June.

Moreover, even borrowers outside the Islamic world have entered the sukuk market in the last few years, giving less reason for Turkey to hold back.

“Now the sukuk has become an instrument that even Germany and France are using,” the banker said. “And in domestic politics, Erdogan is much stronger.”

So there was hardly a murmur of dissent when Deputy Prime Minister Ali Babacan, who oversees the economy, announced last month that the government planned to issue a sovereign sukuk this year, using legislation already in place.

“Turkey could very easily issue a couple of billion dollars worth of sukuk. It will probably issue $500 million or $1 billion at first and see how it goes,” said Osman Akyuz, secretary general of the Participation Banks’ Association of Turkey.

“An issuance by the Treasury would provide depth to the instrument and it will be sold with confidence.”

Royal Bank of Scotland economist Timothy Ash, a Turkey watcher, was also upbeat. “The market is potentially big – guess the sovereign could easily raise several billion.”

Islamic finance bans the use of interest, so theoretically, investors in a sukuk acquire partial ownership of an asset and share in its returns rather than receiving a stream of coupon payments.

By any other name

Although the sukuk market is tiny compared to the trillions of dollars of conventional international bond issuance, sukuk have been a relatively stable source of funding during the global financial crisis because of their conservative Islamic investor base.

Because of secular sensitivities, Islamic banks are called “participation banks” in Turkey and sukuk are referred to as “participation certificates”.

The country has used Islamic finance methods since the late 1980s through private financial institutions that were recognized as participation banks in 2006. There are four participation banks now operating in Turkey: Albaraka Turk , Bank Asya, Kuveyt Turk and Turkiye Finans. Kuveyt Turk, a unit of Kuwait Finance House, issued the country’s first sukuk in 2010.

Last October, following legislative changes to accommodate sharia-compliant transactions, Kuveyt Turk issued another sukuk for $350 million, and the strong demand demonstrated Turkey’s potential to become a major fresh source of Islamic bonds for investors keen to diversify their portfolios.

Albaraka Turk, the Turkish unit of Bahrain’s Albaraka Banking Group, and Bank Asya have formulated plans for sukuk issues of as much as $500 million, but have so far held back because of weak market sentiment globally due to the European debt crisis.

Despite that, the Turkish economy’s buoyancy, which produced growth of over 8 percent last year, and high yields compared to other emerging markets have increased investor appetite for Turkish assets, including sovereign debt issues.

Possible prop for bridge project

Ratings agency Fitch said last month that plans by sovereign borrowers outside the Middle East and other largely Islamic regions to tap the sukuk market could meet pent-up demand from Islamic institutional investors and banks to diversify their bond holdings.

That is good news for Turkey as it needs backing for huge infrastructure projects, having run into difficulties due to an international financing crunch. The government was forced to cancel a tender in January for the North Marmara Motorway Project, which involves a highway looping north of Istanbul and includes construction of a third bridge across the Bosphorus strait dividing Turkey’s European and Asian sides.

In April, the government will launch a fresh tender, and some bankers see the sukuk market providing a possible solution to the financing problem.

“Turkey needs investments and the sovereign sukuk could be used for financing of some projects, especially the third Bosphorus Bridge and highway projects,” said Akyuz of the Participation Banks’ Association.

Not only could a sukuk be specifically designed for the project, according to Is Investment Strategist Ugur Kucuk, it would also pull in investors who want to avoid international capital market volatility.

“A sovereign sukuk issue which is indexed to revenues to one of the Bosphorus bridges, or to some highway revenues, could be both attractive for investors and for the Turkish Treasury doing its first issue,” said Kucuk.

http://thedailynewsegypt.com/stock-market/turkey-to-overcome-secular-qualms-with-islamic-bond.html

 

 

Sukuk issuance surpasses pre-crisis levels

Islamic bond issuance last year surpassed pre-crisis levels for the first time – after more than doubling in volume – while one bookrunner predicted momentum will continue with a further 50% rise in 2012.

The volume of sukuks, or bonds that are Shariah-compliant, issued during the year rose to $32.6bn, from $14.9bn in 2010, with roughly half the volume of deals occurring in the fourth quarter, according to data from Dealogic. It was the first time volume surpassed pre-crisis levels.

The bonds benefitted from uncertainty in the global market, which drove investors to more stable issuances, according to HSBC Amanah, which was the fourth largest bookrunner last year. The firm said it expected the momentum to continue into 2012, anticipating a total of $44bn in deals this year.

Despite a rise in the number and volume of deals in the Middle East last year, Malaysia remained the dominant nationality of deals, with the year’s five largest sukuks issued by the country’s government or corporates.

There were $25.4bn of Malaysian sukuks issued during the year, while Malaysian financial services firm CIMB Group was the top bookrunner with $7.9bn in proceeds.The largest deal last year was a $6.1bn sukuk issued by an investment holding company owned by the Malaysian government treasury, Khazanah Nasional.

The United Arab Emirates represented the second most popular country for bond issuance with $2.6bn in deals during 2011, according to Dealogic.

Government-related sukuks will continue to dominate the market in 2012, according to a year-end HSBC Amanah forecast, with Asian and Middle Eastern infrastructure projects acting as major drivers. Malaysian toll and highway firm Projek Lebuhraya Usahasama Berhad kicked off the year by announcing that it would issue a massive $9.7bn sukuk.

Middle East banking group Emirates NBD and First Gulf Bank both had $500m issuances in the first two weeks of January. Dubai Islamic Bank had a $300m issuance.

Mohammed Dawood, managing director of Islamic global markets for Emea at HSBC Amanah said demand has continued outstrip supply in January, which has been the busiest start to the year he’s seen.

“Sukuk is favoured by investors because it has been less volatile than conventional issuances, especially in the last four months of 2011. Issuers on the other hand, like sukuk because it gives them access to a new investor base,” Dawood said in HSBC’s projections for the new year.

http://www.efinancialnews.com/story/2012-01-31/islamic-bond-issuance-reaches-pre-crisis-levels-in-2011

Islamic banks profitability up 58% in Q1FY12

KARACHI: The profit of Islamic banking industry (IBI) reached Rs 8 billion by end of the first quarter of 2011-12, showing growth of over 58 percent, as earning’s growth rate of conventional banks having Islamic banking branches is significantly higher than the growth rate of full-fledged Islamic banks.

The study ‘Islamic Banking Bulletin July-September 2011’ released by the State Bank of Pakistan (SBP) revealed that the share of full-fledged banks in overall profit of IBI though declined marginally over this quarter still constitutes major share (55 percent share) of overall profit of the industry.

The growth in profit during the said quarter is relatively lower than the growth rate of the last quarter (100 percent). However, the significantly higher growth rate of the last quarter can be associated to the base effect.

IBI continued its positive trend of earning as indicated by the rising trend in return on assets (RoA) and return on equity (RoE), both these ratios though didn’t show any significant change over the quarter under review for the overall banking industry.

It is also worth noticing that for IBI ‘net mark-up or profit income to gross income’ indicated a decline while ‘non-mark-up or profit income to gross income’ showed an upward trend, which is in contrast to overall banking industry norms.

As of end September 2011, the total assets of the IBI stood at Rs 568 billion, constituting 7.3 percent share of overall banking industry.The deposits of IBI reached Rs 463 billion during the quarter under review and its share increased to 8 percent of the overall banking industry from 7.6 percent in the last quarter (April-June 2011); the yearly basis growth of the deposits was almost 37 percent.

However, investments growth decelerated while financing witnessed retrenchment compared to the previous quarter. The deceleration in growth of investment can be explained by the non-issuance of any new Sukuk during the quarter while the retrenchment in financing is due to the business cycle of most corporate clients as well as the overall economic conditions of the country.

The industry witnessed rising non-performing financing (NPF) during the period under discussion reaching Rs 15.7 billion from Rs 14.8 billion during the last quarter, even so the IBI continued to achieve higher profit and increase in earnings.

The Islamic banking branches’ network increased to 841 branches from 799 as at the close of the last quarter. By opening 42 branches during the quarter the industry also achieved 62 percent of its planned annual branch expansion plan for 2011.

In line with the past trend these additional branches are more concentrated in Punjab (23) and Sindh, which constitute 78 percent share of overall network of the industry. Among banks, Meezan Bank Limited has remained prominent in expansion of its network with an increase of 20 branches during the said period.

However, the industry still seems reluctant in expanding to second and third-tier cities.The assets of IBI reached Rs 568 billion as compared to Rs 560 billion in the last quarter, registering a growth of 2 percent during the quarter under study; the growth is significantly lower than that of the last quarter, SBP report said.

It is important to note that assets of full-fledged Islamic banks witnessed a decline in growth rate from 10 percent in the last quarter to 3 percent in the quarter ended September 2011, while Islamic banking divisions (IBDs) of conventional banks contracted by 1 percent over the period under study in contrast to 17 percent growth in the last quarter mainly attributable to the category of other assets.

The financing of IBIs retrenched by almost 6 percent as it dropped to Rs 177 billion by end of the quarter under study from Rs 188 billion in the last quarter. This fall in financing is in line with the trend of overall banking industry and also with the usual trend of IBIs.

In general the business cycle of most industries including textile (the major shareholder of financing of IBIs) enable industries to retire major portion of their financing in third quarter (from July to September).

This can also be seen by looking at the sector-wise financing of IBI, as the corporate sector that comprises more than 70 percent of the financing recorded negative growth of more than 5 percent. The decline in financing share of industries like textile, sugar, shoes and leather garments etc also support the premise of drop in financing due to nature of their business cycle.

IBI’s investment reached Rs 236 billion in the quarter ending September 2011 from Rs 231 billion in June 2011, registering a growth of only 2.2 percent in contrast to the growth of 19 percent during the last quarter. The lower growth of investment during the quarter is primarily attributable to non-issuance of government of Pakistan’s Sukuk.

However, the available government’s Sukuk in the market remained the major investment avenue for Islamic banking institutions particularly for IBDs. The asset quality of the industry deteriorated marginally with non-performing financing (NPF) increasing from Rs 14.9 billion to Rs 15.8 billion during the quarter under study. The industry witnessed Rs 0.8 billion increase in the category of substandard while Rs 0.2 billion in category of doubtful.

However, this quarterly rise in NPFs is in line with the quarterly growth of NPLs of the overall banking industry. The yearly basis growth rate of 16.8 percent in NPF is lower than that of last quarter, however, the quarterly growth rate (6 percent) is higher than that of the previous quarter indicated by the rising trend of NPFs to financing as well as the net infection ratio.

However, both mentioned ratios are still below than the overall industry average (almost half) hinting at the cautious approach of Islamic banks.Deposits of the industry reached Rs 463 billion by end of the third quarter (September 2011), increasing from Rs 452 billion by end of the last quarter (June 2011).

However, the growth rate witnessed a decline – both annually and quarterly. It is interesting to note that despite the fall in overall growth rate of deposits the category of fixed deposits of customers witnessed a significant rise in its annual and quarterly growth rates from 31.8 percent to 36.5 percent and from 6.3 percent to 7.5 percent, respectively.

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.”

http://www.businessweek.com/news/2012-01-19/egypt-may-sell-foreign-currency-sukuk-deposit-certificates.html

Islamic bonds – SA makes its move A possible sukuk

In a move that could position SA at the forefront of the global Islamic Sharia law-compliant sukuk (bond) market, national treasury has called on banks to submit proposals for the issue by government of a sukuk.

“A sukuk would create a benchmark for other emerging markets and corporates,” says treasury spokesman Bulelwa Boqwana.

The nature of the possible sukuk has yet to be clarified and banks involved in the tendering process are not permitted to divulge any information.

But a sukuk would differ markedly from a conventional bond. Islamic Finance Resource, an information service, explains that in their purest form sukuk are ownership claims on physical assets.

A sukuk issue would be to domestic and foreign investors and its size dependent on government’s funding requirements, to be unveiled in the next national budget, says Boqwana. That it would be a success seems assured.

“There is a lot of local and foreign interest in it,” she says.

For SA, a sukuk issue would open the door to a source of foreign investment beyond traditional Western funding, finance minister Pravin Gordhan said in a recent speech. Though not on the vast scale of the Western funding machine, the sukuk market is significant, with new issues in 2010 of US$50bn, Ernst & Young (E&Y) says. Sukuk issues hit $63bn in the first nine months of 2011, according to research firm Zawya Sukuk Monitor.

Behind the sukuk market there is also the huge Islamic financial services asset base, which E&Y puts at $1trillion. Deutsche Bank predicts this total could rise to $1,8trillion by 2016 and drive a significant increase in the global sukuk market, which now accounts for a mere 1% of all bonds in issue.

For Gordhan’s strategy to establish SA as the hub for Islamic product development in Africa, a sukuk issue would be a big step forward. But SA cannot afford to drag its feet. Kenya, which has expressed similar ambitions in Africa’s Islamic finance market, aims to issue its first government sukuk in June 2012. A $500m issue is planned.

Also in the running is Nigeria, which is set to issue its first government sukuk within 18 months. Senegal has also expressed interest in tapping into the sukuk market.

http://www.fm.co.za/Article.aspx?id=161623

OnIslam & News Agencies

CAPE TOWN – As Islamic finance grows by leaps and bounds, South Africa National Treasury has invited banks to provide help in structuring the issuance of the government’s first Islamic bonds or Sukuk, in both local and international markets.

“There is a great interest in the Sukuk market,” Treasury Director-General Lungisa Fuzile said in a statement cited by SouthAfrica.info website on Wednesday, December 7.

According to the Treasury, the banking institutions were urged to provide advisory services and in the structuring and issuance of a government Islamic bond.

“This is the first step towards meeting the growing appetite for government backed Shari`ah compliant investments,” Fuzile added.

The successful bidder will also help in structuring, managing as well as coordinating the issuance of sukuk in South Africa for the first time.

Moreover, they will be responsible for obtaining relevant regulatory approvals, as well as securing a listing for the bond both locally and internationally.

The successful bidder will also have to market the bond to investors, indicate underwriting and market-making appetite, facilitate the book building process and provide any additional services required to successfully launch the bond.

Like other forms of Islamic financing tools, sukuk do not receive or pay interest.

It typically operates through actual transactions such as profit-sharing or leasing.

Companies that have issued Islamic bonds make payments to investors using profits from the underlying business, instead of paying interest.

The Sukuk market has reached $111.9 billion in the eight years to 2008, according to the International Islamic Financial Market.

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.

Shari`ah-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.

http://ww2.onislam.net/english/news/africa/454935-south-africa-mulls-islamic-bonds.html

S.Africa considers issuing Islamic bonds

JOHANNESBURG (Reuters) – South Africa’s National Treasury is considering issuing Islamic bonds to diversify its investor base and could have its first sukuk in the market as early as the next financial year if approved.

 

“There is a great interest in the sukuk market and this is the first step towards meeting the growing appetite for government-backed shariah-compliant investments,” said Lungisa Fuzile, director general of the National Treasury, in a statement on Tuesday.

The National Treasury asked banks to submit proposals by the close of business on December 21 for the issuance of sukuks and short-listed bidders will be informed by January 20.

The successful bidder would advise the Treasury on structuring, managing, and coordinating issuance activities and drafting all required contracts

Treasury spokeswoman Bulelwa Boqwana said the finance ministry has been researching Islamic bonds since 2004.

“There has been ongoing appetite for the sukuk even before the roadshow,” said Boqwana, referring to an overseas trip by Treasury officials last week for a non-issue investor roadshow after the finance ministry released its 3-year fiscal framework in October.

“The Treasury started the research on the sukuk market as early as 2004 as part of our ongoing funding strategy,” she added.

On when the market could expect the first issue of sukuks, Boqwana said: “It is only after the budget that we get our funding strategy approved so this is in preparation for the next fiscal year.”

The Treasury will unveil its 2012/2013 budget in February.

Islamic banking is one of the world’s fastest growing financial sectors, according to industry estimates putting its annual growth at 15 to 20 percent.

Global issuance of sukuk — or Islamic compliant bonds — is likely to rise 60 percent, to above $22 billion in 2011, a Reuters poll showed.

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