Conventional banks take on Islamic banking

ZAWYA.COM--The Islamic window is increasingly becoming an important part of UAE’s conventional banking landscape, with one of the leading lenders starting a new division early this year and others expanding on their existing offerings, thereby contributing an increased share to the overall financial fortunes of the group.

Some banks’ financial results point to the Islamic unit gathering pace.

Though a standalone Islamic bank, Emirates Islamic Bank (EIB) is very much under the conventional Emirates NBD Group umbrella and its positive contribution is starting to make a difference. EIB made a net profit of Dh115 million in the first half of this year compared to a loss of Dh90 million a year earlier.

Dubai’s biggest lender, Emirates NBD has almost doubled the contribution of the Sharia-compliant activity to its total operating income, increasing from 5.9 per cent in 2011 to 11.6 per cent in 2012.

“That’s a significant increase,” said Raghu Mandagolathur, senior vice president-research at Kuwait Financial Centre, also known as “Markaz.”

The Islamic segment’s contribution to overall revenue of Mashreq was 10 per cent in 2012, remaining constant from the previous year, according to Moinuddin Malim, chief executive of Mashreq Al Islami. Looking ahead, the bank is aspiring to increase this contribution gradually to 15 per cent by 2015.

This, Malim said, will be done “without any cannibalisation of the existing business while adding on new bank deals and customers.”

Examining overall Islamic Banking assets in the region, Mandagolathur believes that the industry is poised for a growth.

“Our research shows that Islamic banking assets in GCC is poised to grow from $445 billion in 2012 to $628.6 billion in 2016 at a compounded annual growth rate (CAGR) of 9.02 per cent,” said Mandagolathur.

That growth expectation to be witnessed in the UAE as part of GCC is the reason behind RAKBANK’s (The National Bank of Ras Al Khaimah) thrust in the Islamic segment. It is the new entrant in this space, starting RAKBANK Amal in January.

“With an anticipated surge in demand for Islamic Banking in the country over the coming years, RAKBANK wants to ensure that it is at the forefront through Amal’s competitive products and services,” said Mufaddal Khumri Idris, head of RAKBANK Amal.

Since its launch early this year, the bank’s Islamic banking portfolio has shown strong growth month on month.

“Shariah-compliant finance products today make up 30 per cent of the bank’s business, whether in terms of auto finance, credit cards, or personal finance,” said Idris. “Amal also continues to see a healthy trend in accumulating low-cost Saving and Current accounts.”

The new unit was a major contributor to its overall Dh650 million in new lending this year, said Idris.

While the competition is expected to grow fierce, it still makes sense to ramp up the Islamic side of the business with more products and services being readied for different customers.

According to Idris, Islamic business finance solutions are set to be launched by the end of September, while Ijarah products will be available to customers by year end.

In fact, some industry observers believe that the recent hiring of Peter England, the former retail head of the Malaysian lender CIMB Group as the new chief executive of RAKBANK, might indeed give a further fillip to its burgeoning Islamic business.

Regarding competition in the industry, Mandagolathur says Islamic banks or Islamic windows of conventional banks have to compete with conventional banks standalone or with Islamic windows.

“The competition will be between segments more than between banks as it is the product offering that will face competition,” he said. “Islamic segment is certainly a growth segment which all players will vie for a share. And so, it makes sense to tap that market.”

For Mashreq, historically the growth in this segment, which was launched in March 2010, has come from corporate finance, where it has offered Islamic alternate solutions to its customers for working capital finance, factoring, term financing and profit rate swaps.

“Today, we have completely revamped our Islamic retail offerings and are aggressively pushing home finance, personal loans, autos finance, SME finance,” said Malim. “Our ambition is to emulate the same market share as that of our industry.”

But it is not going to be easy.

“It is a tough task as Mashreq Al Islami is not a standalone Islamic bank but an Islamic window in a conventional bank,” said Malim.

However, he believes that with a superior product platform compared to some of the existing Islamic banks and quality service, Mashreq Al Islami could stand out from their competitors and help them accelerate their business.

In the wholesale banking arena, Mashreq Al Islami has launched Islamic alternative for Factoring, Export Finance, Call Account, etc. It has the region’s top performing Islamic Fixed Income Fund, and there are plans to shortly launch the Islamic equities funds.

On the retail side, Mashreq Al Islami have plans to launch Islamic alternative for credit card.

By Gaurav Ghose Financial Features Editor

Gulf News 2013. All rights reserved.

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Islamic Bank of Britain Showcases Islamic Finance Expertise to Indonesian Officials

CPIFINANCIAL.NET---A total of 13 judges from Indonesia’s Supreme Court, High Court and Religious High Court visited the Bank to learn more about Islamic finance as part of a course they were attending at the Markfield Institute of Higher Education (MIHE) based in Markfield, Leicestershire.

The judges, who were studying Islamic Financial Systems, Law & Arbitration for three days at MIHE, were given a tour of the Bank’s offices. This was followed by presentations from senior IBB executives on how Islamic banking differs from conventional banking and its position within the British legal framework.


Commenting on the visit, Sultan Choudhury, managing director, Islamic Bank of Britain said, “IBB has a long-standing reputation as a leader in the international Islamic finance sector and we are often asked to showcase our achievements and expertise. The delegation of high-ranking Indonesian judges found their visit to the Bank very informative, providing both parties with a forum to share knowledge and ideas.”

Indonesia is also preparing itself for a boom in Islamic banking. It is the world’s most populous Muslim nation, with almost 90 per cent of the 250 million population practising the faith. This presents a vast opportunity for the Indonesian Islamic finance industry. According to industry figures, whilst Islamic banking currently only represents 4 per cent of Indonesia’s banking system Islamic banking assets grew by 50 per cent, to US$17 billion, over the last year. Growth is expected to continue through the combined efforts of the Indonesian government and financial institutions seeking to realise the potential of this booming sector.

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Kiddie-Pool Islamic Loan Ending Indonesian Invisibility

BLOOMBERG.COM---Indonesia is counting on people like Nur Hanifah, a 50-year-old widow who sells plastic buckets and inflatable kiddie pools, to help it catch Malaysia, a country one-tenth the size that leads the world in Islamic finance.

Hanifah took out a Shariah-compliant loan from PT Bank Muamalat Indonesia after her husband’s death to help finance a store on the ground floor of a shophouse in Serang, two hours’ drive west of Jakarta. While she doesn’t pay any interest, borrowers like Hanifah typically must give the bank 40 percent of their profit plus part of the principal each month.

“When times are good, I pay more on my loan than most people,” said Hanifah, whose monthly take is about 50 million rupiah ($5,189). “But I won’t have to worry when times are bad. I don’t have to pay anything when I’m not turning a profit.”

Loans like Hanifah’s could help Indonesia, the country with the world’s largest Muslim population, narrow the gap with its neighbor. It’s speeding up government approvals and fixing a fragmented regulatory system as part of an effort to reach more unbanked Muslims and increase the portion of Islamic assets in the banking system to 15 percent by 2017, from 4.3 percent.

That’s creating opportunities for global banks includingStandard Chartered Plc (STAN) and HSBC Holdings Plc (HSBA), both based in London, which are issuing financial products that comply with Islamic law, or Shariah, as fast as regulators allow. It’s also attracting interest from Malaysian lenders across the narrow strait separating the two countries.

Quadrupling Share

“That’s huge growth we’re talking about, quadrupling the market share,” Wasim Saifi, Standard Chartered’s Kuala Lumpur- based global head of Islamic consumer banking, said in an interview in Singapore. “Indonesia is clearly one market where everybody sees the maximum growth potential.”

Indonesia’s central bank and its government approved new products and platforms last year and issued more Shariah- compliant bonds, helping support an industry poised to expand worldwide at almost three times the pace of financial assets.

“Indonesia is only now undergoing wider financial reforms, of which Islamic finance is a part, to tap international capital markets especially from Gulf investors,” Abas A. Jalil, chief executive officer at Amanah Capital Group Ltd., a Kuala Lumpur- based consulting company, said in a Dec. 6 interview. “Bank Indonesia could only recently begin organizing laws for the non- Islamic side, let alone the Islamic, as they were hindered by the government and then the Asian financial crisis.”

Record Sukuk

Southeast Asia’s largest economy sold $1 billion of global Islamic bonds in November, with bids exceeding supply by five times. Buyers in the Middle East accounted for 30 percent of the order book, compared with 23 percent in Asia, 20 percent in Indonesia, 12 percent in the U.S. and 15 percent in Europe, according to Loto Srianita Ginting, director of government securities at the Finance Ministry’s debt-management office.

The government has issued Shariah-compliant sovereign bonds, known as sukuk, at mostly regular, two-week intervals, setting a record of 57.1 trillion rupiah last year compared with 34 trillion rupiah in 2011.

It may offer about 53 trillion rupiah this year, Dahlan Siamat, Islamic financing director at the debt-management office, said by text message today.

Indonesia ranks fifth in the amount of outstanding Islamic bonds, after Malaysia, Saudi Arabia, United Arab Emirates and Qatar, accounting for 4.4 percent of the world’s total, according to a Malaysian central bankreport. Malaysia represents 62 percent of the global sukuk outstanding. As of the end of the first half of 2012, it had $129.4 billion outstanding compared with $9.3 billion for Indonesia.

Interest Ban

The bonds pay returns on assets to comply with Islam’s ban on interest. The government may use public property to back the sukuk by transferring its ownership to creditors until maturity while leasing the asset to make coupon payments.

Indonesia allows 16 Islamic-banking products, compared with 59 in Malaysia, according to the countries’ central banks. Regulators in Indonesia are assessing a 17th, a Shariah- compliant instrument for banks to hedge against currency swings, said Edy Setiadi, executive director of Islamic banking at Bank Indonesia. A similar instrument has been offered since 2006 by lenders in Malaysia, including Standard Chartered, HSBC and CIMB Islamic Bank Bhd.

The global Islamic finance industry is expanding at an average annual rate of 15 percent, according to Malaysia’s Securities Commission. That’s almost three times as fast as the 5.5 percent increase for all financial assets in 2010 cited in a 2011 McKinsey Global Institute report. It will more than double to $2.8 trillion in 2015, from $1.1 trillion in 2011, the Islamic Financial Services Board in Kuala Lumpur estimates.

Realizing Potential

“We are all very anxious to see Indonesia come out and realize its potential,” Rauf Rashid, Malaysia managing partner at Ernst & Young LLP, said in an interview at the Global Islamic Finance Forum in Kuala Lumpur in September. “The market is simply massive, if only the powers that be can align with the business community to tap this opportunity in Islamic finance.”

Islamic banking in Indonesia trails Malaysia by almost a decade. The country’s debut Shariah-compliant lender, Bank Muamalat, opened in 1992. Bank Islam Malaysia Bhd., Malaysia’s first, started in 1983.

One reason for the lag was that Indonesia’s central bank was under the authority of the government from 1968 to 1999, during most of President Suharto’s rule. The country also was hit harder during the Asian financial crisis that began in 1997. Indonesia spent about 57 percent of the value of its gross domestic product to restructure its banks from 1997 to 2001, according to a report by the International Monetary Fund. That compares with the 16 percent of GDP that Malaysia spent to revive its financial system from 1997 through 1999.

Investment Limit

Bank Indonesia didn’t announce rules regulating foreign ownership of local lenders until July, setting a limit of 40 percent for both Islamic and non-Islamic lenders.

Malaysia’s central bank, Bank Negara Malaysia, which has been independent since its establishment in 1959, revised its law seven years ago to allow foreigners to hold a larger portion of Shariah-compliant banks than of conventional lenders to spur Islamic banking. The authority increased the limit to 49 percent in 2005 from 30 percent, and to 70 percent in 2009.

HSBC, the world’s largest underwriter of sukuk for both government and corporate issuances, had a 24 percent global market share totaling $11.1 billion in 2012, according to data compiled by Bloomberg. Three percent of that was in Indonesia. Cheaper borrowing costs spurred Islamic bond offerings to an all-time high of $46.3 billion last year, exceeding the previous record of $36.7 billion for 2011, the data show. Malaysia’s Cagamas Bhd. brought sales so far this year to $41 million.

Breaking Records

Indonesian companies probably will break corporate sukuk records this year after issuing less than 1 percent of Malaysia’s 95 billion ringgit ($31.5 billion) in 2012, according to estimates by PT Danareksa Sekuritas and PT Indo Premier Securities, Indonesia’s top two arrangers.

HSBC, which declined to make an executive available for an interview, said in an Oct. 4 statement that it’s scaling back its global Islamic finance business in less-profitable markets, including the U.K. and Singapore, to concentrate on Malaysia and Saudi Arabia while maintaining a presence in Indonesia.

Islamic lenders in Indonesia including Bank Muamalat, the PT BNI Syariah unit of PT Bank Negara Indonesia and CIMB Islamic, part of Malaysia’s second-largest banking group, have said they want to provide fixed-rate deposits to consumers so they can compete directly with non-Islamic banks. Such accounts have been available in Malaysia since 2007.

Shariah-compliant banks can offer fixed rates on deposits using a contract to sell and repurchase assets with a markup and deferred payments, called murabaha. A bank may offer to sell and repurchase a property with 10 percent markup paid over two years, resulting in stable payments of 5 percent each year.

Sending Thugs

The number of Indonesians using Islamic financial products increased 37 percent over the past year through Nov. 30 compared with a 32 percent rise in the previous period and 19 percent the year before, central bank show. That’s still only 13.8 million people in a country of 208 million Muslims.

Hanifah, the shop owner, is one of them. She said she despaired of making monthly interest payments on a regular bank loan after her husband’s death in an accident in 2004. It took her five years with the help of relatives to repay a debt of 32 million rupiah at a rate of 18 percent without any income.

This time it’s different.

“When I didn’t turn a profit one month, the bank didn’t send thugs to demand payment,” she said of the Bank Muamalat loan for her shop. “It sent my account manager instead to help me rearrange the furniture and showcase the products better, because my profit is theirs, too.”

Hanifah, who wears a headscarf, declined to say how much she borrowed or what she clears each month.

Sharing Risk

The type of loan she took out from Bank Muamalat, whose Shariah-compliant lending rose 93 percent in the first nine months of last year, gets around the ban on interest by sharing both the borrower’s earnings and the lender’s risks. If there’s nothing left after expenses, borrowers owe nothing that month.

Lenders pay an agreed proportion of their profits as returns on customer deposits, causing rates to fluctuate depending on a bank’s profit. When the bank is more profitable, clients earn bigger returns on their savings.

Shariah-compliant banks can guard against currency swings by signing two sell-and-repurchase agreements, similar to the method used for fixed-rate deposits, in different currencies using agreed-upon exchange rates.

Indonesia will require non-Islamic banks operating Islamic- banking windows in their branches to set up independent units by 2015 to prompt them to inject more capital into the business, according to Setiadi of the central bank.

Shariah Council

Since July, Shariah-compliant banks in Indonesia have been allowed to lend to each other at fixed rates to manage excess cash, paving the way for savings accounts with a stable return similar to what non-Islamic banks pay for deposits.

Offering the same product to consumers may lead them to believe there’s no fundamental difference between Islamic and non-Islamic instruments, said Adiwarman Azwar Karim, a member of the National Shariah Board, part of the state-funded Indonesian Ulema Council. The council, founded in 1975, has the legal authority to issue decrees about whether products and actions comply with Shariah, which Bank Indonesia and the regulatory body at the Finance Ministry follow when drafting regulations.

HSBC Unit

HSBC’s Islamic banking unit, HSBC Amanah, has been offering Shariah-compliant retail and corporate products in Indonesia since 2003, nine years after starting in Malaysia. The bank earned $175 million in profits in Indonesia in the first half of last year and $288 million in Malaysia. The company doesn’t break out numbers for Islamic banking, Gareth Hewett, a spokesman for the bank in Hong Kong, said in an e-mailed response to questions.

Standard Chartered, which runs its wholesale Islamic business from Dubai and consumer Islamic banking from Kuala Lumpur, has been offering products for Muslims in Malaysia since 1993, according to Saifi. It started an Islamic banking subsidiary in Malaysia in 2008 calledStandard Chartered Saadiq Bhd. The lender in 2004 also purchased a stake in PT Bank Permata (BNLI), which it increased to 45 percent in 2006.

“It is very important that we continue to build a strong Islamic proposition that our customers have a choice of moving to Shariah-compliant products within the bank, if they choose to do so,” Saifi wrote in an e-mailed response to questions about Standard Chartered’s business in Indonesia. “We expect to see a much faster development of the product set in the country.”

Double Taxation

Nations including Pakistan, South Africa and Kazakhstan are seeking to develop Islamic finance by revising rules and offering incentives. Malaysia and Ireland have issued treaties to remove double taxation on the transfer of assets used in Islamic bonds and transactions.

The notes pay returns on assets to comply with the religion’s ban on interest. When an investor purchases sukuk, the asset is legally transferred to the bondholder and then returned to the issuer at maturity, which results in some structures incurring double sales tax.

Indonesia’s tax framework for such products is incomplete, leaving potential sukuk issuers uncertain whether they will be required to pay taxes on the sale and repurchase of underlying assets, said Badlisyah Abdul Ghani, head of Islamic banking at Kuala Lumpur-based CIMB Group Holdings Bhd. (CIMB), the world’s second- largest sukuk underwriter.

Catching Malaysia

Indonesia’s capital market regulatory agency has ensured that no corporate sukuk issuance incurred double transaction taxes, said Etty Retno Wulandari, a director. To dismiss the misperception, Bank Indonesia has asked the taxation department since 2009 to send out a letter stating that Islamic products will receive tax exemptions as needed to place them on equal footing with non-Islamic bonds, Setiadi said.

Malaysia’s Securities Commission established a Shariah advisory council in 1996 to vet sukuk offerings before releasing a comprehensive guideline on how companies can issue Islamic bonds in 2004. Indonesia has yet to publish broad guidelines on offering sukuk. The separate pronouncements to allow the government and companies to sell such bonds are sufficient, Wulandari at the regulatory agency said.

“Indonesia will easily leave Malaysia in its dust once it completes its regulatory framework and tax neutrality laws,” said Badlisyah of CIMB. “Its market share will catch up to Malaysia overnight.”

image copyright: Ed Wray/Bloomberg

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New Developments in Islamic Financial Services

OMANOBSERVER.COM--A NEW index for Oman’s stock exchange is expected to provide a boost to the Sultanate’s nascent Islamic financial services sector and lead the way for additional sharia-compliant products. In early June, the Muscat Securities Market (MSM) announced that it was close to launching a new index, one for listed companies that operate according to the principles of sharia, as set down by the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions.

To be known as the MSM Sharia Index, the benchmark will contain 31 listings. Industrial firms will be the best represented, with 18 companies, followed by 10 from the services sector and three from the financial industry. This is the inverse of the MSM30, the exchange’s primary index, which is heavily weighted towards banks. The low number of financial firm listings in the new index can, to some degree, be explained by Oman’s late entry into the sharia-compliant finance field, with authorisation for Islamic banking coming only in 2011.

One of the smaller Gulf exchanges, the MSM has a market capitalisation of around $30 billion (compared to a GDP of about $72 billion), with 165 companies trading on its boards. To ensure that the companies listed on the MSM Sharia Index continue to comply with Islamic business principles, quarterly reviews of their activities will be conducted, a process aimed at both maintaining standards and promoting confidence in the products being offered to investors.

The index is the latest development in Oman’s Islamic financial services market, which has been in existence since the His Majesty Sultan Qaboos issued an enabling Royal decree in May 2011. Since then, two new institutions — Bank Nizwa and Al Izz International Bank — have acquired banking licences, while established conventional lenders have opened Islamic windows. In 2012 both Nizwa and Al Izz floated initial public offerings (IPOs), in line with the central bank requirement that they list at least 40 per cent of their shares. The IPOs were strongly oversubscribed, suggesting an appetite for Islamic products on the MSM.

Sharia-compliant banks are expected to draw in new customers rather win market share from their conventional counterparts.

As Hamod bin Sangour bin Hashim al Zadjali, Executive President of the Central Bank of Oman (CBO), told OBG in 2012, “The CBO... believes that the advent of Islamic banking in Oman will complement existing conventional banking, augment financial inclusion and promote growth in the economy for years to come.” 

According to Pradeep Asrani, Managing Director of Investment Services firm Gulf Baader Capital Markets, Islamic banks will capture a market share of up to 5 per cent within two years, which in turn could promote further expansion into sharia-compliant investment funds and brokerages, as well as sukuks (Islamic bonds). 

More generally, the availability of Islamic banking and other financial services is expected to act as a spur to the market and to the economy as a whole. 

In 2012, Ahmed bin Saleh al Marhoon, the MSM’s director-general, told OBG that the introduction of Islamic banking would inject more liquidity into local capital markets as individuals seeking sharia-compliant investment options would no longer have to look abroad. The new MSM Sharia Index will provide one more reason for these investors to place their funds locally.

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Global Islamic Finance Industry Needs to Build Economies of Scale

ZAWYA-- MUSCAT-- Financial institutions and regulators around the world need to work together to address challenges that are limiting the geographic growth of Islamic finance, according to a key expert. David McLean, Chief Executive of the World Islamic Banking Conference: Asia Summit, which opens in Singapore next week, said that although Islamic finance has come a long way, achieving significant growth over the last decade, the overall size of Islamic assets is still less than 1 per cent of the global financial system and the industry has still to build significant economies of scale.

"Being comparatively young, Islamic finance currently offers fewer product choices for consumers, while isolated pools of Islamic liquidity in each market restrict opportunities for more efficient allocation of capital across international jurisdictions," McLean ahead of the June 3 opening of the 4th Annual World Islamic Banking Conference: Asia Summit.

"As Islamic finance embarks on its next phase of growth, the industry must overcome these challenges and build scale, reach critical mass and expand its geographic footprint -- and this will require financial institutions, regulators, and international standard setting agencies to work more closely together," McLean stated.

More than 480 key Islamic finance leaders and senior decision-makers representing the major regional and international institutions, regulatory bodies and government agencies, are attending WIBC Asia 2013. The high-profile gathering will create an ideal platform to facilitate discussions on achieving further growth and international connectivity in the Islamic banking and finance industry in Asia.

According to Abdul Hamidy bin Abdul Hafiz, CEO of Kuwait Finance House (Malaysia), "The Islamic finance industry has shown tremendous growth in terms of business volumes, product innovation and geographical spread -- as well as achieving significant improvements in its legal and regulatory frameworks. The industry is now entertaining customers across wider segments and economic sectors and is moving well beyond its early niche status.

However, the Islamic financial system is still very small compared to the existing conventional economic system. With the lessons learnt from the recent global financial crisis, we are now well aware of the inherent dangers in unproductive capital. What is needed is a more efficient and effective mobilisation of investible surplus that promotes economic prosperity by financing real economic activities. This perfectly fits with the objectives of Islamic finance and by promoting and strengthening the cross-border connectivity in Islamic finance, it would allow capital allocation to the most efficient investment portfolios."

He went on to say that, "The role that the annual World Islamic Banking Conference: Asia Summit plays in bringing together industry leaders from key Islamic financial centres for dialogues on improving the global connectivity of Islamic finance is commendable and we are delighted to be once again supporting this key industry gathering." According to Sulaiman Alireza, Executive Director, Head of Direct Investments, Asiya Investments Hong Kong Limited, "There has been a significant expansion of both intra-Asia as well as cross-border trade flows between Asia and the Middle East.

Annual intra-Asia trade is expected to quadruple from current levels of almost $5 trillion to $20 trillion by 2020. Similarly, trade between the GCC and emerging Asia is growing at a rate of 25 per cent per year." He said the emerging Asian economies, excluding Japan, account for approximately 20 per cent of the world GDP. "Middle East investors are on the lookout for greater diversification, both in terms of geographical allocation and asset classes, beyond the traditional investments in the US and Europe."

© Oman Daily Observer 2013

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Jordan's Appetite for Islamic Banking

ZAWYA.COM---Sami Al Afghani, CEO of Jordan Dubai Islamic Bank talks to Banker Middle East about the growing interest towards Islamic banking products and practices within Jordan's banking and finance sector

How do you see the growth in Islamic banking in Jordan?

Islamic banking is an increasingly growing sector in Jordan and is in a position to fulfill all the financial needs and requirements of customers in all categories. There is a growing trend in Jordan whereby a large number of customers are shifting their business to Islamic banks. This trend is made rather clear from the increasing market share for Islamic banks, due mainly to a host of new competitive Islamic products.

At Jordan Dubai Islamic Bank , we are placing all our focus on the local market for the time being to ensure our position in the market as the leading providers of Islamic banking products in Jordan.

There is room for Islamic banking to grow in Jordan and the opportunity for it is rather great due to an ever increasing Muslim community, interested only in dealing with Islamic financial products especially where there are clear guidelines and structures. Islamic banking is not only a matter of providing the service but more importantly, it is about the quality of this service which is highly affected by Shari'ah Islamic laws.

I believe that the entrance of new players into the Islamic banking market is beneficial for all, as it will help in allowing for more regulations for this sector and will highlight Shari'ah- compliant products making them more familiar to the public, as new comers will enhance the experience and culture in this sector in the same way that Jordan Dubai Islamic Bank has.

What is your view of the Sukuk market growth in Jordan, regionally and globally?

The Sukuk market is growing rapidly both regionally and globally. This growth rate reflects the economic development of the Middle East region, the financial appetite of countries such as those in the GCC, as well as the growing appetite for Shari'ah-compliant instruments.

Last year in October 2012, the Sukuk law was approved in Jordan. Now there is a committee consisting of the Central Bank of Jordan, Jordan Securities Commission, Ministry of Finance and Dar Al Efta', to place detailed instructions and mechanisms to issue sovereign Islamic Sukuk, which will be the benchmark for the private sector to issue Sukuk, and we expect this to be finalised within the second half of this year. Sukuk issuance will help Jordanian Islamic banks invest their liquidity surplus, which means managing the funds more efficiently which will in turn be reflected in depositors and shareholders' profitability.

The increased conservatism of the Arab banking sector in its lending policies resulted in a noticeable surplus of funds amongst some of them. How can these banks invest their surplus and what is the impact of its accumulation on the Bank's profitability?

I think that the tightening in Arab banking lending/financing policies is a normal reaction to the various financial challenges and its negative impact on the world's economy. This negative impact and slowdown is affecting every sector and therefore banks have to be more cautious and do have to analyse every aspect, which is already in the core structure of banking business. However, during financial slowdowns similar to the one we are going through, banks increase their terms and level of analysis in order to protect their depositors and shareholders.

How has the Bank performed at end of 2012? And what are your plans for the future?

Jordan Dubai Islamic Bank started operations in 2010. By the end of its third year of operating as an Islamic Bank, working under the Central Bank of Jordan's regulations, the Bank's total assets exceeded $670 million and its shareholder's equity exceeded $179 million. Our results for fiscal year 2012 were much better than original expectations as we have adopted flexible plans taking into consideration regional developments and their impact on the Jordanian economy. Despite the difficulties that have faced Jordan Dubai Islamic Bank in 2012, we were successful in building a high-quality financing portfolio that generated operating profit and at the same time we have been able to distribute competitive profit rates to 

our depositors.

Mr. Sami Al Afghani, CEO of Jordan Dubai Islamic Bank since its establishment in January 2010 has 26 years of experience in banking, holding different positions in several banks across the region such as the Abu Dhabi Islamic Bank, Arab National Bank and Arab Bank.

© Banker Middle East 2013

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OAB gearing up to unveil Islamic banking products

ZAWYA.COM--Muscat: Al Yusr, Oman Arab Bank's (OAB) Islamic banking window, held its inaugural Sharia Supervisory Board meeting, wherein the board approved the products and policy manuals developed by Al Yusr to launch its Islamic banking services. The meeting was presided over by Dr Essam Al Enezi, chairman of the Al Yusr Sharia Supervisory Board. Dr Ahmad Ayyadi and Dr Khalid Al Siyabi, eminent members of the Sharia Supervisory Board and other the senior management of Al Yusr were present. The key products Al Yusr will offer upon its launch include Sharia-compliant auto and home finance, as well as a complete set of deposit products including current account, savings account and fixed deposit for the retail banking sector. Al Yusr has also affirmed its commitment to corporate and small and medium enterprises (SME) segments by developing a Sharia-compliant short-term working capital and term finance product, coupled with deposit product suites comprising current account and fixed deposit options, which the Sharia Supervisory Board has also approved. Extensive research Abdul Kader Askalan, chief executive of Oman Arab Bank, explained that the inaugural Sharia Supervisory Board meeting and its approval of these products follows months of extensive research and development Oman Arab Bank has undertaken to develop the product suite for Al Yusr. "While Islamic banking has been available in the market since the beginning of this year, we have utilised this time to deliberately study the market and the Islamic banking requirements of the Omani people," he said. "As a result, we have designed Al Yusr to meet the needs of Oman in a way that is both simple and easy to use; we will enter the market with products crafted specifically for Oman." "Oman Arab Bank is respected for its longstanding legacy and highly experienced management. We are working hard to maintain the public's trust and confidence by creating an Islamic Banking window that provides easy and simple services and products to meet our customers' unique needs," he added, Al Yusr head of Islamic banking, Azmat Rafique, explained Al Yusr's commitment to provide value added and simple financial solutions. "We share the same passion and commitment that Oman Arab Bank has for its retail, SME and corporate customers. Our endeavour is always to serve our clients with the best quality and comprehensive range of products. "This is an on-going process and we will keep adding innovative and simple solutions to establish Al Yusr as a trusted Islamic banking window."

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ICD extends USD6m line of financing facility to Orienbank

ZAWYA.COM-- DUSHANBE--Islamic Corporation for the Development of the Private sector (ICD) Chief Executive Officer Khaled Al-Aboodi, and Tajikistan's Orienbank Deputy Chairman Rajabbek Sulaymonbekov signed a deal that saw ICD extending to the Tajik bank $6 million Line of Financing facility during the 38th IDB Group meeting here.

The $6 million Line of financing facility will then be lent by Orienbank to the SMEs sector to projects in industrial, communication, technology, health, construction and agricultural sectors.

Khaled Al-Aboodi commented: "The small and medium sized enterprises (SMEs) have a crucial role to play in the country's growth and development, and ICD has big plans for them. This is an important sector in all the member countries, including the higher income ones. ICD is now focusing on this sector by extending lines of finance to local banks and establishing Ijara companies and investment funds."

Previously ICD signed financing agreement with another local financial institution for a total of $11.5 million line of financing facility for the development of SMEs in Tajikistan which demonstrates ICD's firm commitment to develop the private sector in its member countries. About $10 million out of the total facility amount has now been fully disbursed.

The ICD and Thomson Reuters, the world's leading provider of intelligent information for businesses and professionals, announced a deal for the joint development of the Islamic Finance Development Indicator -- a single, composite numerical measure representing the overall health and growth of the Islamic finance industry worldwide. The ICD Thomson Reuters Islamic Finance Development Indicator expands the scope of Thomson Reuters' universe of Islamic finance content, research and news analysis to develop a much needed unbiased and reliable multidimensional barometer of the development of the Islamic finance industry.

Russell Haworth, Managing Director, Middle East and North Africa, Thomson Reuters, said: "Thomson Reuters has been at the forefront of some of the major market moving measures in the world. We are proud to continue providing our expertise in developing high impact indicators to measure the development of the Islamic Finance industry."

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Emirates Islamic Financial Brokerage joins Nasdaq Dubai

ZAWYA.COM---Emirates Islamic Financial Brokerage (EIFB), a major Shariah-compliant broker in the UAE, has become a member of Nasdaq Dubai, the region's international exchange.

EIFB will focus on opportunities for trading Shariah-compliant shares listed on Nasdaq Dubai, as well as other Shariah securities that become listed in due course.

Jamal bin Ghalaita, chairman of EIFB, said: "As EIFB continues to offer an expanded platform to its investor clients, our membership of Nasdaq Dubai comes as a significant addition to our rich portfolio of investment solutions. Our membership of the exchange is an important step in the continuing rapid growth of Dubai's Islamic financial services sector."

Abdul Wahed Al-Fahim, chairman of Nasdaq Dubai, said: "EIFB's arrival as a member of Nasdaq Dubai supports the exchange's drive to broaden and deepen its Islamic finance activities. The exchange is committed to innovation and expansion in all areas of Islamic capital markets, including building new links with other leading Islamic finance organizations in the UAE and overseas, as part of the overall growth of Nasdaq Dubai as the Middle East's leading international listing venue."

Hamed Ali, acting chief executive of Nasdaq Dubai, said: "We are delighted to provide new investment possibilities on our platform to EIFB and its thousands of individual and institutional clients. As economic prospects in the UAE continue to improve, we look forward to further listings of Shariah-compliant securities, including expanding the range of asset classes that we offer.

"Nasdaq Dubai will continue to build its base of Shariah investors and market participants as the exchange plays an expanding role in strengthening the Islamic economy in Dubai."

Hussein Mourad, managing director of EIFB, said: "Nasdaq Dubai's international market will offer growing Shariah investment options for the benefit of our clients in the UAE and overseas. The exchange's promotion of first class transparency and governance standards, together with its regional and international investor base, make it a highly attractive platform for our clients."

The government of Dubai announced in January that it is positioning the emirate as the capital of the Islamic economy globally in a range of areas, including capital markets.

EIFB, an arm of Emirates Islamic Bank, was the fastest growing UAE broker by trading volume in 2012 and took the number one spot on Dubai Financial Market in December 2012

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Libya Bank Lending Paralyzed Amid Interest Ban: Islamic Finance

Bloomberg.com--- Ali Gumma finally saved enough money to buy a plot of land near Tripoli and was planning to build a family home when he hit a brick wall: He couldn’t find a Libyan bank willing to lend him the money.

“I can’t afford to build it on my own,” the 52-year-old university professor said in an interview in the capital. “Traditional banks are barred from offering loans because they aren’t Islamic but no alternatives have been introduced.”

Euphoria over a law passed this year that would make Libya the third Middle Eastern country after Iran and Sudan to ban non-Shariah compliant banking by 2015 has turned into frustration and confusion. Parliament and the central bank have distanced themselves from the decision of commercial lenders to stop offering loans immediately. The law didn’t stipulate when the transition would start, according to Omar Hamaidan, a spokesman for the legislature.

“There seems to be a lack of guidelines for what banks should do with customers,” Mohammad Farrukh Raza, managing director of U.K.-based Islamic Finance Advisory & Assurance Services, who recently visited Tripoli, said in an interview. “The general feeling is that the sector has stalled.”

Loan Growth

Loans and advances in Libya, holder of Africa’s largest oil reserves, climbed 17 percent in the first nine months of 2012, according to the latest central bank data. The loan-to-deposit ratio stood at 25 percent, compared with more than 50 percent in neighboring Egypt.

Libya’s law takes efforts to promote Shariah-compliant finance a step further than Tunisia and Egypt, where Islamist groups that came to power in 2011 following popular uprisings have sought to integrate Islamic banks and debt into the financial system. The two countries are planning their first sukuk sales this year to diversify funding sources and cut borrowing costs.

The average yield on sovereign Islamic bonds has plunged 113 basis points, or 1.13 percentage points, since the start of 2012 to 2.77 percent May 14, according to the HSBC/Nasdaq Dubai Sovereign U.S. Dollar Sukuk Index. The drop helped sales in the six-nation Gulf Cooperation Council, which includes Saudi Arabia and the United Arab Emirates, triple last year to about $21 billion, according to data compiled by Bloomberg.

Fitful Transition

Unlike its neighbors, Libya has no immediate plans to sell sukuk, Central Bank Governor Saddek Elkaber said in a May 9 interview in Beirut.

Elkaber said the regulator initially wanted to promote Islamic lenders alongside so-called conventional banks. The General National Congress chose to ban non-Islamic banking outright in response to “the desires of the street and pressures,” he said, adding the law doesn’t apply to institutions.

The debacle adds to Libya’s fitful transition since the end of the armed conflict that ended Muammar Qaddafi’s rule in 2011. Authorities are struggling to rein in the militias and root out radical Islamists from the oil-producing east. A timetable for the democratic transition has been largely abandoned while the May 5 passage of a bill to purge senior Qaddafi-era officials from office threatens more delays.

Unhappy Citizens

While the 200-member GNC didn’t order banks to stop giving out loans, banning interest left lenders scrambling to find Shariah-compliant alternatives, Fathi Agoub, adviser to the governor, said. “We understand the feelings, needs and situation of the citizens who aren’t happy with these procedures,” he said.

At a Tripoli branch of Gumhouria Bank, the country’s biggest, manager Miloud Taher throws his arms up in despair.

“Customers are angry; they come every day to ask when they will be able to get loans and prepayments to solve their problems,” Taher said. The bank offers Islamic car loans, which some customers use “because as soon as they buy the car they sell it new in order to get money,” he said.

Gumhouria had assets of $6.46 billion and 142 branches before the 2011 uprising. Standing inside the branch, mother-of-two Khadija, a school teacher, said she’s been trying for two months to get a loan to finance her daughter’s wedding. “I need financial support from the bank,” she said, declining to give her full name. “It used to be very easy to get a loan and it only took a few days.”

Lives ‘Paralyzed’

Taher said he doesn’t believe banks can hold off giving out personal loans and overdrafts for as long as two years. “The lives of people are paralyzed,” he said. “That is why we urge the congress and the Central Bank to find ways to help customers to get loans and make prepayment more easier.”

The process “probably has to be reviewed and restructured to allow the system, infrastructure and resources to match the challenge,” said Raza of the Islamic Finance Advisory & Assurance Services. “Islamic banking is a priority, but probably they have bigger priorities as well, so I’m not sure if enough thought was possibly given to this challenge.”

In the meantime, the central bank plans to award about three licenses for domestic Islamic banks, Elkaber said. The minimum capital requirement is 250 million Libyan dinars ($196 million), according to Ali Shambesh, director of statistics and planning department at the central bank.

Qatar’s Masraf Al Rayan said in February it planned to buy a stake in a Libyan bank to gain foothold in the country.

Elkaber cited Libya’s oil-generated cash resources for the decision not to tap global sukuk markets in the short term, even as borrowing costs decline. The yield on Dubai’s $1.25 billion 6.396 percent sukuk maturing next year fell 10 basis points last week to 2.16 percent. The yield rose 1 basis point today to 2.17 percent at 11:41 a.m. in the emirate, according to data compiled by Bloomberg.

“We don’t have a problem with liquidity,” the governor said. “We want to employ the liquidity properly.”

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Dubai Supremacy Challenged as Global Banks Move to Rivals

Skyscrapers are seen behind pedestrians in the Dubai Marina district. “Dubai’s main disadvantage is that the big money clients and markets are elsewhere,” said Farouk Soussa, chief economist for the Middle East at Citigroup Inc. in Dubai. Photographer: Gabriela Maj/Bloomberg

When Saad Iqbal left Deutsche Bank AG in Dubai two years ago as European banks scaled back amid the debt crisis, he turned to Riyadh as a construction boom makes Saudi Arabia a hub for project finance.

“Saudi Arabia was not initially my first choice, but I found Dubai had contracted,” said Iqbal, a director of project finance at Riyad Bank (RIBL), the nation’s third-biggest lender. Saudi Arabia and Qatar are “where the deals are,” he said.

Riyadh climbed 32 places to 33rd in the Global Financial Centers Index published March 25 by London-based consulting firm Z/Yen. That made the Saudi capital the biggest gainer on an index led by London and New York. Dubai dropped one position to No. 23, with Qatar advancing five places to 30th on the list.

While Dubai is the Middle East base for banks including HSBC Holdings Plc (HSBA), Deutsche Bank and Standard Chartered Plc (STAN), Riyadh is mobilizing the region’s biggest stock market and a $500 billion Saudi government spending spree to bolster its credentials as a financial hub. Bankers in Riyadh and the Qatari capital, Doha, can also tap some of the greatest concentrations of the world’s super-rich, according to Boston Consulting Group.

“Dubai’s main disadvantage is that the big money clients and markets are elsewhere,” said Farouk Soussa, chief economist for the Middle East at Citigroup Inc. (C) in Dubai. “Clients want their bankers close. That creates a gravitational force that pulls bankers close into places like Doha, Riyadh and Abu Dhabi, despite them being otherwise less competitive than Dubai.”

April 12 (Bloomberg) -- Karine Kheirallah, director of advisory and execution at Falcon Private Bank Ltd., and Khaled Sifri, chief executive officer of Emirates Investment Bank, discuss private wealth in the Gulf region. They spoke April 9 with Jason Kelly at the Bloomberg Link Doha Conference. (Source: Bloomberg)

Regional Equities

Morgan Stanley and Credit Suisse Group AG (CSGN) are among the banks shifting regional equities teams to Riyadh as trading volumes on Saudi Arabia’s stock market surge. The nation’s capital, a congested metropolis of more than 5 million, is developing the King Abdullah Financial District to the north of the city as it seeks to attract more financial services firms.

Qatar, ranked third behind Singapore and Switzerland for the proportion of millionaire households, according to Boston Consulting, is also working to capture business from Dubai.

It’s offering cash from its sovereign wealth fund to asset managers setting up in the country, Qatar Financial Centre Authority Managing Director Abdulrahman Al Shaibi said on March 11. The nation, with a population of 1.76 million, may also set up a reinsurer and sell shares to the public as part of its bid to become a regional financial hub, he said.

April 12 (Bloomberg) -- Salman Al Jishi, chairman of the Salman Group of Companies, Paul Gamble, director of the sovereign group at Fitch Ratings, Firas Nasir, co-head of Carlyle Group LP's Middle East North Africa fund and Aamir Rehman, managing director of Fajr Capital Advisors, talk about opportunities in Saudi Arabia's economy. They spoke April 9 at the Bloomberg Link Doha conference in a panel session moderated by Bloomberg's Andrew J. Barden. (Source: Bloomberg)

Oil and Gas

Lacking the oil and gas of its neighbors, Dubai can’t afford to give up its lead in financial services, which accounted for 11.3 percent of gross domestic product in 2011. Finance, insurance and real estate contributed only 3 percent of Saudi Arabia’s GDP and 4.7 percent of Qatar’s in the third quarter of 2012, data compiled by Bloomberg shows.

The city of 2.1 million people became a regional banking hub after opening the Dubai International Financial Centre in 2004 to attract international banks, asset managers and insurers with promises of zero taxes for 50 years. The DIFC, as it’s known, is targeting financial institutions from Asia and reported a 16 percent increase in registered employees in 2012. Agricultural Bank of China opened a branch last month.

“Dubai is extremely competitive,” DIFC Chief Executive Officer Jeffrey Singer said in an interview yesterday. “If you’re coming new to the region, you have to justify why you wouldn’t come to Dubai.”

Dubai said in January it would create an Islamic finance council to regulate equity and fixed-income products to boost the industry’s role in the economy. Sales of Islamic bonds in the emirate have jumped almost 50 percent this year.

The Kingdom Tower stands illuminated at night on King Fahad Road in Riyadh, Saudi Arabia. Riyadh climbed 32 places to 33rd in the Global Financial Centers Index published March 25 by London-based consulting firm Z/Yen. Photographer: Waseem Obaidi/Bloomberg

Dubai Ahead

The emirate’s bond underwriting still exceeds Saudi Arabia and Qatar, with about $6 billion of issues by the Dubai government and related companies in the first quarter. Saudi issuers have raised $4.9 billion in bond sales this year, while Qatari issuance totals about $1.3 billion. Dubai accumulated about $113 billion of debt to develop finance and tourism.

While Boston Consulting figures show Riyadh’s bankers can tap the world’s highest concentration of households worth more than $100 million, constraints on women stemming from the Wahhabi version of Sunni Islam may make it difficult to persuade expatriates to work in Saudi Arabia’s financial center.

Men and women are segregated in public, including at schools, restaurants and lines at fast-food take outs. Women also need permission from a male guardian to go to school or get married, and are barred from driving. Dubai has no such restrictions and tolerates alcohol.

Visitors walk past outdoor restaurants in the Souq Waqif market in Doha. Qatar is ranked third behind Singapore and Switzerland for the proportion of millionaire households. Photographer: Gabriela Maj/Bloomberg

Financial Center

“For a financial center to flourish you need human capital, which will be a challenge for Riyadh given its various restrictions,” said Emad Mostaque, a London-based strategist at Noah Capital Markets. “Dubai has the best infrastructure to attract human capital: schools, good housing, recreational activities.”

The second largest of seven sheikhdoms in the U.A.E., Dubai was the region’s top placed city for infrastructure, ranking 34th, according to a 2012 survey by New York-based consultancy Mercer. Abu Dhabi came 72nd and Doha 102nd.

It also has the highest quality of life ranking in the Middle East, according to Mercer. The city-state ranked 73rd in the world with Abu Dhabi at No. 78, while Doha and Riyadh were ranked 106 and 157 out of 221 cities surveyed. Vienna and Zurich topped the index.

“In terms of development, in terms of infrastructure, the openness and ease of business, there’s nothing like Dubai in the region,” said Khaled Sifri, chief executive officer of Emirates Investment Bank PJSC. “It’s way ahead and it will take a long time for anyone else to try and catch up.”

Other Competition

That isn’t stopping other regional centers from trying. Apart from Saudi Arabia and Qatar, Turkey is building the Istanbul International Financial Center as part of Prime Minister Recep Tayyip Erdogan’s strategy to boost the country’s regional status and make the economy one of the world’s 10 biggest by 2023. Istanbul is No. 57 on the Z/Yen index.

While Abu Dhabi is constructing a financial center called Sowwah Square, the largest emirate in the U.A.E. fell one place in the Z/Yen ranking to No. 39. Bahrain, which crushed a Shiite Muslim revolt against its Sunni rulers in 2011, fell three places to 64th and is 23 positions below its 2010 ranking.

Qatar and Credit Suisse are strengthening ties after the holder of the world’s third-largest gas reserves took a 6 percent stake in the second-biggest Swiss bank, bought its London headquarters and formed asset manager Aventicum Capital Management.

Credit Suisse is shifting its regional investment banking headquarters to Doha, a person with knowledge of the matter said in December. It has also cut three equity positions in Dubai and transferring another to Riyadh, the person said.

Aggressive Qatar

“The financial services sector in Qatar is expanding aggressively and is hiring more than we’re seeing in the U.A.E. at the moment,” said Matthew Gribble, Dubai-based managing director ofMichael Page International Plc (MPI), a recruiter that operates in 32 countries. “It’s never easy getting people to Qatar compared to many markets, but it’s attracting people who are coming out of stressed markets in Europe and the U.K.”

Morgan Stanley (MS) has moved part of its Middle East equities business to Saudi Arabia and cut three positions in Dubai, according to a banker with knowledge of the matter. A spokesman for the New York-based bank declined to comment. Russia’s VTB Capital is also considering an equities business in Saudi, Makram Abboud, CEO in the Middle East and Africa, said Jan. 15.

Saudi Arabia’s $393 billion stock market is the Arab world’s largest bourse and three times the size of those in the United Arab Emirates and Qatar. While non-resident foreigners are only permitted to trade through share-swap transactions and exchange-traded funds, the country may soon allow overseas money managers to invest directly in shares of local companies, Deutsche Bank said in February.

The Kingdom may attract as much as $30 billion of inflows once it opens the market, John Burbank, founder of San Francisco-based hedge fund Passport Capital, said in February.

Qatar Plans

With Qatar’s plans to invest $140 billion in infrastructure before hosting the soccer World Cup in 2022, Doha shares Riyadh’s edge in project finance over Dubai, which was on the brink of default in 2009 after racking up debt to transform itself into a banking and tourism hub. Qatar is planning to build a metro network, roads, hotels and stadiums.

“Dubai will still be the preferred destination for companies and individuals in the short term,” said Angus Blair, Chairman of the Signet Institute, a Cairo-based regional research group. “As Doha and Riyadh develop and deepen their capital markets and financial services, it’s clear that this increased competition is a sign of the evolution of financial services in the region.”

source: http://www.bloomberg.com/news/2013-04-16/dubai-supremacy-challenged-as-global-banks-move-to-rivals-1-.html

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