Sunday, October 28, 2007
New Islamic finance advisory service in the IK
A new website has launched in the U.K. for a nonprofit organization called Al Qalam, which provides Shari'ah advice in the U.K. on legal and financial matters. Its existence provides a way for Muslims to make their own checks on the Shari'ah-compliance of the many Islamic financial providers in the U.K. The organization is connected with 1st Ethical (a Shari'ah-compliance and tax advisor). However, the website describes Al Qalam as being "wholly independent in it’s operations from 1st Ethical".
Wednesday, October 24, 2007
Conference & Other News
Again, I have not been able to blog recently due to preparing for traveling to New York for the "Islamic Finance in North America" conference. There's a couple little news items below. The conference has provided a very good opportunity to meet new people working in Islamic finance (or interested in getting involved) and seeing others whom I have met at previous conferences. The focus of the conference is Islamic banking and it has been very valuable. Retail banking is one of the most underdeveloped in North America, partly due to regulations. There are a few regulations like "truth in savings" (Federal Reserve Regulation DD), "truth in lending"(Federal Reserve Regulation Z) which require interest rate and annual percentage yield disclosures in advance, which adds difficulties to Islamic banking.
The Financial Times Alphaville blog takes a fairly simplistic approach to Islamic hedge funds (and Islamic finance in general) reflecting the need for the Institute of Halal Investing (my self-plug for the week). There are issues with how Islamic finance works in its current form, but making comments without a recognition that the industry is only about 30 years ago (the first Islamic bank in Malaysia opened in 1983) is generally unhelpful. To quote the Second Minister of Finance of Malaysia Nor Mohamed Yakcop, speaking today at the conference, the challenge is for "the perfect to be the enemy of the good".
I will not give a link to this article, but it is good to occasionally recognize the other (non-regulatory) oppositions to Islamic finance in the U.S. from its ignorant opponents. Consider the quote from a group which frequently spreads hateful misinformation about Islamic finance: "Islamic finance has very little to do with finance and everything to do with Islam. And not just any kind of Islam, but the most radical, fascist-like interpretation of the Islamic religion that has increasingly become the dominant idiom in the Muslim world." Regulations Z and DD are not the only challenges Islamic finance faces in the United States, unfortunately.
The Investment Dar, the large Kuwaiti firm which recently purchased Aston Martin in a Shari'ah-compliant leveraged buyout, has plans to open an Islamic equity market with a particular emphasis on increased transparency.
Malaysia will issue additional licenses to foreign firms looking to set up stand-alone Islamic units in the country.
The Financial Times Alphaville blog takes a fairly simplistic approach to Islamic hedge funds (and Islamic finance in general) reflecting the need for the Institute of Halal Investing (my self-plug for the week). There are issues with how Islamic finance works in its current form, but making comments without a recognition that the industry is only about 30 years ago (the first Islamic bank in Malaysia opened in 1983) is generally unhelpful. To quote the Second Minister of Finance of Malaysia Nor Mohamed Yakcop, speaking today at the conference, the challenge is for "the perfect to be the enemy of the good".
I will not give a link to this article, but it is good to occasionally recognize the other (non-regulatory) oppositions to Islamic finance in the U.S. from its ignorant opponents. Consider the quote from a group which frequently spreads hateful misinformation about Islamic finance: "Islamic finance has very little to do with finance and everything to do with Islam. And not just any kind of Islam, but the most radical, fascist-like interpretation of the Islamic religion that has increasingly become the dominant idiom in the Muslim world." Regulations Z and DD are not the only challenges Islamic finance faces in the United States, unfortunately.
The Investment Dar, the large Kuwaiti firm which recently purchased Aston Martin in a Shari'ah-compliant leveraged buyout, has plans to open an Islamic equity market with a particular emphasis on increased transparency.
Malaysia will issue additional licenses to foreign firms looking to set up stand-alone Islamic units in the country.
Tuesday, October 16, 2007
Are sukuk the same as conventional bonds?
Although much has been written about the similarities between sukuk and conventional debt instrument, very little empirical work has been released. Some critics describe sukuk as nothing more than conventional debt with additional expense. A recent (October 1st) white paper by Selim Cakir (at the IMF) and Faezah Raei, a graduate student at the University of Texas, released on the IMF website by suggests that there may be important differences between sukuk and conventional debt.
The paper analyzed portfolios holding either only conventional debt or a mix of conventional debt and sukuk for soverign issues from Bahrain, Malaysia, Pakistan and Qatar (the countries with the best developed sovereign sukuk apart from Brunei which, despite its great oil wealth, does issue sukuk to help develop Islamic finance). When comparing the Value-at-Risk (VaR) of each portfolio at a 99% confidence level, each country's mixed sukuk-conventional portfolio had greatly lower VaR than a portfolio of just conventional debt. The percent decrease in VaR between the portfolios for each country was: 11% (Malaysia), 15% (Pakistan), 18% (Qatar), 32% (Bahrain).
In their conclusion, the authors write that they found "evidence that Sukuk—-contrary to our priors—-are different types of instruments than conventional bonds, as evidenced by their different price behavior. If an investor is ready to allocate certain amount of funds in the bonds of a certain issuer, diversification by including Sukuk in the investment portfolio could significantly reduce the portfolio’s VaR compared to a strategy of investing only in conventional bonds of that issuer."
The full paper is available in pdf format is available from the IMF website. An abstract is available here.
The paper analyzed portfolios holding either only conventional debt or a mix of conventional debt and sukuk for soverign issues from Bahrain, Malaysia, Pakistan and Qatar (the countries with the best developed sovereign sukuk apart from Brunei which, despite its great oil wealth, does issue sukuk to help develop Islamic finance). When comparing the Value-at-Risk (VaR) of each portfolio at a 99% confidence level, each country's mixed sukuk-conventional portfolio had greatly lower VaR than a portfolio of just conventional debt. The percent decrease in VaR between the portfolios for each country was: 11% (Malaysia), 15% (Pakistan), 18% (Qatar), 32% (Bahrain).
In their conclusion, the authors write that they found "evidence that Sukuk—-contrary to our priors—-are different types of instruments than conventional bonds, as evidenced by their different price behavior. If an investor is ready to allocate certain amount of funds in the bonds of a certain issuer, diversification by including Sukuk in the investment portfolio could significantly reduce the portfolio’s VaR compared to a strategy of investing only in conventional bonds of that issuer."
The full paper is available in pdf format is available from the IMF website. An abstract is available here.
Islamic finance research fuelling growth, sukuk & a seminar on Islamic banking in Malta
Dr. Nazim Ali, director of the Islamic Finance Project at Harvard University, discusses the growth of the Islamic finance industry, in particular the role that researchers play in its development.
Expect details later this year on the developments which may lead to a U.K. sovereign sukuk.
The Malta Institute of Management will hold the first seminar in Malta on Islamic banking later this month.
Kuwait Finance House Malaysia Bhd, the Malaysian arm of the Middle Eastern Islamic bank may be interested in purchasing conventional assets of RHB Bank in addition to the bank's Islamic banking assets. The bank will then convert these branches, which it believes are in better strategic locations, to Islamic banks.
Sukuk issuance in Pakistan is growing strongly despite only being five years past the first locally issued sukuk.
Expect details later this year on the developments which may lead to a U.K. sovereign sukuk.
The Malta Institute of Management will hold the first seminar in Malta on Islamic banking later this month.
Kuwait Finance House Malaysia Bhd, the Malaysian arm of the Middle Eastern Islamic bank may be interested in purchasing conventional assets of RHB Bank in addition to the bank's Islamic banking assets. The bank will then convert these branches, which it believes are in better strategic locations, to Islamic banks.
Sukuk issuance in Pakistan is growing strongly despite only being five years past the first locally issued sukuk.
Friday, October 12, 2007
Friday evening wrap up
Finally having reached the end of a very long week, I only really have time to list the news of the week that I haven't been able to blog about. Next week should see me back to regular blogging --Blake Goud
I wrote a letter to the editor of the Financial Times, which appeared on their website today. The letter was about the hold-up in a U.K. sovereign sukuk.
The International Islamic Finance Congress will be heldin Abu Dhabi, UAE from November 19-22. The World Islamic Infrastructure Finance conference will be held in Qatar from November 4-5.
Nakheel may issue shares before its $3.5 billion sukuk matures.
After Eid this year, sukuk issuance is expected to remain strong.
Takaful Malaysia Bhd plans to expand significantly with help from investors from Abu Dhabi.
Despite lagging behind locations like Singapore & Malaysia, Hong Kong wants to be a hub for Islamic finance.
Dow Jones Islamic Market Indexes launched a China/Hong Kong Titans Index.
I wrote a letter to the editor of the Financial Times, which appeared on their website today. The letter was about the hold-up in a U.K. sovereign sukuk.
The International Islamic Finance Congress will be heldin Abu Dhabi, UAE from November 19-22. The World Islamic Infrastructure Finance conference will be held in Qatar from November 4-5.
Nakheel may issue shares before its $3.5 billion sukuk matures.
After Eid this year, sukuk issuance is expected to remain strong.
Takaful Malaysia Bhd plans to expand significantly with help from investors from Abu Dhabi.
Despite lagging behind locations like Singapore & Malaysia, Hong Kong wants to be a hub for Islamic finance.
Dow Jones Islamic Market Indexes launched a China/Hong Kong Titans Index.
Monday, October 08, 2007
Last week's news
Apologies for the delay in posting since last week, but I have been furiously working on our 501(c)(3) application. I will hopefully resume regular blogging by later this week. --Blake
In response to the credit crunch, Dubai Ports World is planning an IPO to avoid the higher yield promised to the sukuk holders of the $3.5 billion convertible sukuk if a share floatation was cancelled. The sukuk was issued to fund the purchase of Peninsular & Oriental Steam Navigation, a U.K. ports group.
Rs. 55 billion ($906 million) in direct investments, mostly from GCC investors has flowed to the Pakistani Islamic banking industry this year as of the end of September.
Sukuk continue to be issued at a furious pace.
GCC-Asian links in Islamic finance grow as the Central Bank of Bahrain licensed the Islamic Bank of Asia to open an office in the country. The Islamic Bank of Asia became the first Islamic bank to receive a license in Singapore earlier this year.
The International Finance Corporation, the private lending arm of the World Bank, will finance investors setting up Islamic banks in Kenya.
Islamic home financing takes another leap forward in the U.K.
Shari'ah Capital will work with the Dubai Multi Commondities Centre to develop Shari'ah-compliant investment products "based on hard assets such as commodities and precious metals".
A letter in the Financial Times last week addressed the potential for soverign wealth funds particularly in the GCC region to move their assets towards Islamic finance.
In response to the credit crunch, Dubai Ports World is planning an IPO to avoid the higher yield promised to the sukuk holders of the $3.5 billion convertible sukuk if a share floatation was cancelled. The sukuk was issued to fund the purchase of Peninsular & Oriental Steam Navigation, a U.K. ports group.
Rs. 55 billion ($906 million) in direct investments, mostly from GCC investors has flowed to the Pakistani Islamic banking industry this year as of the end of September.
Sukuk continue to be issued at a furious pace.
GCC-Asian links in Islamic finance grow as the Central Bank of Bahrain licensed the Islamic Bank of Asia to open an office in the country. The Islamic Bank of Asia became the first Islamic bank to receive a license in Singapore earlier this year.
The International Finance Corporation, the private lending arm of the World Bank, will finance investors setting up Islamic banks in Kenya.
Islamic home financing takes another leap forward in the U.K.
Shari'ah Capital will work with the Dubai Multi Commondities Centre to develop Shari'ah-compliant investment products "based on hard assets such as commodities and precious metals".
A letter in the Financial Times last week addressed the potential for soverign wealth funds particularly in the GCC region to move their assets towards Islamic finance.
Tuesday, October 02, 2007
ING in Malaysia, IIFF on regulatory issues in conventional systems, Shari'ah constraints in the U.S.
ING Investment Management, an investment manager affiliated with ING Group, plans on making Malaysia the center of its Shari'ah-compliant fund business.
The International Islamic Finance Forum (IIFF) Europe will explore how Islamic finance works from a regulatory perspective in a conventional financial system. Conference manager Swati Taneja is quoted in the article with a valuable insight: "The degree of success to which Islamic banking continues to emerge in conventional systems will hinge on whether Islamic banking is perceived as a transparent and well-regulated activity".
Shari'ah-compliance restrictions hold up the availability of Islamic products in the United States, describes Deborah Nason in Investment News.
The International Islamic Finance Forum (IIFF) Europe will explore how Islamic finance works from a regulatory perspective in a conventional financial system. Conference manager Swati Taneja is quoted in the article with a valuable insight: "The degree of success to which Islamic banking continues to emerge in conventional systems will hinge on whether Islamic banking is perceived as a transparent and well-regulated activity".
Shari'ah-compliance restrictions hold up the availability of Islamic products in the United States, describes Deborah Nason in Investment News.
Monday, October 01, 2007
Takaful, Saudi development funding, Dubai's growth
Takaful is growing rapidly in Malaysia and the chief executive officer of Takaful Nasional Sdn Bhd expects to have a 20 percent share of the insurance sector by 2010 (currently takaful has a 6.1 percent share).
Arab News has a detailed article on the role of sukuk in financing development in Saudi Arabia.
Business Week profiles the rise of Dubai in non-oil areas, including Islamic finance.
Arab News has a detailed article on the role of sukuk in financing development in Saudi Arabia.
Business Week profiles the rise of Dubai in non-oil areas, including Islamic finance.
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