Malaysia's oldest Islamic REIT may be looking to Indonesia for growth, which makes sense, although real estate prices have risen quickly recently and regulatory impediments remain relating to the tax treatment of REITs and rules about foreign ownership of land. Islamic REITs may offer similar returns (i.e. regular dividends) to sukuk, and should provide an investment that pass through the risks and rewards from the underlying assets directly to investors (which most sukuk are structured to avoid).
One area of caution around comparing REITs to sukuk is that many REITs invest in buildings using debt (presumably Shari'ah-compliant debt in an Islamic REIT) to generate leverage, which in the case of a market that has risen substantially ("The average value of industrial land in greater Jakarta surged 76 percent last year, while the cost of apartments increased 11 percent, according to a Bank Indonesia survey. "), poses greater risk than an asset-based sukuk where the return is not primarily dependent on the value of that underlying asset (and where leverage is absent for the investor, and more explicitly reported for the company issuing the sukuk in their financials).
Another potential area to keep an eye on with Islamic REITs is whether they are being used by investors as an explicit substitute for sukuk (e.g. by takaful or pension funds) given the shortage of the latter. The fall-out from the global financial crisis was that it led to a subsequent debt crisis in Dubai, which also had a highly leveraged real estate sector that had moved into bubble terms. The financial institutions which fared the worst in this crisis were those with too much exposure to real estate and those that were most leveraged. Islamic financial institutions are in particular susceptible to this bias towards real estate since it provides a tangible asset that is the easiest to incorporate into a Shari'ah-compliant structure.
Showing posts with label REIT. Show all posts
Showing posts with label REIT. Show all posts
Thursday, May 03, 2012
Friday, September 17, 2010
IMF report, UAE Islamic banks, tawarruq attracts criticism, effects of the Dubai World debt agreement
The IMF released a study in August 2010 that provided an interesting analysis of what drove growth in Islamic banking from 1992 to 2006. The main finding of the study was that oil prices (which created a significant inflow of liquidity into the GCC, which is a major region for Islamic banking) had the largest effect. One interesting specification they used included both the price of oil and a dummy variable to measure the effect of 9/11 (to see whether growth was higher after 9/11, all other things being equal) and found that it did on its own, but when the effects of the oil price were included, the impact of 9/11 became insignificant. This suggests that the rise in oil prices in the 2000s was much more impactful on the growth of Islamic banking than 9/11. The argument for the impact of 9/11 was that following the attacks, many funds that were invested in the West were repatriated to (mostly) the GCC.
The head of Shari'ah at the Islamic Development Bank, Sheikh Mohammed Mukhtar Al Salami, says that tawarruq is 'usury' and therefore is 'haram'. His argument is that the transaction is "being carried out by Islamic banks as mere concealed usury operations as they are done not only at one place but at two place", reiterating an argument made by the Fiqh Council of the OIC. The OIC Fiqh Council's argument differentiated between classical tawarruq and organized tawarruq. In a tawarruq transaction a bank sells a metal of a client with deferred repayment (cost-plus-profit) and then the client sells the metal to get cash. In an organized tawarruq (also called reverse murabaha), the bank facilitates the sale of the the metal in the spot market (although the metal brokers used on each side of the transaction are different). Tawarruq is a commonly used product by Islamic financial institutions and greater Shari'ah risk around the product highlights the need for short-term liquidity management tools for institutions and new products for consumers, as tawarruq attracts more criticism.
Several articles describe the effect of the Dubai World debt agreement on other sukuk. Bloomberg reports that it is unlikely to lead to a 'massive' rally according to the CEO of Mashreq Capital in Dubai. Another Bloomberg article notes that the Dubai World agreement has failed to benefit Tamweel sukuk. Tamweel is a troubled Islamic mortgage company in Dubai that may be merged with Amlak Finance, another Islamic mortgage company, with assistance from the Dubai government. The Dubai World agreement could move the spotlight onto Nakheel, which has paid its trade creditors in cash and sukuk and has also repaid 2 of its 3 sukuk with assistance from the Dubai Financial Stability Fund. The Dubai World deal does raise an issue with Nakheel: the first two sukuk were repaid at par whereas Dubai World creditors accepted a writedown of principal and an extended maturity. The next key date for Nakheel is January 16, 2011 when the Nakheel Development 2 sukuk (the final one) is scheduled to mature. Will investors be forced to take a haircut or will the DFSF step in again to ensure repayment at par? It is too early to tell.
Profits in UAE-based Islamic banks fell 17% in the first half of 2010 compared with the same period in 2009. This is somewhat expected as the impacts of the financial crisis hit this region slightly later than in other parts of the world. However, despite the fall in profits, analysts believe the banks have not provisioned enough for non-performing loans, particularly in real estate in construction, the two sectors hit hardest.
Takaful continues to grow, but it is several years behind the growth in Islamic finance. Prudential BSN Takaful, a joint venture between Prudential PLC and Bank Simpanan Nasional Bhd in Malaysia, is launching three new takaful plans. An African Reinsurance company African Re, is launching a retakaful subsidiary with a wide focus on Africa, the Middle East and Asia. The Bahraini takaful compay t'azur recently announced a retakaful agreement with Hannover Re, a large conventional reinsurance company. Retakfaul is the Shari'ah-compliant version of reinsurance and has been very limited in availability. The Sri Lankan takaful firm Amana Takaful says that its operations are hampered by a lack of enough Shari'ah-compliant investments. If the takaful plan were managed like a conventional insurance pool, it would invest most of its assets into sukuk. However, the sukuk market has not been large enough to support the needs of takaful companies as well as other Islamic investors and unless there is significant growth in sukuk, takaful companies will have difficulties. They could invest in other assets: real estate, equities, commodities. However, all of these are more volatile than fixed income and it will probably not end well if a significant proportion of takaful fund assets were invested in these asset classes if there were a repeat of the financial crisis or even a less severe recession. It also makes it more difficult for the managers of the takaful funds to project its long term assets and ensure they match with expectations about its long term liabilities.
Other News
The head of Shari'ah at the Islamic Development Bank, Sheikh Mohammed Mukhtar Al Salami, says that tawarruq is 'usury' and therefore is 'haram'. His argument is that the transaction is "being carried out by Islamic banks as mere concealed usury operations as they are done not only at one place but at two place", reiterating an argument made by the Fiqh Council of the OIC. The OIC Fiqh Council's argument differentiated between classical tawarruq and organized tawarruq. In a tawarruq transaction a bank sells a metal of a client with deferred repayment (cost-plus-profit) and then the client sells the metal to get cash. In an organized tawarruq (also called reverse murabaha), the bank facilitates the sale of the the metal in the spot market (although the metal brokers used on each side of the transaction are different). Tawarruq is a commonly used product by Islamic financial institutions and greater Shari'ah risk around the product highlights the need for short-term liquidity management tools for institutions and new products for consumers, as tawarruq attracts more criticism.
Several articles describe the effect of the Dubai World debt agreement on other sukuk. Bloomberg reports that it is unlikely to lead to a 'massive' rally according to the CEO of Mashreq Capital in Dubai. Another Bloomberg article notes that the Dubai World agreement has failed to benefit Tamweel sukuk. Tamweel is a troubled Islamic mortgage company in Dubai that may be merged with Amlak Finance, another Islamic mortgage company, with assistance from the Dubai government. The Dubai World agreement could move the spotlight onto Nakheel, which has paid its trade creditors in cash and sukuk and has also repaid 2 of its 3 sukuk with assistance from the Dubai Financial Stability Fund. The Dubai World deal does raise an issue with Nakheel: the first two sukuk were repaid at par whereas Dubai World creditors accepted a writedown of principal and an extended maturity. The next key date for Nakheel is January 16, 2011 when the Nakheel Development 2 sukuk (the final one) is scheduled to mature. Will investors be forced to take a haircut or will the DFSF step in again to ensure repayment at par? It is too early to tell.
Profits in UAE-based Islamic banks fell 17% in the first half of 2010 compared with the same period in 2009. This is somewhat expected as the impacts of the financial crisis hit this region slightly later than in other parts of the world. However, despite the fall in profits, analysts believe the banks have not provisioned enough for non-performing loans, particularly in real estate in construction, the two sectors hit hardest.
Takaful continues to grow, but it is several years behind the growth in Islamic finance. Prudential BSN Takaful, a joint venture between Prudential PLC and Bank Simpanan Nasional Bhd in Malaysia, is launching three new takaful plans. An African Reinsurance company African Re, is launching a retakaful subsidiary with a wide focus on Africa, the Middle East and Asia. The Bahraini takaful compay t'azur recently announced a retakaful agreement with Hannover Re, a large conventional reinsurance company. Retakfaul is the Shari'ah-compliant version of reinsurance and has been very limited in availability. The Sri Lankan takaful firm Amana Takaful says that its operations are hampered by a lack of enough Shari'ah-compliant investments. If the takaful plan were managed like a conventional insurance pool, it would invest most of its assets into sukuk. However, the sukuk market has not been large enough to support the needs of takaful companies as well as other Islamic investors and unless there is significant growth in sukuk, takaful companies will have difficulties. They could invest in other assets: real estate, equities, commodities. However, all of these are more volatile than fixed income and it will probably not end well if a significant proportion of takaful fund assets were invested in these asset classes if there were a repeat of the financial crisis or even a less severe recession. It also makes it more difficult for the managers of the takaful funds to project its long term assets and ensure they match with expectations about its long term liabilities.
Other News
- The Javelin JETS Dow Jones Islamic International Index Fund, the first US-based Islamic ETF, will close. The company cites limited investor interest "through the marketing channels typically used by ETFs" according to Javelin's president Brint Firth.
- Mapletree Industrial Trust, a Shari'ah-compliant REIT, is raising $800 million in an IPO in Singapore.
- Indonesia plans to issue sukuk and global bonds in the first half of 2011. The government reduced its sukuk issuance in 2010 when deficits came in lower than expected. Several of the sukuk auctions failed during 2010 because investors demanded a higher yield than conventional bonds to account for the lower liquidity of sukuk compared to bonds.
- The development of Islamic banking in India is still not possible and the Indian Centre for Islamic Finance has approached the Reseve Bank of India, the central bank, and asked it to allow a few banks in Mumbai to open Islamic windows on a pilot basis before it considers any regulatory changes.
Monday, July 05, 2010
Late payment penalties, liquidity management, creating secondary markets in sukuk
An article in Arab News discusses the issue of a fee charged by an Islamic financial institution for late payments. In May, Bank Negara Malaysia's Shari'ah Advisory Council said that charging a fee in case of late payment is allowable and separated out the cases where the bank can and cannot keep it and recognize it as income. In the case where the fee is charged as a fine or penalty (gharamah), it must be donated to charity and not recognized as income. Where the fee is for compensation (ta'widh) for actual loss by the Islamic bank, it can be kept and recognized as income. While the distinction is clear between the two concepts, it seems likely to be difficult to distinguish in practice. Perhaps it might be a better practice for Islamic banks that use this to treat everything as ta'widh until the actual costs of collections are met and only then be able to treat any fees as allowable income. However, it is unlikely that such a solution could be approved because it would not be possible to provide ex ante certainty in the contracts between the bank and its customers. Whether this is used or not, it could allow Islamic banks to increase the total fees to Islamic banking customers, which would make the products less competitive and probably result in a slower growth rate for Islamic banking. It would also complicate the Shari'ah audits because it would require that the fees be reviewed to determine whether the bank has basis for compensation if it used the principle of ta'widh.
A fantasstic article from Islamic Business & Finance discusses the challenges facing Islamic finance in developing short-term liquidity management products, despite their importance. The article specifically looks at the UAE commodity murbaha Islamic CDs, the idea of Shari'ah-compliant repo transactions and an electronic wakala/murabaha platform.
Rushdi Siddiqui has another interesting article in Gulf News, this one covering the issue of where is the hub of Shari'ah transactions, which quickly morphs into the discussion of the lack of a hub. One point that he makes, which I agree with and have made before on this blog, is the lack of secondary markets for sukuk. He takes it one step further adding that even where there are secondary markets for sukuk, they are not deep enough or liquid enough to provide much information. He suggests that the Islamic finance industry needs to 'institutionalize' and 'internationalize' itself, primarily by moving from bilateral price discovery through over the counter (OTC) trading to "multiple price discovery". As much as the effort towards creating secondary market platforms for sukuk will help lay the groundwork for this in the future, it is impossible until there is enough supply to sate the demands of hold-to-maturity investors and leave enough exchange-listed sukuk that can be traded in secondary markets to develop meaningful liquidity that provides more information than bilateral trades in illiquid markets can.
Other News
A fantasstic article from Islamic Business & Finance discusses the challenges facing Islamic finance in developing short-term liquidity management products, despite their importance. The article specifically looks at the UAE commodity murbaha Islamic CDs, the idea of Shari'ah-compliant repo transactions and an electronic wakala/murabaha platform.
Rushdi Siddiqui has another interesting article in Gulf News, this one covering the issue of where is the hub of Shari'ah transactions, which quickly morphs into the discussion of the lack of a hub. One point that he makes, which I agree with and have made before on this blog, is the lack of secondary markets for sukuk. He takes it one step further adding that even where there are secondary markets for sukuk, they are not deep enough or liquid enough to provide much information. He suggests that the Islamic finance industry needs to 'institutionalize' and 'internationalize' itself, primarily by moving from bilateral price discovery through over the counter (OTC) trading to "multiple price discovery". As much as the effort towards creating secondary market platforms for sukuk will help lay the groundwork for this in the future, it is impossible until there is enough supply to sate the demands of hold-to-maturity investors and leave enough exchange-listed sukuk that can be traded in secondary markets to develop meaningful liquidity that provides more information than bilateral trades in illiquid markets can.
Other News
- Sorouh raised $640 million in conventional and Islamic debt, of which $400 million (AED1.47 billion) will be used to redeem the remainder of the sukuk issued in 2008 which I described about a month ago in a blog post. At the time, there was AED1.5 billion remaining of the AED4 billion securitization sukuk.
- Malaysia's central bank, Bank Negara, issued its fourth Shari'ah Parameter Reference which covers musharaka. The previous SPRs covered ijara, murabaha, and mudaraba. The bank also issued a concept paper on takaful.
- Bloomberg compares the performance of Shari'ah-compliant equity indices with sukuk indices. Equities have lagged sukuk in the past 2 quarters due to an agreement to restructure $23.5 billion of debt by Dubai World and its creditors.
- Japanese firm Nomura Holdings plans to issue a $100 million sukuk in Malaysia, the first Japanese company to do so.
- The proposed Islamic Bank of Thailand THB5 billion ($154.5 million) is likely to be issued in the second half of 2010 depending on market conditions. The sukuk will have a 5 to 7 year maturity.
- Deutsche Bank's Shari'ah-compliant platform is investing in a foreign exchange strategy, based on "investor demand" according to the managing partner of the advisory firm which will create the strategy using a structured note. Deutsche Bank previously created the controversial Total Return Swap structure that allowed investors to receive a return benchmarked to a group of conventional hedge funds.
- Singaporean REIT company Mapletree Investments is launching an Islamic REIT whose IPO may be up to $713 million (S$1 billion). The REIT will be marketed in the GCC by Arcapita.
Tuesday, August 18, 2009
Nakheel sukuk maturity, Commodity Murabaha House, KFH in joint venture with US-based REIT
The first trading day of the Commodity Murabaha House arrived. The exchange, now called Bursa Suq Al-Sila', will initially transact only in Ringgit, but will eventually allow trading in other currencies. The trades are currently based on crude palm oil (using current month futures prices) that provide Islamic banks a way to meet short-term liquidity needs by purchasing palm oil with deferred cost-plus markup payment. The commodity can be sold in the spot market after delivery. While controversial for its similarities with interest-based lending, commodity murabaha is a common financial transaction used by Islamic banks to deal with short-term liquidity needs. In the first day of trading, RM200 million ($56.5 million) in commodity murabaha was executed by CIMB Islamic, which traded RM3 billion ($848 million) per month in 2008 and has traded RM6 billion ($1.696 billion) so far this year.
Kuwait Finance House has formed a joint-venture with US-based REIT UDR to purchase up to $450 million of class 'A' buildings. This is the first re-entry of KFH into the U.S. property markets since exiting prior to the financial crisis. The joint venture, KFH will contribute 70% and UDR will contribute 30%.
The National continues to provide the best coverage of the upcoming Nakheel sukuk maturity in December, first with an article about the danger should Nakheel be unable to pay on the maturity and another article about the rise in secondary market prices for Nakheel which may signal that Nakheel will be able to make repayment. Nakheel may be one of the beneficiaries of the Dubai government's bailout funded by its $20 billion in bond issues. Despite the higher prices in the secondary markets, Nakheel's sukuk carries a yield of around 60% at current prices according to data provided by Zawya. The initial lease payments were 6.345% and the sukuk holders receive half of the lease payments upon maturity according to the offering circular which I described in an earlier post.
Other News
Kuwait Finance House has formed a joint-venture with US-based REIT UDR to purchase up to $450 million of class 'A' buildings. This is the first re-entry of KFH into the U.S. property markets since exiting prior to the financial crisis. The joint venture, KFH will contribute 70% and UDR will contribute 30%.
The National continues to provide the best coverage of the upcoming Nakheel sukuk maturity in December, first with an article about the danger should Nakheel be unable to pay on the maturity and another article about the rise in secondary market prices for Nakheel which may signal that Nakheel will be able to make repayment. Nakheel may be one of the beneficiaries of the Dubai government's bailout funded by its $20 billion in bond issues. Despite the higher prices in the secondary markets, Nakheel's sukuk carries a yield of around 60% at current prices according to data provided by Zawya. The initial lease payments were 6.345% and the sukuk holders receive half of the lease payments upon maturity according to the offering circular which I described in an earlier post.
Other News
- Dow Jones launched two new Islamic indices, Islamic GCC and Islamic MENA.
- The new CBB Sukuk al-Ijara (6 months maturity) was oversubscribed by 300% and yields 1.05%.
- Islamic finance is "better placed to take advantage of the improvement in the capacity factor of renewables - the percentage of time that a plant is operational" according to iQuantis Ltd.
- Malaysia's Artice IV consultation with the IMF included several mentions of the country's Islamic financial industry.
Tuesday, August 12, 2008
Hong Kong wants to attract Islamic finance; Can hedge funds be Shari'ah complaint?
The CEO of Hong Kong's Securities & Futures Commission, Martin Wheatley, continued the drive to attract Shari'ah-compliant finance to the city-state in a speech today (the speech is available as a pdf). In the speech, Mr. Wheatley noted that the Hong Kong exchange presents a way for investors to "capture the investment opportunities in an emerging market [China], while enjoying the services and investor protection of a developed market". Mainland Chinese firms account for only 19% of the total listings on the Hong Kong exchange, but for 57% of total market capitalization and 70% of total volume. There are already tracking funds for the Dow Jones Islamic Market Hong Kong/China Titans Index as well as a large Malaysian sukuk (one of the Khazanah exchangeable sukuk) and the prospect for a sovereign sukuk from the Airport Authority.
U.K.-based think tank Chatham House released a survey about the GCC's development as a global financial center, including a brief discussion of the Islamic finance industry there. The report (available as a PDF) notes that "the subjective element can also create long delays and uncertainty [so a] number of Islamic investors are not fully tapped into or committed to this market [because they are] unsure what products really are Sharia-compliant". However, "broadly speaking, Sharia scholars are now in agreement on product design and the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) is taking some steps in the direction of harmonization. This should help create greater trust and clarity among ordinary potential clients, generate more demand and help the industry to expand more widely."
CPI Financial has commentary by Bill Gibbon, a lawyer at Voison, and Trevor Norman of Volaw Trust & Corporate Services, on the Shari'ah-compliance of hedge funds and ways in which some funds have adapted some Islamic finance products to replicate short sales and margin. What is not covered is whether a hedge fund, which they define as ‘a fund that uses derivatives, leverage, shorting, margin trading and option techniques to achieve its absolute return investment goals’ is in its whole, Shari'ah-compliant. Instead, they focus on the component transactions that run into problems with Shari'ah scholars.
Islamic finance in the GCC has a concentration of government ownership larger than would generally be predicted, according to a recent Moody's report on Islamic finance.
Qatar Islamic Bank plans to launch its own takaful provider. A number of takaful companies are sprouting up around the GCC following the success of Islamic finance in the region.
The first publicly-listed Shari'ah-compliant REIT will soon be available in Singapore. The REIT will be converted from a conventional REIT with a large stake in the management company being taken by the National Bank of Australia. The debt currently owed by the REIT, the Cambridge Industrial Trust, will be converted in Shari'ah-compliant financing.
U.K.-based think tank Chatham House released a survey about the GCC's development as a global financial center, including a brief discussion of the Islamic finance industry there. The report (available as a PDF) notes that "the subjective element can also create long delays and uncertainty [so a] number of Islamic investors are not fully tapped into or committed to this market [because they are] unsure what products really are Sharia-compliant". However, "broadly speaking, Sharia scholars are now in agreement on product design and the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) is taking some steps in the direction of harmonization. This should help create greater trust and clarity among ordinary potential clients, generate more demand and help the industry to expand more widely."
CPI Financial has commentary by Bill Gibbon, a lawyer at Voison, and Trevor Norman of Volaw Trust & Corporate Services, on the Shari'ah-compliance of hedge funds and ways in which some funds have adapted some Islamic finance products to replicate short sales and margin. What is not covered is whether a hedge fund, which they define as ‘a fund that uses derivatives, leverage, shorting, margin trading and option techniques to achieve its absolute return investment goals’ is in its whole, Shari'ah-compliant. Instead, they focus on the component transactions that run into problems with Shari'ah scholars.
Islamic finance in the GCC has a concentration of government ownership larger than would generally be predicted, according to a recent Moody's report on Islamic finance.
Qatar Islamic Bank plans to launch its own takaful provider. A number of takaful companies are sprouting up around the GCC following the success of Islamic finance in the region.
The first publicly-listed Shari'ah-compliant REIT will soon be available in Singapore. The REIT will be converted from a conventional REIT with a large stake in the management company being taken by the National Bank of Australia. The debt currently owed by the REIT, the Cambridge Industrial Trust, will be converted in Shari'ah-compliant financing.
Tuesday, March 27, 2007
Shari'ah Capital, Islamic finance education and the development of the Islamic financial industry
Shair'ah Capital Inc. unveils hedge fund platform
There is an article (sub. rqd.) in the Wall Street Journal (an also a freely available press release from Shari'ah Capital) about the launch. The new products will be based on al-arboon, an advance payment similar to a down payment towards the purchase price that gives the buyer the right to purchase a good at a given price. GRT Capital Partners, an alternative investment manager in Boston, will use the platform. Al-arboon is an alternative to the more controversial salam (forward) method of replicating options and shorts.
Islamic finance lacks depth
While Islamic finance has grown rapidly and continues to grow, it has not developed the depth of conventional financial markets, Reuters reports. Much of the growth has been in sukuk and private equity, as well as other financial services for high net worth individuals yet the secondary market for sukuk is almost non-existent. One of the most interesting parts of the article is the comment from the head of Arcapita, the Bahraini Islamic private equity firm which owns Church's Chicken, Caribou Coffee and Yakima in the U.S., suggesting that Islamic finance has been successfully marketed in the U.S. based on its similarities with ethical investing.
Western educational institutions offer courses in Islamic finance
Educational institutions like Harvard University, Tufts University, the Cass Business School and Rice University offer courses or programs in Islamic finance. Programs mentioned include:
Cooperation is key to developing new Islamic finance products
The head of International Centre for Education in Islamic Finance (INCEIF), Professor Dr. Malik Muhammad Mahmud Al-Awan believes that countries should cooperate in research on new Islamic financial products. This approach should take a non-confrontational approach to conventional finance, as Malaysia has done, in order to spur the acceptance of Islamic finance. He stressed that "the 21st century is seeing so much political conflict between Islam and the West, yet in the field of Islamic finance, the West has embraced it with open arms".
Other News
The world's oldest Islamic bank, Dubai Islamic Bank issued its first sukuk on the Dubai International Financial Exchange (DIFX).
Minority shareholders of Rashid Hussain Bhd (RHB) want it to remain listed. Employees Provident Fund, the Malaysian state-run pension fund which will control RHB has said it will delist RHB but RHB Capital will remain listed.
ABN Amro Bank Bhd, the Malaysian branch of the Dutch banking group, plans to seek approval from Bank Negara Malaysia, the central bank, to open an Islamic subsidiary in the country.
AmIslamic Bank will offer takaful in Malaysia in partnership with Takaful IKHLAS Sdn Bhd and FWU AG. FWU designed the plan, Takaful IKHLAS will be the trustee and AmIslamic Bank will administer the takaful plan.
Hong Leong Bhd subsidiary Hong Leong Islamic Bank will team up with UBS to offer non-ringgit structured financial products which are Shari'ah compliant.
CIMB Group Bhd will open an Islamic private banking service in Malaysia.
Foreign banks will be able to buy Malaysian Islamic banks, but will not be allowed to operate transactions in ringgit.
Bank Negara Malaysia (BNM) signed a Memorandum of Understanding with Qatar Financial Center Regulatory Authority (QFCRA) and the Dubai Financial Services Authority (DFSA) to cooperate on capacity building and human capital development.
Malaysia will offer commodity-based murabaha as a way for banks to manage liquidity in the Islamic interbank money market (IIMM). The murabaha will be based on palm oil-based contracts.
Indonesia should follow Malaysia's example and reduce double taxation to spur the development of Islamic finance in the world's most populous Muslim country.
KPJ Healthcare Bhd plans to expand its healthcare REIT
Finance professionals applaud tax changes in the U.K. dealing with sukuk.
There is an article (sub. rqd.) in the Wall Street Journal (an also a freely available press release from Shari'ah Capital) about the launch. The new products will be based on al-arboon, an advance payment similar to a down payment towards the purchase price that gives the buyer the right to purchase a good at a given price. GRT Capital Partners, an alternative investment manager in Boston, will use the platform. Al-arboon is an alternative to the more controversial salam (forward) method of replicating options and shorts.
Islamic finance lacks depth
While Islamic finance has grown rapidly and continues to grow, it has not developed the depth of conventional financial markets, Reuters reports. Much of the growth has been in sukuk and private equity, as well as other financial services for high net worth individuals yet the secondary market for sukuk is almost non-existent. One of the most interesting parts of the article is the comment from the head of Arcapita, the Bahraini Islamic private equity firm which owns Church's Chicken, Caribou Coffee and Yakima in the U.S., suggesting that Islamic finance has been successfully marketed in the U.S. based on its similarities with ethical investing.
Western educational institutions offer courses in Islamic finance
Educational institutions like Harvard University, Tufts University, the Cass Business School and Rice University offer courses or programs in Islamic finance. Programs mentioned include:
• Harvard Law School's Islamic Finance Project
• Dr. Mahmoud El-Gamal (Rice University)
• Ibrahim Warde (Tufts University)
• Cass Business School Islamic Executive MBA
Cooperation is key to developing new Islamic finance products
The head of International Centre for Education in Islamic Finance (INCEIF), Professor Dr. Malik Muhammad Mahmud Al-Awan believes that countries should cooperate in research on new Islamic financial products. This approach should take a non-confrontational approach to conventional finance, as Malaysia has done, in order to spur the acceptance of Islamic finance. He stressed that "the 21st century is seeing so much political conflict between Islam and the West, yet in the field of Islamic finance, the West has embraced it with open arms".
Other News
The world's oldest Islamic bank, Dubai Islamic Bank issued its first sukuk on the Dubai International Financial Exchange (DIFX).
Minority shareholders of Rashid Hussain Bhd (RHB) want it to remain listed. Employees Provident Fund, the Malaysian state-run pension fund which will control RHB has said it will delist RHB but RHB Capital will remain listed.
ABN Amro Bank Bhd, the Malaysian branch of the Dutch banking group, plans to seek approval from Bank Negara Malaysia, the central bank, to open an Islamic subsidiary in the country.
AmIslamic Bank will offer takaful in Malaysia in partnership with Takaful IKHLAS Sdn Bhd and FWU AG. FWU designed the plan, Takaful IKHLAS will be the trustee and AmIslamic Bank will administer the takaful plan.
Hong Leong Bhd subsidiary Hong Leong Islamic Bank will team up with UBS to offer non-ringgit structured financial products which are Shari'ah compliant.
CIMB Group Bhd will open an Islamic private banking service in Malaysia.
Foreign banks will be able to buy Malaysian Islamic banks, but will not be allowed to operate transactions in ringgit.
Bank Negara Malaysia (BNM) signed a Memorandum of Understanding with Qatar Financial Center Regulatory Authority (QFCRA) and the Dubai Financial Services Authority (DFSA) to cooperate on capacity building and human capital development.
Malaysia will offer commodity-based murabaha as a way for banks to manage liquidity in the Islamic interbank money market (IIMM). The murabaha will be based on palm oil-based contracts.
Indonesia should follow Malaysia's example and reduce double taxation to spur the development of Islamic finance in the world's most populous Muslim country.
KPJ Healthcare Bhd plans to expand its healthcare REIT
Finance professionals applaud tax changes in the U.K. dealing with sukuk.
Thursday, January 25, 2007
Islamic banking, GIFF, Pakistani government to promote Islamic financial products
Islamic banking
In an interesting opinion piece (with a discussion over at washingtonpost.com), a professor at Durham University in the U.K., Rodney Wilson, contemplates whether Islamic banking should be embraced as a positive development in banking or shunned as a tool for 'financial ghettoization'. Along the way to explaining why he believes it is provides a net benefit to the community, he writes:
While Professor Wilson's argument largely makes sense in terms of injecting a new ethical constraint into mainstream banking, I find one aspect of his argument a bit troubling.
Professor Wilson believes that the effective privatization of Shari'ah boards (i.e. a system where the Shari'ah scholars are employed by Islamic financial institutions individually) contributes to the development of the industry (as opposed to government-controlled Shari'ah boards). I don't believe this is necessarily a net positive. While it is undeniable that countries like Sudan, Iran and, until recently, Pakistan that employed a top-down approach had a less developed Islamic banking system, the appearance of conflicts of interest in the 'privatized' Shari'ah board model harms the appeal of Islamic banks. At the same time, Kuwait has a Shari'ah arbitration group that was created by the government that decides Shari'ah-compliance where the scholars disagree and has around 30 Islamic financial institutions.
Pakistan to promote Islamic finance
The governor of the State Bank of Pakistan, Dr. Shamshad Akhtar (also the Deputy Governor of the Islamic Financial Standards Board (IFSB) for 2007, said the government was ready to promote the further development of Islamic finance in the country. She was speaking at the International Islamic Finance Conference in Karachi. A summary of the conference is available from albawaba.com.
Bank Negara Malaysia to host Global Islamic Finance Forum (GIFF) in March
Bank Negara Malaysia, the Malaysian central bank, announced that it will hold the Global Islamic Finance Forum from March 26 - 29, 2007 in Kuala Lumpur, Malaysia. The forum will be made up of four concurrently occuring forums, the Investors & Issuers Forum (March 27-28), the Financial Regulators Forum in Islamic Finance (March 26-29), the Banking and Financial Law School (March 27) and the IFSB Annual Meetings & Events 2007 (March 24-29).
The conferences will be added shortly to the Institute of Halal Investing's listing of Islamic finance conferences
Japanese Islamic Finance Conference
A summary is available from the IFSB.
Miscellany
AmInvestment received an award from Islamic Finance News for its recent REIT and Mudaraba.
In an interesting opinion piece (with a discussion over at washingtonpost.com), a professor at Durham University in the U.K., Rodney Wilson, contemplates whether Islamic banking should be embraced as a positive development in banking or shunned as a tool for 'financial ghettoization'. Along the way to explaining why he believes it is provides a net benefit to the community, he writes:
Ultimately Islamic banking and finance is about the emergence of a distinctively Islamic form of capitalism that may co-exist and interact with Western, Chinese, Russian or any other capitalism. Such a development should be welcomed and facilitated, and not hindered or suppressed.
While Professor Wilson's argument largely makes sense in terms of injecting a new ethical constraint into mainstream banking, I find one aspect of his argument a bit troubling.
Professor Wilson believes that the effective privatization of Shari'ah boards (i.e. a system where the Shari'ah scholars are employed by Islamic financial institutions individually) contributes to the development of the industry (as opposed to government-controlled Shari'ah boards). I don't believe this is necessarily a net positive. While it is undeniable that countries like Sudan, Iran and, until recently, Pakistan that employed a top-down approach had a less developed Islamic banking system, the appearance of conflicts of interest in the 'privatized' Shari'ah board model harms the appeal of Islamic banks. At the same time, Kuwait has a Shari'ah arbitration group that was created by the government that decides Shari'ah-compliance where the scholars disagree and has around 30 Islamic financial institutions.
Pakistan to promote Islamic finance
The governor of the State Bank of Pakistan, Dr. Shamshad Akhtar (also the Deputy Governor of the Islamic Financial Standards Board (IFSB) for 2007, said the government was ready to promote the further development of Islamic finance in the country. She was speaking at the International Islamic Finance Conference in Karachi. A summary of the conference is available from albawaba.com.
Bank Negara Malaysia to host Global Islamic Finance Forum (GIFF) in March
Bank Negara Malaysia, the Malaysian central bank, announced that it will hold the Global Islamic Finance Forum from March 26 - 29, 2007 in Kuala Lumpur, Malaysia. The forum will be made up of four concurrently occuring forums, the Investors & Issuers Forum (March 27-28), the Financial Regulators Forum in Islamic Finance (March 26-29), the Banking and Financial Law School (March 27) and the IFSB Annual Meetings & Events 2007 (March 24-29).
The conferences will be added shortly to the Institute of Halal Investing's listing of Islamic finance conferences
Japanese Islamic Finance Conference
A summary is available from the IFSB.
Miscellany
AmInvestment received an award from Islamic Finance News for its recent REIT and Mudaraba.
Monday, January 15, 2007
Palm Oil REITs, RHB stake sale, International Shari'ah standards
Malaysian palm oil REIT
Boustead Holdings Bhd announced a REIT holding eight Malaysian palm oil estates and two palm oil mills. It will be Shari'ah compliant, but there is not a description on how this will be accomplished since most REITs have higher debt that conventional Shari'ah standards allow.
Utama denies sale of RHB to KFH
While reports have indicated that Kuwait Finance House planned to purchase a 32.8% stake in RHB Group, the company currently owning the shares, Utama Banking Group, has denied the reports, but is seeking approval to negotiate the sale of the shares with another buyer, Primus Pacific Partners.
No international Shari'ah standards needed
AMEinfo reports that an unnamed Shari'ah scholar has stated that no unified Shari'ah standards are needed, but that a baseline set of standards that allow local differentiation would be preferable.
Increase transparency of IFIs--CBB Governor
The Central Bank of Bahrain's governor Rasheed Al Maraj said he wanted to see more transparency at Islamic financial institutions to increase the level of trust the institutions are held in by customers and potential customers. He was speaking at the two-day Shari'ah Conference for Islamic Financial Institutions.
Miscellany
Qatar National Bank's Islamic wing, QNB Al Islami, has announced plans to increase the number of branches.
Boustead Holdings Bhd announced a REIT holding eight Malaysian palm oil estates and two palm oil mills. It will be Shari'ah compliant, but there is not a description on how this will be accomplished since most REITs have higher debt that conventional Shari'ah standards allow.
Utama denies sale of RHB to KFH
While reports have indicated that Kuwait Finance House planned to purchase a 32.8% stake in RHB Group, the company currently owning the shares, Utama Banking Group, has denied the reports, but is seeking approval to negotiate the sale of the shares with another buyer, Primus Pacific Partners.
No international Shari'ah standards needed
AMEinfo reports that an unnamed Shari'ah scholar has stated that no unified Shari'ah standards are needed, but that a baseline set of standards that allow local differentiation would be preferable.
Increase transparency of IFIs--CBB Governor
The Central Bank of Bahrain's governor Rasheed Al Maraj said he wanted to see more transparency at Islamic financial institutions to increase the level of trust the institutions are held in by customers and potential customers. He was speaking at the two-day Shari'ah Conference for Islamic Financial Institutions.
Miscellany
Qatar National Bank's Islamic wing, QNB Al Islami, has announced plans to increase the number of branches.
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