Do Islamic financial institutions care about Islamic microfinance?

The CGAP microfinance blog highlights the lack of progress in developing laws to facilitate microfinance since the Arab Spring. One point the post makes is that "The irony in all this is that only in Syria and Yemen, two countries still heavily affected by the uprisings, did the governments sanction savings mobilization by MFIs meeting minimum standards." 

It is interesting to me that in both these countries where microfinance was sanctioned by the governments there have been Islamic microfinance institutions, in Jabal al-Hoss in Syria and Hodeidah in Yemen.  There is still much to do in both countries, and in both countries there are more pressing needs with the departure of Ali Abdallah Saleh from Yemen and the continued fighting in Syria against Bashar al-Assad. 

However, despite the continued unrest in both countries, there have been examples of demand for Islamic microfinance which suggests that there is probably demand in other countries where the Arab Spring has run its course.  These countries should move forward on both conventional and Islamic microfinance development as a top priority.  Some may point out that there are more weighty concerns in the forefront today, but I would argue that the development of programs to provide economic opportunities should be at the forefront because the Arab Spring largely arose out of one man, Mohammed Bouazizi, very publicly died after setting himself on fire due to having his livelihood snuffed out by the police when they confiscated his fruit crates and electronic scale. 

It is fair to question whether Islamic microfinance is well developed enough to be moved to the top of the agenda alongside conventional microfinance.  However, with so many resources being devoted to developing the (macro) Islamic finance industry, there should be an equivalent commitment to developing Islamic microfinance.  Today, two of the biggest Islamic microfinance programs are being facilitated with funding for technical support from the US international aid agency USAID in Afghanistan and Iraq.  Where are the Islamic finance institutions who claim to embrace corporate social responsibility, ethical finance and a concern for the poor in laying the groundwork for Islamic microfinance to develop across the MENA region after the Arab Spring? 

Islamic finance conferences in Malaysia and South Korea

There are a number of articles about the "Contribution of Islamic Fiannce Post Global Financial Crisis" conference held in Kuala Lumpur, Malaysia yesterday:

• "5 ways to widen Islamic finance's acceptability," Business Times
  
• "Changes to Capital Market Services Act to be enforced next month," The Star Business
  
• "Raja Nazrin: Islamic finance crucial to reform global finance rules," The Edge Malaysia
  
• "Changes in Act to strengthen Shariah Advisory Council," Bernama
  
• "Bank Muamalat: Islamic finance on steady growth path," The Star Business
  

Qatar Islamic Bank signed a memorandum of understanding with Woor Investment & Securities Inc, a South Korean investment firm, to cooperate on Shari'ah-compliant investments. A conference was held in Seoul on Islamic finance and sukuk and if legislation is passed soon, the first South Korean corporate sukuk could be issued in late 2010.

Other News

• Dubai has only tapped $500 million of its $2.5 billion loan from Abu Dhabi government-owned bank Al Hilal bank.
  
• SEI breaks down the performance differences in 2009 between the MSCI World and MSCI World Islamic.
  
• Islamic financial institutions now have $822 billion in assets according to the Saudi Arabian central bank governor Muhammad Al Jasser.
  
• Kazakhstan is planning to issue Islamic bonds this year.
  
• An Expert Council on Islamic Economy was formed in Tatarstan in a meeting organized by islamic-finance.ru.
  
• The governor of the Central Bank of Syria spoke at the 5th Islamic Banks and Financial Institutions conference held in Damascus about many of the issues (risk management, liquidity management and prospects for financing infrastructure projects) that have been at the forefront recently.
  

Islamic finance restructuring news

The restructuring theme is in full force right now for Islamic finance and related companies. Global Investment House received an award for most innovative deal for its restructuring that included an Islamic tranche. Dubai World is expected to approach its creditors in London which will include Nakheel sukuk creditors and those who provided financing for Limitless, which has a syndicated Islamic facility coming due. The Investment Dar may use a recently passed 'financial stability law' to protect itself from creditors who have not agreed to its restructuring plan.

Other News

• Gulf Finance House is planning to launch an Islamic bank in Syria called the Syria Finance House.
  
• An article in a Turkish newspaper discusses Bank Asya, one of the participation banks in the country.
  
• An article on Mideast fund managers provides some statistics on the distribution of Islamic funds across the world in advance of an Amanie-Failaka conference.
  
• The CEO of the Badr-Forte bank, an Islamic financial institution in Russia, is starting a new Islamic financial institution, Al-Shams Capital.
  
• I found this article with an interview with Professor Catherine Cowley about the relationship between ethics and finance interesting.
  
• Islamic hedge funds have, not surprisingly because of limited offerings, not been a prominent fixture in fund managers' portfolios with only 19.7% of Middle East investors reporting that they invested in Islamic hedge funds.
  

Islamic banking in the crisis, Syrian microfinance

A report on Islamic banking from the Kipp Report provides a good, if brief, look at the impact of the credit crisis on Islamic banking. The most important statement, in my opinion, is a quote from the president of the Islamic Development Bank:

"But it’s becoming clear that Islamic finance’s conservatism did not fully shield it from the ills of the economic crisis. 'The word immune is inappropriate here,' the president of Jeddah-based Islamic Development Bank, Ahmed Muhammed Ali, says."

Syria, which passed a microfinance law in 2007, has seen microfinance institutions, both conventional and Islamic, struggle to find a sustainable business model. Most began not chargin interedt, although now most conventional microfinance institutions charge 1% per month and Islamic microfinance institutions charge markups of 5% (the time horizon for this financing is not provided, so the numbers are not directly comparable). As with all microfinance, in order to make it a part of a poverty-reduction strategy, it does need to integrate its focus on raising incomes, while at the same time making enough money on an institution level to make it self-sufficient.

Other News

• Gulf Finance House is requesting a partial loan deferral for $100 million of the $300 million Islamic debt due next week. A $50 million sukuk due in July 2012 is "in negotiation" according to the acting CEO Ted Pretty. The company issued a short official statement on February 2nd.
  
• Barclay's launched two Islamic finance products in Kenya. Previously, there were two banks (First Community Bank and Gulf African Bank) offering Shari'ah-compliant banking services.
  
• Tamweel is planning to ask for its shares to resume trading. Its shares were halted in November 2008.
  
• RAM Ratings wrote an article about the Malaysian debt markets in The Star newspaper. The article included data on new sukuk programs and issuance in new facilities. (Apologies if the table is not formatted well)
  

	2007	2008	2009
New facilities	RM86.7bn	RM16.1bn	RM41.5bn
	($25.2bn)	($4.7 bn)	($12.0 bn)
Issuance from new facilities	RM39.6 bn	RM8.8bn	RM9.6bn
	($11.5 bn)	($2.6 bn)	($2.8 bn)

• The Irish government is planning tax changes to treat the returns on Islamic finance products the same way as interest is treated in conventional products.
  
• Kuwait Finance House says it does not plan on raising additional capital "for the time being" according to its chief executive.
  

Tuesday news bullets

• Dubai repays the $1 billion Dubai Civil Aviation Authority sukuk that matured on November 4th with proceeds from the $1.93 billion sukuk issued last week.
  
• A report from Moody's says that sukuk issuance in the first 10 months of 2009 exceeded the same period in 2008 by 40%, although the sukuk market is dominated by government-related entities.
  
• The Investment Dar's Bahrain unit extended its standstill agreement according to a statement by the Investment Dar Sukuk Co on the Bahrain stock exchange. It is unclear whether the Investment Dar's standstill agreement was also extended.
  
• Al Baraka Bank Syria's IPO was heavily oversubscribed
  
• Two applications from foreign banks to receive Islamic banking licenses in Malaysia are being processed according to the Deputy Finance Minister. It is part of a liberalization planned that will expand the opportunities for foreign investors in Islamic financial institutions.
  
• Malaysia's Securities Commission signed an agreement about cooperation with the regulators in Hong Kong and Singapore.
  
• A conference in New Jersey focused on how corporate America can market to the Muslim market in the country.
  
• Uganda's regulators are learning more about Islamic finance in preparation of a review of the country's laws and how Islamic finance could fit into them.
  
• In the wake of a successful $2 billion sukuk issuance, the 'shut-up' heard round the world. The Emirate's leader Sheikh Mohammed Bin Rashid Al-Maktoum expects the second tranche of $10 billion in bonds to be 'well received' and dismissed critics who wonder whether Dubai will be supported by the rest of the UAE, and particularly Abu Dhabi.
  

A scholar raises issues of copy-cat products, IFC sukuk, South Korea considers sovereign sukuk

Shari'ah scholar Dr. Hatem El-Karanshawy, a former director of the Central Bank of Egypt, cautions the Islamic finance industry on 'Islamizing' products that do not inherently fit with Islamic principles. He says that venture capital can fit in well with few modifications. The growth in Islamic finance has been accompanied by 'copy-cat' versions of conventional financial products using contracts that allow Shari'ah scholars to approve them. In many cases, these products do provide value, but as I mentioned in a blog post two months ago, there is a need to keep in mind whether new innovation is beneficial in Islamic finance just as in the conventional financial industry.

The International Finance Corporation's $100 million sukuk is receiving favorable coverage from Arab News, which points out that many Arab countries have not yet stepped into the Islamic capital markets to raise funds. In addition to the most recent sukuk (and a Ringgit-denominated one it issued in 2004), the IFC has been involved in several other Islamic finance transactions over the past few years.

South Korea appears to be the latest non-Muslim majority country to work to attract Gulf money by passing laws that put Islamic finance including sukuk on equal regulatory and tax footing to conventional bonds. The country recently announced a list of state-owned companies that the government is looking to privatize and which it seeks Gulf investment. In addition, the government is considering an $80 billion initiative for environmentally-sustainable areas of growth. The government is also on a roadshow to gauge interest in a $500 million - $1 billion sovereign sukuk.

Other News

• HSBC is considering subscribing to the second $10 billion tranche of bonds issued by Dubai. The first tranche was purchased by the UAE central bank.
  
• Islamic banks' assets grew by 66% between the end of 2007 and the end of 2008 according to the Union of Arab Banks.
  
• The NY Times published an article on the growth of Islamic finance in universities' curricula.
  
• According to Standard & Poor's, the performance of Shari'ah-compliant equities lagged in the third quarter, a period when a lot of the leading stocks were financials.
  
• Bahrain-based Al Baraka plans on spending $30-$50 million on a bank acquisition in Indonesia. The bank also says that the IPO of its Syrian unit is oversubscribed.
  

Islamic banking enters Syria

The first Islamic bank recently opened in Syria. The Cham Islamic Bank opened in Damascus with $100 million in starting capital.

KFH, Maybank in Malaysia, UK legal changes for Islamic finance and other news

KFH wants 49 percent of RHB Islamic

Kuwait Finance House, the Kuwaiti Islamic bank which was involved in the bidding for Rashid Hussain Bhd (RHB)before the Employees Provident Fund (EPF) entered with the winning bid, wants to gain a 49 percent stake in RHB Islamic, the Islamic banking arm of RHB. Managing Director Salman Younis said no offer had yet been made, but that KFH was eager to obtain a stake in RHB Islamic Bank. In a panel discussion, Mr. Younis remarked that deputy governor of Bank Negara Malaysia, the Malaysian central bank, "would like someone to take up the 49 per cent equity in RHB Islamic. I [Mr. Younis] didn’t say anything. If we have been offered the opportunity... yes [we would have taken it], because you know we wanted to get RHB".

UK has done enough to encourage Islamic finance

The director of KPMG Islamic Finance Advisory Darshan Bijur says that Gordon Brown, UK Chancellor of the Exchequer and likely successor to Tony Blair as Prime Minister, has done enough to adapt British laws to encourage the growth of Islamic finance in the country.

Maybank to open Islamic bank

Maybank, Malaysia's largest lender by assets, plans to open a stand-alone Islamic bank as soon as it receives approval from the Malaysian central bank.

CIMB Islamic to expand outside of Malaysia

The executive director of CIMB Islamic, Badlisyah Abdul Ghani announced that the company will leverage Malaysia's experience in creating Shari'ah-compliant products to expand the company globally. He was speaking at the World Halal Forum 2007.

Other News

Mumbai will host an Islamic finance conference.

Bahraini bank Global House plans to open a $500 million Islamic bank in Syria.