In this week's newsletter (sign up on the right side of the blog), I discussed the Tunisian working group that was established to determine how the country will change its laws to facilitate Islamic finance generally and sukuk specifically. Egypt appears much farther down the road to having a sukuk law that will facilitate issuance.
As I mentioned with regards to Tunisia holds true in Egypt as well. The first sukuk will likely be sovereign issuance to finance large post-revolutionary budget deficits. However, in contrast with Tunisia, there are three Islamic banks (two of which have ties in the GCC) that can issue sukuk and more easily tap Gulf liquidity.
That being said, Egypt is unlikely to jump to the "hub of Islamic finance" that is expressed as a hope in some of the quotes in the article any time soon. There is still a challenging economic situation (as with any post-revolutionary country) and that will limit the appeal to international investors of any sukuk, sovereign or corporate. There are also domestic challenges since many people distrust Islamic finance due to failed investment funds in the 1980s that were supposedly Shari'ah-compliant.
However, it appears that there is not a movement to totally Islamize the banking system (as Sudan and Iran did, at least nominally), which is a positive. There may be support for that in some quarters, but it would be detrimental because the government (in particular) will have a continuing need for financing to cover budget deficits into the foreseeable future and cannot be too picky about where the financing will come from (i.e. conventional bonds or sukuk). Egypt has one of the more active government bond markets in the GCC. It does not have the same level of oil and gas reserves as many GCC countries do that let them pick and choose when and whether to issue debt (either conventional or Islamic).
However, given the need for funds from the government and the nascent Islamic banking sector, as well as the other areas of the economy, Egypt should not avoid facilitating Islamic finance. There is a sizable amount of liquidity in the GCC that can be tapped if the regulations and economic policies are done correctly. It should move to attract this financing without letting the work needed to do so distract the government from the most important job, which is to help the economy recover. Economic recovery (with some facilitative legislation in place) will do the most to attract investors' funds, something which would be necessary if the hopes for Egypt to become a hub for Islamic finance can even be discussed seriously.
Showing posts with label Tunisia. Show all posts
Showing posts with label Tunisia. Show all posts
Sunday, March 18, 2012
Friday, February 03, 2012
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?
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?
Friday, May 28, 2010
Malaysia sovereign sukuk issued for $1.25 billion, Dubai, Islamic repo
Malaysia sovereign sukuk
The big news of the day was Malaysia's latest foray into the sukuk markets, the first by the sovereign since 2002 when it issued $600 million in sukuk. The latest issue was expected to be $1 billion, but with an order book reported to be between $4 billion and $5.5 billion, the issue was increased to $1.25 billion. The pricing, expected to be 180-190 basis points over US Treasuries of similar maturity, came in at 180bps on the low end of the range. This is the largest sukuk issuance since Dubai's $1.25 billion issuance in October 2009 before the Emirate saw its government-related entities like Dubai World run into trouble servicing its debt. Along the trend of the post-AAOIFI ruling market, this was an ijara sukuk which has become the most common form of sukuk issued since the rules on mudaraba and musharaka were strengthened to be more restrictive. In the first day of trading, the yield narrowed as investors bid up the sukuk. The sukuk was issued at 3.93% and finished its first trading day yielding 3.87%, 171bps higher than US Treasuries, a narrowing of the issue spread by 9bps. The state-owned oil company Petronas has seen its 4.25% sukuk issued last year trading with a 2.07% yield, which is in line with the historical spread between the sovereign and state-owned company's yields.
Prior to the issue, I was concerned that there would be too little trading to provide guidance as the economic and interest rate environment in Europe and globally evolved, but it appears that there is already secondary market activity, which should allow this sukuk to serve as a useful benchmark for corporate sukuk issuance (at least within comparable maturity range, denominated in US Dollars and issued by Malaysian issuers). As I mentioned, the issuance of another 5-year sukuk does little if anything to provide a lead for issuers looking to issue longer-dated sukuk, which are an important need for takaful providers and other investors looking for long maturity assets. However, with the difficult financing market globally because of worries about the fate of the Eurozone as well as continuing concerns over sukuk defaults, it is good sign that Malaysia's sukuk offering received such strong interest. We will have to wait another day for a sovereign sukuk with a 10-, 15-, 20- or 30-year tenor.
Dubai
In another hit to Dubai's reputation, cooling company Tabreed missed a periodic payment on its AED1.7 billion ($462.8 million) sukuk. The company is currently working on a recapitalization plan. The restructuring plan includes not just this sukuk, but debts totaling $1 billion. The two largest holders of the sukuk who collectively own more than 50% of the sukuk were consulted before the missed payment and one, Mubadala, provided an AED 1.3 billion facility to Tabreed as part of the recapitalization. The company expects to make a payment due in July on its $200 million floating rate sukuk.
Dubai International Capital, a private equity unit in Dubai Holding, is requesting a three-month delay on repayment of some of its debts. In an article, Noor Islamic Bank CEO Hussain Al Qemzi says the bank continues to expect to achieve profitability by 2012. He also said that Dubai Holdings is not another Dubai World and that Noor Islamic Bank has a small exposure to Dubai Holding, which owns Dubai International Capital.
In a case of "less bad" news, builder Arabtec says Nakheel is not in arrears to the company "as much as some analysts fear". That is hardly a ringing endorsement for efforts by Dubai to bring Nakheel current with many of its trade creditors.
Islamic repo and liquidity management
In what potentially could be a significant development, the UAE central bank is planning to offer daily auctions of commodity murabaha with one week to one year maturity to help Islamic banks manage liquidity. The Islamic certificates of deposit would fill an important gap in the Islamic finance industry where short-term liquidity management tools are rarely offered by central banks. The daily auctions would provide an important datapoint for investors and Islamic bankers. The central bank also anticipates using these CDs to manage liquidity through repurchase (repo) agreements, along the lines of the short-term ijara sukuk issued by the Central Bank of Bahrain. The difference between an ijara sukuk and a commodity murabaha is that one represents ownership of an asset while the other creates a debt stream that may raise Shari'ah issues over its use in a repurchase agreement. However, these issues have probably already been reviewed by Shari'ah scholars. The need for liquidity management tools for Islamic banks and central bankers, however, may be so important that their presence, even where this is viewed with some skepticism, may outweigh the cost associated with a controversial application.
Other News
The big news of the day was Malaysia's latest foray into the sukuk markets, the first by the sovereign since 2002 when it issued $600 million in sukuk. The latest issue was expected to be $1 billion, but with an order book reported to be between $4 billion and $5.5 billion, the issue was increased to $1.25 billion. The pricing, expected to be 180-190 basis points over US Treasuries of similar maturity, came in at 180bps on the low end of the range. This is the largest sukuk issuance since Dubai's $1.25 billion issuance in October 2009 before the Emirate saw its government-related entities like Dubai World run into trouble servicing its debt. Along the trend of the post-AAOIFI ruling market, this was an ijara sukuk which has become the most common form of sukuk issued since the rules on mudaraba and musharaka were strengthened to be more restrictive. In the first day of trading, the yield narrowed as investors bid up the sukuk. The sukuk was issued at 3.93% and finished its first trading day yielding 3.87%, 171bps higher than US Treasuries, a narrowing of the issue spread by 9bps. The state-owned oil company Petronas has seen its 4.25% sukuk issued last year trading with a 2.07% yield, which is in line with the historical spread between the sovereign and state-owned company's yields.
Prior to the issue, I was concerned that there would be too little trading to provide guidance as the economic and interest rate environment in Europe and globally evolved, but it appears that there is already secondary market activity, which should allow this sukuk to serve as a useful benchmark for corporate sukuk issuance (at least within comparable maturity range, denominated in US Dollars and issued by Malaysian issuers). As I mentioned, the issuance of another 5-year sukuk does little if anything to provide a lead for issuers looking to issue longer-dated sukuk, which are an important need for takaful providers and other investors looking for long maturity assets. However, with the difficult financing market globally because of worries about the fate of the Eurozone as well as continuing concerns over sukuk defaults, it is good sign that Malaysia's sukuk offering received such strong interest. We will have to wait another day for a sovereign sukuk with a 10-, 15-, 20- or 30-year tenor.
Dubai
In another hit to Dubai's reputation, cooling company Tabreed missed a periodic payment on its AED1.7 billion ($462.8 million) sukuk. The company is currently working on a recapitalization plan. The restructuring plan includes not just this sukuk, but debts totaling $1 billion. The two largest holders of the sukuk who collectively own more than 50% of the sukuk were consulted before the missed payment and one, Mubadala, provided an AED 1.3 billion facility to Tabreed as part of the recapitalization. The company expects to make a payment due in July on its $200 million floating rate sukuk.
Dubai International Capital, a private equity unit in Dubai Holding, is requesting a three-month delay on repayment of some of its debts. In an article, Noor Islamic Bank CEO Hussain Al Qemzi says the bank continues to expect to achieve profitability by 2012. He also said that Dubai Holdings is not another Dubai World and that Noor Islamic Bank has a small exposure to Dubai Holding, which owns Dubai International Capital.
In a case of "less bad" news, builder Arabtec says Nakheel is not in arrears to the company "as much as some analysts fear". That is hardly a ringing endorsement for efforts by Dubai to bring Nakheel current with many of its trade creditors.
Islamic repo and liquidity management
In what potentially could be a significant development, the UAE central bank is planning to offer daily auctions of commodity murabaha with one week to one year maturity to help Islamic banks manage liquidity. The Islamic certificates of deposit would fill an important gap in the Islamic finance industry where short-term liquidity management tools are rarely offered by central banks. The daily auctions would provide an important datapoint for investors and Islamic bankers. The central bank also anticipates using these CDs to manage liquidity through repurchase (repo) agreements, along the lines of the short-term ijara sukuk issued by the Central Bank of Bahrain. The difference between an ijara sukuk and a commodity murabaha is that one represents ownership of an asset while the other creates a debt stream that may raise Shari'ah issues over its use in a repurchase agreement. However, these issues have probably already been reviewed by Shari'ah scholars. The need for liquidity management tools for Islamic banks and central bankers, however, may be so important that their presence, even where this is viewed with some skepticism, may outweigh the cost associated with a controversial application.
Other News
- Moody's showed up a little late with a report that the Investment Dar case against Blom Bank where TID was allowed to proceed to trial claiming that a wakala agreement should be voided on the basis of non-Shari'ah-compliance presented an "operational risk" to Islamic finance.
- Malaysia's central bank and Securities Commission are working on a plan to make Malaysia a center for non-ringgit-denominated sukuk, as well as other areas within Islamic finance. Previously, there has been a lot of development in sukuk markets denominated in ringgit with fewer non-ringgit issues. This is in contrast to the GCC where issuers have brought both local currency and US Dollar sukuk to market.
- Saudi Electric Company, which has issued several domestic sukuk, plans to tap the international sukuk markets in 2011.
- The Australian government is reviewing its tax laws to put Islamic finance on equal footing with conventional finance and the assistant treasurer Nick Sherry points out that Islamic finance can have a broader appeal besides just Muslims as a form of socially-responsible investment (SRI). If it wants to attract the SRI consumer base, however, I believe Islamic finance will have to move beyond just 'negative' screens and incorporate 'positive' screens for companies that contribute to the social good.
- The latest summary of the Dow Jones Islamic Indexes is available through the end of May.
- Jordan Dubai Islamic Bank began trading on the Amman stock exchange.
- Malta continues to examine how regulations need to be adapted to incorporate Islamic finance.
- S&P put Kuwait Finance House's long-term counterparty credit rating on Credit Watch Negative.
- The first Islamic bank in Tunisia, Azzitouna Bank, was launched on Friday.
- The Gulf Bond and Sukuk Association signed a memorandum of understanding with the Trade Association for the Emerging Markets (EMTA).
- There is a summary of tax legislation on Islamic finance in South Africa.
Saturday, December 15, 2007
Weekly news update, December 15, 2007
The U.K. faces a significant challenge from Dubai, Bahrain and Kuala Lumpur to become the sukuk capital of the world. However, the U.K. is looked to as the model for developing Shari'ah-compliant banking from other countries in Europe, like France and Germany, where the Muslim population make up a larger percentage than in the U.K. I discussed this in one of the articles in the recent Institute of Halal Investing newsletter, available in pdf (there is also a link along the right side of the blog).
The ETF issuing company iShares announced the issuance of three Shari'ah-compliant ETFs. The three ETFs track the MSCI World Islamic, MSCI Emerging Markets Islamic and MSCI U.S. Islamic indexes.
GCC-based Islamic investment banks are expanding outside of the GCC-area, as Gulf Finance House's projects in India and Tunisia demonstrate.
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I have not been able to blog daily the last couple weeks. I hope to be able to more often next year, but for the rest of the month, the weekly updates may be all I have time for.
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The ETF issuing company iShares announced the issuance of three Shari'ah-compliant ETFs. The three ETFs track the MSCI World Islamic, MSCI Emerging Markets Islamic and MSCI U.S. Islamic indexes.
GCC-based Islamic investment banks are expanding outside of the GCC-area, as Gulf Finance House's projects in India and Tunisia demonstrate.
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I have not been able to blog daily the last couple weeks. I hope to be able to more often next year, but for the rest of the month, the weekly updates may be all I have time for.
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