White Paper on Oman's Entry into Islamic Finance

From the Islamic Finance Gateway

Despite being more than 600 pages long, many industry experts suggest that the Central Bank of Oman's 'Islamic Banking Regulatory Framework' is much more advanced than others in the Gulf, at least from the perspective of remaining true to the core ethos of the sharia. However, for a nascent industry, market participants actually implementing the standards consider the prohibitions a challenge to implement without substantially impairing profitability, particularly those affecting the treasury and capital markets. That said, this might just be THE opportunity to innovate and find authentic sharia-based solutions to advance the development of the Islamic financial services industry.

These and many more issues were brought to the fore by the Islamic finance industry at the forum “OMAN’S ENTRY INTO ISLAMIC FINANCIAL MARKETS” held on the 24th of February. We are pleased to announce that the white paper incorporating the main discussion points and recommendations is now available for download.

You can download the white paper from - http://r.reuters.com/wuk66t

The forum was organized by the Islamic Finance Gateway (IFG) Community (an initiative of Thomson Reuters / Zawya) and was held in collaboration with the General Council for Islamic Banks and Financial Institutions (CIBAFI) and the Islamic Research and Training Institute (IRTI), a member of the Islamic Development Bank Group, with the support of the Capital Markets Authority (CMA).

To receive notifications and invites to future IFG Community sessions and events simply join the community by registering here (online.thomsonreuters.com/ifg) or send us an email at islamic.finance@thomsonreuters.com with your contact details (name, title, phone number, email) and a community specialist will get back to you as soon as possible.

Berkeley Islamic Finance Forum

I will be speaking at the Berkeley Islamic Finance Forum next Saturday, April 9, 2011. Below is a poster for the forum.

ISRA Shari'ah scholar certification

The plan by ISRA to set up a global certification for Shari'ah scholars is proceeding and the body expects to pick a board of regulators to develop the qualifications by year-end. The goal of the certification is to ensure that all Shari'ah scholars have requisite training and competence not only in Shari'ah, but also finance. I believe the primary beneficiaries of the qualification will be the less well known scholars who may find more demand for their services with the certification providing some confirmation that they are qualified. However, there will remain significant momentum among particularly the global financial institutions to recruit the highest profile scholars to their Shari'ah boards as a way of enhancing their reputation as being Shari'ah-compliant.

Other News

• Moody's Investor Services and Mashreq Capital DIFC believe that the Nakheel trade creditor sukuk will spur secondary market activity in sukuk because many trade creditors will sell them.
  
• Dana gas and Aldar's convertible sukuk performed well in the first two months of the third quarter, with their yield falling from 13.6% to 10.77% (for Dana Gas). The GCC sukuk market has been slow since the financial crisis and the AAOIFI resolution on sukuk.
  
• Padiberas Nasional Bhd issued sukuk as part of a RM750 million ($240 million) sukuk program. While issuance has rebounded in Malaysia, it has remained sluggish in the GCC following the Dubai debt crisis last fall.
  
• The National Bank of Ethiopia is close to approving a directive to allow Islamic banks and Islamic windows at conventional banks. Stanbic Bank in Tanzania, which launched Islamic financial products earlier this year, submitted an application to the country's central bank to widen its product offering.
  
• An article on an Islamic finance conference in Switzerland provides a good summary of the challenges facing Islamic finance if it wants to become more attractive and attract non-Muslim clients.
  
• An article from Trade Arabia discusses one small part of the Islamic financial industry that is Islamic exchange traded funds (ETFs)>
  
• Sudan delayed its planned $300 million sukuk issuance again citing the financial crisis.
  

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 workshop in Malaysia

I have preparing for a 2-day workshop on Islamic finance that will take place in Kuala Lumpur, Malaysia on October 12-13 and have not been able to post as frequently as normal. I am looking forward to giving this and I would suggest that anyone interested should take a look at the description of the workshop, available from the conference organizer's website and register. The contact information for the organizer is also available on that site and they can provide a brochure with greater details about the topics covered.

JBIC sukuk

The Japan Bank for International Cooperation, a government organization in Japan, will make Japan the first G-7 country to issue a government sukuk, with the announcement that it will launch a $300 - $500 million sukuk with the technical assistance from Malaysia. In addition to the JBIC sukuk, Japanese financial companies are entering the industry as well.

The IFSB and the Hong Kong Monetary Authority (HKMA) jointly held a conference on Islamic finance and, in particular, ways for Hong Kong to begin catching up with other Asian countries, particularly Malaysia, in developing an Islamic finance industry. The keynote speaker was Dr. Zeti Akhtar Aziz, the central bank governor of Bank Negara Malaysia.

Weekly Update, January 5th

A U.K. banking industry publication, Banking TImes, reports that the Islamic banking industry will grow by 20 percent in 2008, making it one of the fastest growing areas of finance. The growth estimate is from the Islamic Financial Standards Board (IFSB), the Kuala Lumpur-based standards-setting organization, which will hold its fifth annual summit in Amman, Jordan on May 13-14, 2008. The summit will focus on "Financial Globalisation and Islamic Financial Services".

Qatari-based Doha Bank is expanding into Yemen by acquiring a 'strategic' stake in Yemen's Credit Cooperative & Agricultural Bank.

Islamic investment and finance is developing in India, albeit slowly.

The International Bar Association (IBA) will hold a conference on "Islamic finance in the Middle East" on January 13, 2008 at the Dubai International Financial Centre (DIFC).

Islamic real estate fund in Japan, Malaysia introduces new rules about Islamic financial institutions, forthcoming report on Islamic banks

Boubyan Bank, a Kuwait-based bank announced plans to launch the first Shari'ah-compliant real estate financing fund in Japan. The fund will be called the Boubyan Global Real Estate Fund.

Malaysia hopes that new measures introduced today will make the Islamic financial industry more dynamic. The measure highlighted in the article from Bernama, the Malaysian National News Agency, requires all Islamic financial institutions in the country to have full-time Shari'ah experts to ensure that operations of the institutions complies with the Shari'ah standards set by the national Shari'ah advisory council.

The World Islamic Banking Competitiveness Report 2007/08 will be released next month in Bahrain. The report will be compiled with assistance from international consulting firm McKinsey.

Islamic finance in the Financial Times

The Financial Times has a few articles on Islamic finance in the past few days' issues. The first, from Sunday, provides a few additional details about the recent progress in the U.K. government's plan to be the first western country to issue a soverign sukuk. Another article describes efforts from within the Islamic financial industry to make a clear distinction between Islamic finance and 'political Islam'. Two other articles discuss the lack of internationally-recognized Shari'ah scholars and the drive to create global standards.

In other news, the CEO of the Dubai International Financial Centre (DIFC) Authority discussed the challenges to future growth in Islamic finance at the beginning of DIFCweek. He focused on transparency, an underdeveloped infrastructure, insufficient human capital and a lack of globally accepted standards.

Michael Ainley, head of the Wholesale Banks and Investment Firms Department at the U.K. Financial Services Authority (FSA) believes that Islamic banking is catching on in Europe noting that "So far we have issued three licenses for Islamic banks and very soon the first Islamic insurance company will be open in the UK".

WSJ conference, GCC surpasses Malaysia in sukuk, Islamic finance brain drain

The Wall Street Journal will team up with the Dubai International Financial Centre (DIFC) to have one day of DIFCweek devoted to Islamic finance called "Islamic and Ethical Finance".

The Gulf region has had more Islamic bond (sukuk) issuance this year than Malaysia for the first time according to Moody's with $13.2 billion so far this year.

Malaysia tackles the problem of brain drain to the Gulf states.

Islamic LBOs continue, BIMB partners with European Islamic finance firm & new conferences

Arcapita, the Bahrain-based Islamic investment firm will purchase the German firm HT Troplast, which manufactures PVC window and door fittings in a leveraged buy-out despite the problems in the conventional market for credit. The Financial Times suggests that the relatively lower impact upon Islamic investment firms of the credit crisis is "because Islamic investment firms tend to use lower levels of debt to fund their acquisitions [than conventional firms]".

Bank Islam Malaysia Bhd is working on a partnership with an unnamed Islamic bank in Europe

New conferences have been added to the IHI conference listing page for September & October.

Islamic finance expands to Japan, sukuk and 'innovation'

Farhan Bokhari, a correspondent of the Financial Times, writes on FT.com about the many challenges Islamic finance will face entering Japan. Between conservative markets and a large language barrier between Japanese and Arabic, there has only been a small entry made by Japanese firms like Daiwa into Islamic finance.

There have been $24.5 billion of sukuk issued so far this year, 75% more than last year.

Two buzzwords in the Islamic financial conference industry are 'innovation' and 'standardization'. But really what 'innovations' are created and why is 'standardization' beneficial. These topics are rarely addressed, in large part because many of the 'innovations' may not be in the long-term interest of the states goal of moving from Shari'ah-compliant products to Shari'ah-based products. The historical track of Islamic finance has been towards replication of conventional finance with different contractual forms which avoid interest. This path is understandable when trying to create a new basis for financial transactions, but may not lead to the desired end result. In a similar way, standardization may hamper development of new products and more efficient, more Shari'ah-based methods by forcing a cookie-cutter framework which reinforces the present state of the Islamic finance industry. Instead of 'innovation' and 'standardization', the industry would do better to promote 'transparency' and 'differentiation' by creating new products, serving new groups of clients and developing a substantive difference between itself and the conventional financial industry.

UK sukuk conference & controversy about Islamic hedge funds

There will be a conference in London, UK from June 20-21, "The Sukuk Summit - Strategies for Today: Demystifying Islamic Capital Markets (ICM) Products". The details and links to the summit website and press release are available from the IHI conferences listing for June 2007

Islamic hedge funds are controversial. One speaker on the topic at a conference in Bahrain told conference participants "he had nothing to say because [Islamic hedge funds] do not exist" due to the prohibition of 'selling what you don't own'. Others argue that the basic hedging strategies are Islamic in intent by providing risk control.

The Dana Gas convertible sukuk announced yesterday is part of a growing wave of convertible bond issues in the Gulf Cooperation Council (GCC) driven by the recent poor performance of the regon's equity markets.

Middle Eastern investors, likely from Kuwait or Qatar, will finance a Shari'ah-compliant real estate investment project in Japan.

Prudential, the U.K. insurance company, signed a Memorandum of Understanding yesterday with Saudi bank Aljazira to take a 39 percent stake in the bank's takaful business, Ta'awuni, as well as part of the bank's fund management business.

"ETFs could track the benchmark index, or certain growth sectors, or even Islamic finance. " --The Star (Malaysia)

Using Islamic venture capital to attract foreign investment

MNRB Holdings Bhd, parent company of Malaysian Re, Takaful Ikhlas Sdn Bhd and MNRB Retakaful Bhd, will be expanding its takaful business outside of Malaysia. It recently opened an office in Dubai to expand both its conventional & takaful products in the Middle East.

At a conference in Kuala Lumpur, Securities Commission chairman Zarinah Anwar discussed the possibility of drawing Shari'ah-compliant venture capital funds to the country. She asked "The question, therefore, is, how can Malaysia distinguish itself in the emerging market venture capital pool? Our belief is that Islamic venture capital provides that distinguishing factor". The full text of her speech is available from the Securities Commission website. Zarinah described how "venture capital is fundamentally consistent with core Islamic economic principles of active partnerships and risk taking," something Muhammad Saleem, a critic of current practices in Islamic finance has argued.

Malaysian Islamic banking is more advanced than Hong Kong and Singapore despite not being as large a financial center, says Parliamentary Secretary to the Finance Ministry Dr. Hilmi Yahaya.

$100 billion in sukuk are coming within the next five years say financial experts meeting in Bahrain next week.

Another article about the Islamic Finance World North America conference in Toronto which ends today. The article provides a description of some of the work that Anchor Finance Group does.

Canadian Islamic mortgages, Standardization

At the Islamic Finance World North America conference organized in Canada on Islamic finance, participants discussed the requirements needed to fit Islamic financing, particularly home financing, into the regulatory environment of Canada which restricts financial institutions' holdings of real estate. Because Islamic home financing is less common in Canada than the U.S., the products are significantly more expensive in Canada where they are 100 to 300 basis points more expensive compared to 40 to 100 basis points higher in the U.S.

The Central Bank of Bahrain will issue standardized Islamic financial products by the end of this year.

Ernst & Young will launch the 1st annual "Islamic Funds & Investments Report" soon.

Dubai Islamic Investments Managing Director Marwan Al Khatib believes that the Malaysian government's active encouragement and participation in the development of the country's Islamic financial industry was important for its success.

Philippine Banco de Oro may be interested in bidding on Al-Amanah Islamic Investment Bank of the Phillipines which the government is trying to privatize.

IsDB Poverty Reduction Fund, Islamic financial innovation & Canadian Islamic finance

Shaikh Mohamed bin Jassem Al Thani, the Chairman of CORECAP, which launched an Islamic private equity fund yesterday, estimated that the Islamic financial industry is currently at $800 billion in size and growing 15-20 percent per year.

The Islamic Development Bank fund for development (the 'Islamic Solidarity Fund for Development') will be launched at the annual meeting in Dakar, Senegal on May 29-30.

• This conference is listed on the IHI conference listing page.

Soud Ba'alawy, Executive Chairman of Dubai Group, speaking in a panel on Islamic finanace in the World Economic Forum at the Dead Sea, Jordan, said that Islamic finance needs to see further development of new innovative products in order to become mainstream. He described that innovation could be achieved by converting conventional structures to Shari'ah-compliant products.

At the launch of the "Regulation and Supervision of Islamic Banks" course, the development of Islamic finance in Brunei is described. The new course is jointly offered by the Islamic Research & Training Institute and the South East Asian Central Banks (SEACEN) Research & Training Centre.

• September 29, 1991: First Islamic financial institute opened, the Perbadanan Tabung Amanah Islam Brunei (TAIM) or Brunei Islamic Trust Fund

• January 13, 1993: International Bank of Brunei Berhad converted into an Islamic bank and renamed the Islamic Bank of Brunei Berhad

• July 2000: Another government bank, the Development Bank of Brunei is converted into the Islamic Development Bank of Brunei Berhad

• 2006: Two banks merge to become the Bank Islam Brunei Darussalam (BIBD)

• 2006: Brunei begins issuing 91-day sukuk al-ijarah. Six have been issued with a cumulative size of $730 million.

• January 17, 2006: Syariah Financial Supervisory Board Order launched

Ittihad Capital is hosting a dinner before the Islamic Finance World North America to try and attract more Islamic financial firms to the country.

WIEF & Canadian Islamic financial services potential

The 3rd World Islamic Economic Forum (WIEF) will be held in Kuala Lumpur, Malaysia from May 27-29, 2007. Featured speakers include Prime Minister Abdullah Badawi of Malaysia and President Susilo Bambang Yudhoyono of Indonesia.

• This conference has been included on the IHI conference listing page.

Islamic financial services potential in Canada.

Shortage of scholars & lawyers in Islamic finance industry

Islamic finance faces a shortage of skilled Shari'ah scholars & lawyers

There is an interesting article focusing on the shortage of lawyers who understand Islamic finance well enough to put together the large deals which have emerged recently. The end of the article highlights the even more pressing problem of a shortage of Shari'ah scholars and issue of different interpretations of what is Shari'ah-compliant between the Middle East and Malaysia (and steps to produce agreement on the most basic Islamic financial products.

Other News

Sharjah Islamic Bank announces the opening of a real estate subsidiary, ANAS Real Estate.

RHB Capital unaware of moves by Kuwait Finance House to acquire a stake in RHB's Islamic banking business.

Islamic Finance Project 2007 will be held in Dubai, UAE from June 24 - 25, 2007.

• This conference has been added to the Institute of Halal Investing conference listings.

The Bahrain Financial Harbour opened today in a bid to be a new Gulf financial center.

Article added to the IHI website

I wrote an article (an earlier version of which was added to this blog) about the Harvard Islamic Finance Project's conference on Islamic microfinance called "Financing the Poor: Towards An Islamic Microfinance" which I attended last Saturday at the Harvard Law School. The article is in PDF format and is called "Islamic Microfinance: A New Approach to Fighting Poverty".

IIFF Europe to be held in Switzerland, new Islamic funds transfer system

IIFF Europe to be held in Switzerland

The International Islamic Finance Forum (IIFF) Europe will held in Switzerland from November 12-15, 2007. There are two cities, Geneva and Zurich, in one of which the IIFF will be held. The conference will focus on Shari'ah-compliant wealth management and private banking. The conference will be added to the IHI conference listings.

Funds transfer system begins between Saudi Arabia and Malaysia

Saudi-based Al Rajhi Bank which also operates in Malaysia has developed a funds transfer system between Malaysia and Saudi Arabia where a card would be purchased in Malaysia allowing withdrawals from Al Rajhi banks in Saudi Arabia. The system will be rolled out to other countries although Malaysia will remain as a hub.

Other news

Derivative technology is now being used with contracts like mudaraba and arboun to replicate swaps and options.

Maybank issues $300 million sukuk.