The Consultative Group to Assist the Poor, a part of the World Bank, has an interesting post from the EVP & Group Head of Retail and Microfinance at the Bank of Khartoum about the possibilities for Islamic microfinance in agricultural finance. One of the points that I thought was noteworthy was the potential to offer microinsuance (microtakaful) to the farmers in the region served by the bank.
There is value to that to provide a community-based way of sharing risks associated with agriculture, but I think that it would be beneficial to broaden the scope of the microtakaful beyond the communities involved in the bank's focus. The microtakaful would presumably provide assistance if a farm ran into trouble in a given year, but it would surely be insufficient if there was a widespread drought across the entire region.
The takaful industry--not to mention microtakaful--is several years behind the rest of Islamic finance, so there is some catching up to do. However, a focus on microtakaful would be one area where the takaful segment of Islamic finance could lead if there were a more widespread push to emphasize its development (Islamic finance in general has been behind the curve on microfinancing).
The agricultural sector in many OIC countries is generally a large part of the overall employment, even if the total contribution to GDP is smaller than the share of employment. This typically results from farmers who are working with small plots of land and not using as many productivity-generating methods compared to larger-scale agriculture. Another result is that smaller farms are more susceptible to drought.
Given the high contribution in terms of employment that comes from agriculture in many OIC countries, providing a financial product that makes a contribution to soften the blow of drought (it would be pretty impractical to suggest that the impact could be entirely offset, absent significant progress to reverse the effects of climate change) would do a lot in both monetary and non-monetary terms to supporting development.
The efforts to develop microtakaful for farmers will provide some benefit, but in the absence of micro-retakaful (or remicrotakaful), the terms doesn't roll of the tongue for sure, but the development of a reinsurance program for microtakaful that is based on the deviations in rainfall and temperature in different regions and pays out accordingly would do a lot of good. It would provide the microtakaful funds with assistance in case of events that would otherwise be catastrophic to the takaful fund (where need would far oustrip the available resources).
Showing posts with label retakaful. Show all posts
Showing posts with label retakaful. Show all posts
Sunday, December 23, 2012
Saturday, March 20, 2010
ShariaUMEX, more TID and Nakheel, wadiah-based retakaful, Islamic Repo 105?
A new Islamic exchange will be launched in London in May, the Shariah Ummah Information Exchange (UMEX). The exchange will be open to companies with at least GBP 20 million ($31 million) seeking to raise up to 20% of their market value. It will operate as a Multilateral Trading Facility (MTF) according to the chairman of Halal Industries, which will manage the exchange. MTFs are low-cost electronic trading platforms under the Markets in Financial Instruments Directive (MiFID). The ShariaUMEX expects to have 10 enterprises and 100 securities listed when it launches and hopes there will be 100 IPOs within a year. The exchange will launch Islamic equivalents to American and Global Depository Receipts (ADRs and GDRs). The primary question I have about the exchange is whether it can provide exchange listing at a similar cost to larger exchanges like the London Stock Exchange and related AIM. Presumably, the companies listed on the exchange will be subject to the same standards of reporting and transparency as other exchanges. One of the largest challenges will be whether the exchange can attract sufficient liquidity to allow relative efficiency in pricing which is necessary to attract future listings. There is certainly some minimum level of trading and listing that the exchange has to reach in order to get to a 'critical mass' where it will attract further listings.
The analysis of the TID v. Blom Bank case continues. An article in the National which continues their solid coverage of Islamic finance describes several areas where the decision could impact the Islamic finance industry as a whole. One area is the increasing Shari'ah risk in UK courts allow TID to argue that a product was not Shari'iah-compliant and therefore outside of its corporate power to enter into despite a ruling by its own Shari'ah board approving the product at the time. Generally, the ability of secular courts too enforce decisions based on religious rulings is a negative because they do not have the expertise to make a ruling in this area. The decision of a Shari'ah board that a given product is Shari'ah-compliant should be what determines whether the company can enter into it. If this is changes so that ex post, the bank can argue in a secular court that a contract is not Shari'ah-compliant for nearly any contract it has entered into if it is in financial difficulties. This erodes the role of the Shari'ah board as the arbiters of what is or is not Shari'ah-compliant. Shari'ah boards should be given the exclusive authority to judge Shari'ah-compliance of a given contract and be allowed to force an institution to change its implementation of a Shari'ah-compliant contract if it is doing os outside of the bounds of the original fatwa. The secular courts, on the other hand, should be limited to judging whether the specific aspects of the contract have been followed, not whether it is Shari'ah-compliant or not. The claim by the TID that the contract was not Shari'ah-compliant because it stipulated a fixed rate of return is another separate issue that Shari'ah scholars can discuss and highlights the problematic nature of some contracts which mimic conventional products, but that is a whole other area of discussion.
Reuters weighs in with an article on the Nakheel debt problems saying that the crisis and eventually a resolution could strenghten Islamic finance by forcing the industry to deal with issues raised by the near-deafult. It has also forced investors in the Nakheel sukuk as well as others looking on to consider the limitations that a sukuk may provide in terms of creditor protections compared with a conventional bond.
Another very interesting article in The National discusses whether accounting tricks like Lehman's Repo 105 transactions could come out and bite Gulf-based financial institutions that use similarly misleading transactions. The National reports: "The [anonymous] accountant noted the example of companies issuing sukuk, which may not transfer all of the downside risk attached to an underlying asset to the bondholder. Neither does that risk appear on the balance sheet of the issuer." This is most likely referring to an ijara, mudaraba or musharaka sukuk where the asset underlying the sukuk is transferred to the SPV issuing the sukuk certificates. I am not knowledgeable enough about accounting under IFRS to make a judgement on the accounting treatment of these sukuk, but it would not surprise me if the assets underlying these sukuk were not included on the balance sheet of the issuer (with the beneficial interest transferred to the off-balance-sheet SPV). This would make it appear that there is no asset on the balance sheet that could lose value and cause the issuer a loss. There are only the debts payable to the SPV (which would then pass them on to the certificateholders). However, if the asset loses significant value, then under most sukuk structures, the bank would be forced upon maturity to repay the principal through the purchase undertaking and take a possibly depreciated and depreciating asset back onto its balance sheet. When this event occurred, the outcome would be the bank paying the par value to redeem the sukuk and receiving an asset on its balance sheet that it would probably have to immediately write down to a fair value from the purchase price, which would cause a loss. I would be grateful if any reader more skilled in IFRS accounting could enlighten me on the subject so I could provide a more accurate assessment on the potential pitfalls of sukuk structures that are described by the accountant in the National article.
The International Shari'ah Research Academy (ISRA) has developed, although not yet released, a model for wadiah-based retakaful, which would clarify who owns what in the fund better than the mudaraba or wakala model, according to ISRA. The way it would work is that takaful providers would contribute to a fund that is managed by the retakaful provider. The funds would be invested and the retakaful provider would receive an agency fee and also be liable to pay claims from the participants. In the case that there is a profit on the investments after claims were paid, the profits would be retained by the retakaful provider and any surplus amount in the account (of contributed amounts) would be owned by the participating firms. The retakaful company is able to keep the profits from the investments, so long as the claims are paid to the takaful firms contributing capital, but the difference between contributions paid and claims paid remains owned by the participants, which should reduce the incentive for the retakaful provider to invest too aggressively, because it is forced to return to participants the difference between the contributions made and the claims paid. If it recognizes substantial losses on its portfolio and there is a surplus of contributions, it would be forced to return those funds to the participants, even if its investments lost money.
With all deference to Dr. Hussein Hamed's expertise, I have to disagree strongly with his statement at the Dubai Peace Convention that "Currency value has become interest-based and, therefore, when the crash happened, the only monetary system that was not affected was the interest-free Islamic system." The idea that the Islamic financial system, either in its theoretical form or in how it is actually practiced today is somehow insulated from economic cycles is just not true. The system is operated by people, often with noble intentions, but it is just as susceptible to crisis and recession as any other economic or financial system. The degree to which it can be decimated by poor decisions through over-leveraged financial products like credit default swaps and collateralized debt obligations may be avoided. However, the problem of, for example, overbuilding in Dubai, some of which was financed through Islamic financial products (Nakheel's sukuk, for example) cannot be avoided simply by replacing the conventional financial system with an Islamic one. Human nature being what it is will always create excesses one way or another, although the Islamic restrictions may limit some of the more harmful excesses. If anything, the Islamic financial system should be more, not less, dependent upon the economy cycle because it is supposed to be based on real tangible assets and profit and loss sharing. How many sukuk need to default and financial institutions fail or nearly fail to demonstrate that a severe economic recession can take its toll on the Islamic financial system?
Other News
The analysis of the TID v. Blom Bank case continues. An article in the National which continues their solid coverage of Islamic finance describes several areas where the decision could impact the Islamic finance industry as a whole. One area is the increasing Shari'ah risk in UK courts allow TID to argue that a product was not Shari'iah-compliant and therefore outside of its corporate power to enter into despite a ruling by its own Shari'ah board approving the product at the time. Generally, the ability of secular courts too enforce decisions based on religious rulings is a negative because they do not have the expertise to make a ruling in this area. The decision of a Shari'ah board that a given product is Shari'ah-compliant should be what determines whether the company can enter into it. If this is changes so that ex post, the bank can argue in a secular court that a contract is not Shari'ah-compliant for nearly any contract it has entered into if it is in financial difficulties. This erodes the role of the Shari'ah board as the arbiters of what is or is not Shari'ah-compliant. Shari'ah boards should be given the exclusive authority to judge Shari'ah-compliance of a given contract and be allowed to force an institution to change its implementation of a Shari'ah-compliant contract if it is doing os outside of the bounds of the original fatwa. The secular courts, on the other hand, should be limited to judging whether the specific aspects of the contract have been followed, not whether it is Shari'ah-compliant or not. The claim by the TID that the contract was not Shari'ah-compliant because it stipulated a fixed rate of return is another separate issue that Shari'ah scholars can discuss and highlights the problematic nature of some contracts which mimic conventional products, but that is a whole other area of discussion.
Reuters weighs in with an article on the Nakheel debt problems saying that the crisis and eventually a resolution could strenghten Islamic finance by forcing the industry to deal with issues raised by the near-deafult. It has also forced investors in the Nakheel sukuk as well as others looking on to consider the limitations that a sukuk may provide in terms of creditor protections compared with a conventional bond.
Another very interesting article in The National discusses whether accounting tricks like Lehman's Repo 105 transactions could come out and bite Gulf-based financial institutions that use similarly misleading transactions. The National reports: "The [anonymous] accountant noted the example of companies issuing sukuk, which may not transfer all of the downside risk attached to an underlying asset to the bondholder. Neither does that risk appear on the balance sheet of the issuer." This is most likely referring to an ijara, mudaraba or musharaka sukuk where the asset underlying the sukuk is transferred to the SPV issuing the sukuk certificates. I am not knowledgeable enough about accounting under IFRS to make a judgement on the accounting treatment of these sukuk, but it would not surprise me if the assets underlying these sukuk were not included on the balance sheet of the issuer (with the beneficial interest transferred to the off-balance-sheet SPV). This would make it appear that there is no asset on the balance sheet that could lose value and cause the issuer a loss. There are only the debts payable to the SPV (which would then pass them on to the certificateholders). However, if the asset loses significant value, then under most sukuk structures, the bank would be forced upon maturity to repay the principal through the purchase undertaking and take a possibly depreciated and depreciating asset back onto its balance sheet. When this event occurred, the outcome would be the bank paying the par value to redeem the sukuk and receiving an asset on its balance sheet that it would probably have to immediately write down to a fair value from the purchase price, which would cause a loss. I would be grateful if any reader more skilled in IFRS accounting could enlighten me on the subject so I could provide a more accurate assessment on the potential pitfalls of sukuk structures that are described by the accountant in the National article.
The International Shari'ah Research Academy (ISRA) has developed, although not yet released, a model for wadiah-based retakaful, which would clarify who owns what in the fund better than the mudaraba or wakala model, according to ISRA. The way it would work is that takaful providers would contribute to a fund that is managed by the retakaful provider. The funds would be invested and the retakaful provider would receive an agency fee and also be liable to pay claims from the participants. In the case that there is a profit on the investments after claims were paid, the profits would be retained by the retakaful provider and any surplus amount in the account (of contributed amounts) would be owned by the participating firms. The retakaful company is able to keep the profits from the investments, so long as the claims are paid to the takaful firms contributing capital, but the difference between contributions paid and claims paid remains owned by the participants, which should reduce the incentive for the retakaful provider to invest too aggressively, because it is forced to return to participants the difference between the contributions made and the claims paid. If it recognizes substantial losses on its portfolio and there is a surplus of contributions, it would be forced to return those funds to the participants, even if its investments lost money.
With all deference to Dr. Hussein Hamed's expertise, I have to disagree strongly with his statement at the Dubai Peace Convention that "Currency value has become interest-based and, therefore, when the crash happened, the only monetary system that was not affected was the interest-free Islamic system." The idea that the Islamic financial system, either in its theoretical form or in how it is actually practiced today is somehow insulated from economic cycles is just not true. The system is operated by people, often with noble intentions, but it is just as susceptible to crisis and recession as any other economic or financial system. The degree to which it can be decimated by poor decisions through over-leveraged financial products like credit default swaps and collateralized debt obligations may be avoided. However, the problem of, for example, overbuilding in Dubai, some of which was financed through Islamic financial products (Nakheel's sukuk, for example) cannot be avoided simply by replacing the conventional financial system with an Islamic one. Human nature being what it is will always create excesses one way or another, although the Islamic restrictions may limit some of the more harmful excesses. If anything, the Islamic financial system should be more, not less, dependent upon the economy cycle because it is supposed to be based on real tangible assets and profit and loss sharing. How many sukuk need to default and financial institutions fail or nearly fail to demonstrate that a severe economic recession can take its toll on the Islamic financial system?
Other News
- Malaysia is considering offering long-term sukuk to provide investment opportunities for takaful firms to reduce their reliance on equity and real estate investments.
- Hong Kong will change its laws to allow sukuk issuance. Hong Kong's financial secretary John Tsang also said "We're also enhancing market infrastructure and product development and educating market participants and investors in raising the profile of Hong Kong as an Islamic finance platform".
- An announcement on the fate of Amlak Finance and Tamweel is expected soon. The likely outcome will be a merger into an Islamic bank that will receive government support. The reports do not describe whether the new bank will be able to restart lending, or whether it will simply wind down the two companies in the least costly way, although there is no indication that this is the likely outcome.
- The United Arab Bank launched its Islamic banking unit on March 17th.
Saturday, October 10, 2009
Islamic securitization, other news
A lawyer from Patton Boggs has an article in Islamic Finance News about the requirements for Shari'ah-compliant securitization to develop in the Middle East. Securitization markets across the world have been restricted following the credit crisis, but the securitization if done in a Shari'ah-compliant way would allow Islamic banks to increase the diversification of their assets and would free up capital for additional financing.
Other News
Other News
- The Islamic Development Bank's $1.5 billion sukuk program and the first issue of $850 million in sukuk received a AAA rating from Fitch's and Standard & Poor's and a Aaa rating from Moody's Investor Services.
- Malaysian ports operator Pelabuhan Tanjung Pelepaas plans to raise MYR1.5 billion ($441 million) from sukuk issues with a maturity of up to 10 years.
- Standard & Poor's will be responsible for maintaining and calculating the National Bank of Abu Dhabi's NBAD UAE Listed Islamic Index.
- The fate of Islamic mortgage firms Amlak and Tamweel continues to be discussed as a UAE state panel oversees their restructuring.
- Swiss Re received approval to launch a retakaful unit in Malaysia. The takaful industry has been growing, but there is a shortage of retakaful firms forcing many takaful providers to use conventional reinsurance.
- France sees Islamic finance as a potential way to deal with the credit crunch, although Islamic finance is not immune from similar crises that began in the U.S. in 2007.
Tuesday, April 14, 2009
Reuters Islamic finance conference raises a number of important issues
Real estate exposure at Islamic banks
The Islamic International Ratings Agency reports that Islamic banks are weathering the economic crisis better than conventional banks, but "there will be an adverse effect of real estate exposure on their balance sheets, but we don't expect it to be critical". This is a point I have been making for quite some time as some industry practitioners have claimed that the industry is 'immune' to the current economic crisis because they were prohibited from the subprime lending and derivatives trading that sparked it. The reason is not difficult to understand: Islamic banks are closer to what banks have been throughout history in that they act as intermediaries between savers and borrowers to finance business and consumption. This is their appeal outside of their Shari'ah-compliance. However, their exposure to the economic activities they finance mean that changes in the general economic environment have a significant impact on their balance sheets. In the absence of perfect diversification which even banks in huge, developed markets lack, they will be hit by changes in asset prices in the economic sectors in which they have the most exposure. In the GCC for Islamic banks, this is largely (although not exclusively) in energy and real estate because both sectors are 'tangible asset rich'. Islamic financial products as they are designed currently favor these sectors because they provide a tangible asset on which financers can seek recourse if their clients run into difficulty and are not as susceptible to adverse selection. Adverse selection, having clients more likely to default because of the structure of products, is more of a problem with profit-sharing arrangements like mudaraba and musharaka because they give away more of any upside gain (profits) but cushion against some losses. The adverse selection process arises because clients who are most likely to be successful will seek more debt-like products to keep all their gains while those that are less likely to be successful (either naturally more risky projects or less qualified businesspeople) are willing to trade some possible upside for the downside protection that a profit-and-loss sharing arrangement provides.
Another idea that I have been pressing for several months, greater transparency, is also coming onto the front burner as AAOIFI highlights the need for greater disclosures from Islamic financial firms.
Sukuk
The sukuk market was negatively affected by Shari'ah-compliance standard changes during the second half of 2008. Contrary what has been reported, including on this blog, the fall of sukuk issuance during 2008 was probably impacted by the new AAOIFI rules issued in February 2008. According to the CEO of Dubai Islamic Bank which owns Islamic structuring consultancy Dar al-Sharia, "we lost at least $10bn to $15bn since the onset of the crisis". Among the reasons given were that companies approached the sukuk market with a mindset that was identical to that which they approached a conventional bond issue. DIB CEO Sohail Zubairi explained that "sukuk collapsed because the starting point was conventional. If the starting point would have been correct, I'm sure we would still have been up and running". While pinning much of the blame on the issuers not understanding the difference, the freeze up in the global economy still does bear some responsibility for the fall in sukuk issuance in 2008. A Shari'ah adviser with another Shari'ah consultancy Minhaj, Amin Fateh Amer says that "about 85% of what people are dealing with in the sukuk market are not Shari'ah-compliant at all". This was the same figure mentioned by Sheikh Usmani in November 2007 that caused the controversy which led to the AAOIFI Shari'ah board which he chairs to issue further guidance in February 2008.
Other News
The Islamic International Ratings Agency reports that Islamic banks are weathering the economic crisis better than conventional banks, but "there will be an adverse effect of real estate exposure on their balance sheets, but we don't expect it to be critical". This is a point I have been making for quite some time as some industry practitioners have claimed that the industry is 'immune' to the current economic crisis because they were prohibited from the subprime lending and derivatives trading that sparked it. The reason is not difficult to understand: Islamic banks are closer to what banks have been throughout history in that they act as intermediaries between savers and borrowers to finance business and consumption. This is their appeal outside of their Shari'ah-compliance. However, their exposure to the economic activities they finance mean that changes in the general economic environment have a significant impact on their balance sheets. In the absence of perfect diversification which even banks in huge, developed markets lack, they will be hit by changes in asset prices in the economic sectors in which they have the most exposure. In the GCC for Islamic banks, this is largely (although not exclusively) in energy and real estate because both sectors are 'tangible asset rich'. Islamic financial products as they are designed currently favor these sectors because they provide a tangible asset on which financers can seek recourse if their clients run into difficulty and are not as susceptible to adverse selection. Adverse selection, having clients more likely to default because of the structure of products, is more of a problem with profit-sharing arrangements like mudaraba and musharaka because they give away more of any upside gain (profits) but cushion against some losses. The adverse selection process arises because clients who are most likely to be successful will seek more debt-like products to keep all their gains while those that are less likely to be successful (either naturally more risky projects or less qualified businesspeople) are willing to trade some possible upside for the downside protection that a profit-and-loss sharing arrangement provides.
Another idea that I have been pressing for several months, greater transparency, is also coming onto the front burner as AAOIFI highlights the need for greater disclosures from Islamic financial firms.
Sukuk
The sukuk market was negatively affected by Shari'ah-compliance standard changes during the second half of 2008. Contrary what has been reported, including on this blog, the fall of sukuk issuance during 2008 was probably impacted by the new AAOIFI rules issued in February 2008. According to the CEO of Dubai Islamic Bank which owns Islamic structuring consultancy Dar al-Sharia, "we lost at least $10bn to $15bn since the onset of the crisis". Among the reasons given were that companies approached the sukuk market with a mindset that was identical to that which they approached a conventional bond issue. DIB CEO Sohail Zubairi explained that "sukuk collapsed because the starting point was conventional. If the starting point would have been correct, I'm sure we would still have been up and running". While pinning much of the blame on the issuers not understanding the difference, the freeze up in the global economy still does bear some responsibility for the fall in sukuk issuance in 2008. A Shari'ah adviser with another Shari'ah consultancy Minhaj, Amin Fateh Amer says that "about 85% of what people are dealing with in the sukuk market are not Shari'ah-compliant at all". This was the same figure mentioned by Sheikh Usmani in November 2007 that caused the controversy which led to the AAOIFI Shari'ah board which he chairs to issue further guidance in February 2008.
Other News
- The takaful market in the GCC has a significant growth potential with estimates from Ernst & Young projecting it will rise to $7.7 billion by 2012. Other participants at the World Takaful Conference 2009 in Dubai provided estimates that it could reach $11 billion by 2015. The growth has slowed from previous estimates like one from HSBC which predicted that the global takaful market would reach $14.4 billion by 2010. European insurers are still weighing whether to enter the market to capture first mover advantage or wait for it to become better developed.
- There are a number of quotes compiled together from the recent Islamic Business & Finance conference organized in four cities around the world simultaneously by ThomsonReuters. Reuters also has a timeline of the growth of the industry.
- The Bahrain Financial Exchange plans on launching 10-15 contracts soon including metal-related contracts, up to one-third which will be Shari'ah-compliant.
- The market for Islamic financial products in Nigeria could grow significantly following the passage of the "Law Governing the Operation of Islamic Banks" which was introduced in mid-March 2009.
- The overall market decline has caused a proposed Islamic equity fund to be cancelled and put another one in doubt.
- Islamic investment bank Unicorn is planning a $425 million sukuk by the third quarter of 2009 to fund its expansion, planned largely through expansion. The bank had planned a $1.5 billion sukuk last year that was delayed because of market conditions.
- The head of the International Islamic Financial Market (IIFM) says that sovereign regulators need to establish more standards for Islamic banking and in particular he pointed out that "we don't have a lender of last resort". Reuters provides a factbox about the regulatory bodies currently operating to regulate the Islamic financial industry.
- HSBC Amanah, the Islamic finance division of the banking group has scaled back its plans for its worldwide growth and will focus on its largest markets, Saudi Arabia, the United Arab Emirates and Malaysia with a secondary focus on Indonesia, Pakistan, Egypt, Turkey and the U.K.. The group has offered Islamic financial products since 1994.
- Mashreq unit Badr al-Islami is planning an open-ended sukuk fund to capitalize on the high yields on outstanding sukuk include Aldar Properties, Dubai Electricity & Water Authority and Dar al-Arkan and perhaps also property developer Nakheel. As the sukuk market develops, foreign firms may tap the market starting in 2010.
- National Bank of Kuwait is awaiting central bank approval to buy 40% of Boubyan Bank, an Islamic bank partly owned by The Investment Dar which has considered selling its stake in Boubyan.
- Lloyd's plans to begin offering Islamic reinsurance (retakaful) globally beginning in 2010.
Saturday, April 05, 2008
Social responsibility and Islamic finance, subprime crisis impact on Islamic finance, retakaful
The Islamic equity fund industry is beginning to promote itself based on similarities with socially responsible investing. This is an overdue development because although many people, both Muslims and non-Muslims, understand how socially responsible investing works, many are unaware of how many similarities there are between socially responsible investing and Shari'ah-compliant investing. Both use negative screens to exclude companies operating in unethical industries and both exclude largely the same types of companies. Islamic screens exclude those producing alcohol, tobacco, weapons, pork, gambling and financial services. Socially responsible screens generally exclude alcohol, tobacco, weapons, meat processing , gambling, 'exploitative' financial services like payday lenders, and those companies with poor labor and environmental records. The similarities are so great because both are looking at a double bottom line: creating profits and avoiding social harm. Islamic finance has potential to grow in popularity among non-Muslims who are looking to invest ethically by the ethical underpinnings of Islamic finance, says the head of the Islamic Bank of Britain. Faith-based funds based on many different faiths are also attracting attention.
In the wake of the subprime debt crisis, more attention is paid to the benefits of Islamic finance that could have avoided the problems encountered by investors who weren't aware of what they were actually buying in the CDOs and CDSs they held. The Reuters article highlighted the additional transparency in Islamic financial products, as well as the protections provided by the prohibition of trading debt and speculation inherent in Islamic finance. One area in which protection could be provided is by the asset-backed nature of Islamic financial products. However, this should also provide some protection to many of the securitized products, the value of which have been written down to near zero, which were based on a very tangible asset, real estate.
The subprime crisis and the likely US recession have taken a toll on Islamic finance. Sukuk issuance in the first quarter was only $2.3 billion, less than one-half the level in the first quarter of 2007. However, the sukuk issuance in 2008 is expected to rebound and many of the sukuk have been delayed, not scrapped altogether. One forthcoming sukuk will be issued in Malaysia by the Islamic Development Bank. The controversy over the structure of ijara sukuk will continue when rules are debated at the International Islamic Finance Forum in Dubai.
The growth in the takaful industry is likely to produce growth in Islamic reinsurance, retakaful.
In the wake of the subprime debt crisis, more attention is paid to the benefits of Islamic finance that could have avoided the problems encountered by investors who weren't aware of what they were actually buying in the CDOs and CDSs they held. The Reuters article highlighted the additional transparency in Islamic financial products, as well as the protections provided by the prohibition of trading debt and speculation inherent in Islamic finance. One area in which protection could be provided is by the asset-backed nature of Islamic financial products. However, this should also provide some protection to many of the securitized products, the value of which have been written down to near zero, which were based on a very tangible asset, real estate.
The subprime crisis and the likely US recession have taken a toll on Islamic finance. Sukuk issuance in the first quarter was only $2.3 billion, less than one-half the level in the first quarter of 2007. However, the sukuk issuance in 2008 is expected to rebound and many of the sukuk have been delayed, not scrapped altogether. One forthcoming sukuk will be issued in Malaysia by the Islamic Development Bank. The controversy over the structure of ijara sukuk will continue when rules are debated at the International Islamic Finance Forum in Dubai.
The growth in the takaful industry is likely to produce growth in Islamic reinsurance, retakaful.
Friday, August 24, 2007
Indian Islamic finance, African retakaful & British Islamic home financing
India may see Islamic banks allowed soon.
A the Cote D'Ivoire offices of Nigeria-based reinsurance company, Africa Reinsurance Corporation, is increasing its authorized share capital to fund a re-takaful venture.
A description of the Islamic home financing available in Britain, murabaha and ijara.
A the Cote D'Ivoire offices of Nigeria-based reinsurance company, Africa Reinsurance Corporation, is increasing its authorized share capital to fund a re-takaful venture.
A description of the Islamic home financing available in Britain, murabaha and ijara.
Thursday, July 26, 2007
Retakaful, sukuk and a new Islamic bank
MNRB Holdings will become the first retakaful operator in Malaysia (Business Times Malaysia) when it begins operating on August 1st. The takaful industry has struggled in the past because it has relied upon conventional reinsurers because that was the only option available for takaful providers.
A description (Zawya) of the recently launched Investment Dar Bank in Bahrain.
Kuwait will allow sukuk (AMEinfo).
A description (Zawya) of the recently launched Investment Dar Bank in Bahrain.
Kuwait will allow sukuk (AMEinfo).
Wednesday, March 14, 2007
IF in China, Takaful & Retakaful, diminishing musharaka & Anwar Ibrahim interview
London Asia Capital creates Islamic finance division in Western China
London Asia Capital plc, a British merchant banking group, is opening an Islamic finance division in Xinjiang, China in partnership with Xinjiang Investment Corp. The Xinjiang region is home to most of China's estimated 20 million Muslims. The Islamic finance division will offer credit guarantee services to Islamic and Shari'ah-compliant companies.
Lloyd's of London 'very interested' in takaful
Lloyd's of London, the U.K.-based insurance company, expressed continued interest in expanding to serve the takaful markets in the Middle East and Malaysia. Chairman Peter Levene said he believed that takaful "could be a much more acceptable way for individuals and corporations in that area to take out insurance, which they have been unable or unwilling to do in the past" and said Lloyds was "very interested" in entering takaful markets. In a press release from Lloyds on March 1st, Peter Levene expressed that Lloyds believed "there are some potentially strong business opportunities in the Retakaful [Islamic reinsurance] sector and that Lloyd's could become an attractive platform for capital providers wishing to invest in this area."
Citigroup offers home finance in Malaysia
Citibank Bhd now offers a diminishing musharaka home financing co-ownership product where payments are broken into a rental share and a buyback share, which is used to increase the client's share of ownership in his house.
Interview with Anwar Ibrahim
There is an interview with Anwar Ibrahim on Islamic finance. He was recently announced as a speaker at the International Islamic Finance Forum (IIFF) in Dubai in April 2007 recently.
London Asia Capital plc, a British merchant banking group, is opening an Islamic finance division in Xinjiang, China in partnership with Xinjiang Investment Corp. The Xinjiang region is home to most of China's estimated 20 million Muslims. The Islamic finance division will offer credit guarantee services to Islamic and Shari'ah-compliant companies.
Lloyd's of London 'very interested' in takaful
Lloyd's of London, the U.K.-based insurance company, expressed continued interest in expanding to serve the takaful markets in the Middle East and Malaysia. Chairman Peter Levene said he believed that takaful "could be a much more acceptable way for individuals and corporations in that area to take out insurance, which they have been unable or unwilling to do in the past" and said Lloyds was "very interested" in entering takaful markets. In a press release from Lloyds on March 1st, Peter Levene expressed that Lloyds believed "there are some potentially strong business opportunities in the Retakaful [Islamic reinsurance] sector and that Lloyd's could become an attractive platform for capital providers wishing to invest in this area."
Citigroup offers home finance in Malaysia
Citibank Bhd now offers a diminishing musharaka home financing co-ownership product where payments are broken into a rental share and a buyback share, which is used to increase the client's share of ownership in his house.
Interview with Anwar Ibrahim
There is an interview with Anwar Ibrahim on Islamic finance. He was recently announced as a speaker at the International Islamic Finance Forum (IIFF) in Dubai in April 2007 recently.
Friday, March 02, 2007
RHB decision delayed, Lloyds opens in Labuan, MIFC licenses International Islamic Banks
Decision delayed for RHB & RHB Capital
Both Kuwait Finance House and EON Capital say they will have to wait for a decision by Rashid Hussain Bhd (RHB) over their respective offers. KFH Managing Director Salman Younis said negotiations are still ongoing and should be completed within 10 days. EON Capital will allow RHB to have until March 9 to make a decision on the EON offer for RHB Capital.
KFH made its original offer on February 6 and EON Capital followed with its offer on February 7.
Lloyd's opens Labuan office, plans retakaful
The large insurer Lloyd's of London opened an offshore office in Labuan after receiving approval from the Labuan Offshore Financial Services Authority. The insurer plans to offer retakaful (Islamic reinsurance) in the near future according to chairman Lord Peter Levene.
MIFC to license International Islamic Banks and extend full tax exemption for 10 years
The International Islamic Banks will be able to offer foreign-currency denominated products under a Malaysian International Financial Centre (MIFC) initiative where Islamic financial instutions set up an "International Currency Business Unit", which is fully exempt from taxation for 10 years. Foreign banks are being invited to open Islamic banks within the country in moves designed to solidify Malaysia's role as an Islamic finance hub.
Both Kuwait Finance House and EON Capital say they will have to wait for a decision by Rashid Hussain Bhd (RHB) over their respective offers. KFH Managing Director Salman Younis said negotiations are still ongoing and should be completed within 10 days. EON Capital will allow RHB to have until March 9 to make a decision on the EON offer for RHB Capital.
KFH made its original offer on February 6 and EON Capital followed with its offer on February 7.
Lloyd's opens Labuan office, plans retakaful
The large insurer Lloyd's of London opened an offshore office in Labuan after receiving approval from the Labuan Offshore Financial Services Authority. The insurer plans to offer retakaful (Islamic reinsurance) in the near future according to chairman Lord Peter Levene.
MIFC to license International Islamic Banks and extend full tax exemption for 10 years
The International Islamic Banks will be able to offer foreign-currency denominated products under a Malaysian International Financial Centre (MIFC) initiative where Islamic financial instutions set up an "International Currency Business Unit", which is fully exempt from taxation for 10 years. Foreign banks are being invited to open Islamic banks within the country in moves designed to solidify Malaysia's role as an Islamic finance hub.
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