Islamic finance in 2010

“Towards More Dynamic and Socially Responsive Islamic Finance” InsyaAllah

  1. Bank of Kuwait and the Middle East would transform into an Islamic bank in 2010.
  2. Germany’s first Islamic bank to open in early 2010
  3. India’s first Islamic bank to start in Kerala by 2010
  4. Bank of London and Middle East eyes LSE listing in 2010
  5. Zitouna Islamic Bank will start in the beginning of 2010
  6. Islamic bank assets to hit $1tn in 2010
  7. Islamic Banking in Indonesia to See 81% Expansion in 2010
  8. Number of Islamic banks in Kuwait rise to five in 2010
  9. Full conversion to Islamic finance by end-2010, says PTPTN
  10. Islamic banks aim to expand into Europe
  11. Jordan’s banking sector performance to improve in 2010
  12. Islamic derivative contract seen by early 2010
  13. Gulf corporate Islamic bonds to flow only in 2010
  14. Islamic Sukuk Market to reach USD140bn in 2010

“We will open the book. Its pages are blank. We are going to put words on them ourselves. The book is called Opportunity and its first chapter is New Year’s Day.” Edith Lovejoy Pierce

Best Regards
ZULKIFLI HASAN
DURHAM, UK

  • Another sign of Islamophobia?

    Shariah finance: The deadly jihadist weapon with a dollar
    By: David Yerushalmi
    Available at: http://www.sfexaminer.com/opinion/columns/oped_contributors/Shariah-finance-The-deadly-jihadist-weapon-with-a-dollar-80322192.html

    News of the recent financial meltdown of Dubai World — a quasi-sovereign global concern that owns 77 percent of international port manager DP World and is the single largest real-estate developer in Dubai — raced from the business pages to front-page headlines in a matter of days. What makes this story more than a massive real estate investment company gone bad is the double-edged sword so prevalent in the chase for oil-based Middle East wealth: sovereign wealth funds and Shariah-compliant finance.

    Beginning in the 1970s with the Carter-era oil embargo and accelerating during the post-9/11, $100-plus oil price spikes, Persian Gulf countries like Saudi Arabia and the United Arab Emirates’ wealthiest city-state of Abu Dhabi have been awash in liquidity. These trillion-dollar cash reserves are controlled in every case by royal families, typically in sovereign or quasi-sovereign wealth funds.

    Another phenomenon that followed was the promotion and aggressive exportation of the Muslim Brotherhood doctrine of SCF. The goal was that of establishing Shariah as the supreme law of the world. Western imams and their infidel advisers in business suits have understood that given the global jihad’s reliance on the dictates of Shariah to murder apostates and terrorize infidels into submission, SCF must be attired in a kind of progressive Western garb to attract the attention of financial centers in London, Hong Kong and New York. So it was that SCF became known as “ethical investing” and Western and Muslim financiers began lecturing the world that the fraud and abuse of the financial markets were all driven by the desire for forbidden gain through interest and gambling.

    They told us that SCF was based not on forbidden interest and speculative paper assets, but profits through equity participation and sound investing in real assets. To understand the rather opaque world of Islamic finance, one must understand the players. Since its founding, the modern SCF world has been driven by two groups. The first we can label the Shariah fundamentalists. These Shariah-inspired financiers understand SCF as part of a larger stealth campaign to institutionalize Shariah in the West. What makes this institutionalization a bit tricky is that the financial jihadists must convince Western financiers that Shariah-inspired economics and finance is somehow distinct from Shariah-inspired global jihad against the infidel West.

    Financial jihadists built their strategy upon both sovereign wealth and Western facilitators — the second group — who would sell their own well-being and physical security for a place among the Fortune 500. Greed, self-indulgence and even treason are not new to the international banking and corporate worlds. But, what the Shariah advocates have found even more to their liking is the fact that the Western technocrats and policymakers in government have been more than willing to ignore Shariah’s call for global jihad and its resonance as the common threat doctrine articulated by jihadists around the globe.

    “In a World where people are surrounded by darkness, ignorance and fear, it is a sign of hope to be celebrating Islam’s message of peace and light, and the last great Messenger, born and chosen to deliver them to all mankind.” Yusuf Islam (Cat Stevens)

    Best Regards
    ZULKIFLI HASAN
    DURHAM, UK

  • Glasgow, Scotland

    CONVOY TO GAZA BLOCKED IN AQABA BY EGYPT

    Gaza Aid Convoy Members Prepare For Hunger Strike
    Available at: http://www.paltelegraph.com/palestine/gaza-strip/3327-gaza-aid-convoy-members-prepare-for-hunger-strike

    Palestine, December 27, 2009, (Pal Telegraph) – Members of the Viva Palestina international aid convoy to Gaza will begin a hunger strike at 11.25am local time tomorrow (27th) in protest at the Egyptian government’s refusal to allow the convoy entry onto its soil. Diplomatic negotiations are also taking place between the Turkish and Egyptian governments over the convoy’s entry to Egypt. IHH, Turkey’s main humanitarian aid agency, has 63 vehicles travelling on the convoy.

    The Syrian government has also provided aid and vehicles, as has the government of Malaysia. More than 400 people from 17 countries are travelling on the 150 vehicle convoy, which is taking medical, humanitarian and educational aid to Gaza. They left London on 6 December and have travelled nearly 3,000 miles across Europe and the Middle East. However, the convoy and its cargo of aid is now stopped in the Jordanian port town of Aqaba, having been denied entry into Egypt.

    British MP, George Galloway, who is travelling with the convoy, said: ‘Israel has kept Gaza under siege for three-and-half years against international law. It has not allowed aid or rebuilding materials in following its attack on Gaza earlier this year. Our convoy is determined to break the siege and take in urgently needed supplies Spirits are high in our camp in Aqaba, and we are going nowhere except to Gaza.’

    It was at 11.25am on December 27 2008, that Israel dropped its first bombs on the besieged population of Gaza. Three weeks later, following a sustained air, land and sea assault, more than 1,400 Palestinians had been killed. The Viva Palestina hunger strikers will consume only liquids until the convoy is allowed entry into Egypt.

    Convoy members will also mark the first anniversary of the beginning of Israel’s Operation Cast Lead by holding a march through Aqaba, jointly with the Jordanians. In the evening, more than 1,400 candles will be lit for a vigil. The convoy has been jointly organised by the charity Viva Palestina and the Palestine Solidarity Campaign, the UK’s largest organisation campaigning for solidarity with the Palestinian people.

    First Viva Palestina Gaza Convoy, February 2009

    Best Regards
    ZULKIFLI HASAN
    DURHAM, UK

    Solvency Requirements for Takaful Undertakings

    The IFSB issues Exposure Draft 11 for public consultation
    Available at: http://www.ifsb.org/preess_full.php?id=134&submit=more

    Kuala Lumpur- The Technical Committee of the Islamic Financial Services Board (IFSB) has approved the issuance of the IFSB Exposure Draft entitled Solvency Requirements for Takaful Undertakings (ED-11) for Public Consultation starting 17 December 2009. Click here:

      ED11 English
      ED11 Arabic

    ED-11 aims to enhance and improve the ability of Takaful undertakings in sustaining and managing the risks on behalf of the participants. The seven (7) Key Principles outlined in ED-11 complement the substance of solvency standards and assessments developed by International Association of Insurance Supervisors, the international standard-setter for conventional insurers. This adopted approach is intended to ensure the supervision of Takaful, while catering to the specificities of Islamic finance, is consistent with that of the conventional insurers.

    The key principles set forth in this document are hoped to foster the confidence of the market towards the integrity and stability of the Takaful undertakings as well as providing the Takaful undertakings a competitive niche among the insurance providers.

    During the five-month consultation period, the IFSB will hold a roundtable discussion, workshop and a public hearing to encourage interaction with, and comments from, the members of the IFSB as well as the financial community in general.

    “Our greatest lack is not money for any undertaking, but rather ideas, If the ideas are good, cash will somehow flow to where it is needed.” Robert H. Schuller

    Best Regards
    ZULKIFLI HASAN
    DURHAM, UK

  • Kyoto, Japan

    How Islamic is Islamic Finance?

    How Sharia-compliant is Islamic banking?

    By John Foster Available at: http://news.bbc.co.uk/1/hi/business/8401421.stm

    The Islamic finance industry has often battled with the question: How Islamic is Islamic banking? The question’s pertinence was raised in March last year, when Sheikh Muhammad Taqi Usmani, of the Accounting and Auditing Organization for Islamic Finance Institutions (AAOIFI), a Bahrain-based regulatory institution that sets standards for the global industry, said that 85% of Sukuk, or Islamic bonds, were un-Islamic.

    Usmani is the granddaddy of modern-day Islamic finance, so having him make this statement is synonymous with Adam Smith saying that free-markets are inefficient. Because Sukuk underpin the modern-day Islamic financial system, one of its pre-eminent proponents arguing that the epicentre of the system was flawed sent shockwaves through the industry. It also gave ammunition to the many critics who see Islamic finance as an industry more driven by cultural identity than practical problem solving: as a hodgepodge of incoherent, incomplete, impractical and irrelevant ideas.

    Recognisable products

    The products that modern-day Islamic bankers have created are very similar to conventional products.
    So similar, in fact, that to an outside observer they could be considered the same. Islamic banks now offer Islamic mortgages, Islamic car loans, Islamic credit cards, Islamic time deposit and guaranteed return accounts, Islamic insurance and some even offer Islamic managed and hedge funds.This point is conceded by Samir Alamad, Sharia, or Islamic law, compliance and product development manager of the Islamic Bank of Britain.

    “The industry does not want to alienate its products,” he says. “They have to be recognisable, produce the same outcome as conventional products, but remain within the guidelines of Sharia.”

    No interest

    The core of Islamic economics is a prohibition on interest. This immediately creates a problem for Islamic banks, as conventional banks charge borrowers an interest rate through which they can reward their depositors and make some profit for being the broker.

    With interest ruled out it is harder to make money. The modern Islamic banker has found a way around this prohibition, however. As in many Islamic products, the bank enters a partnership with its depositors and invests his money in a Sharia compliant business. The profit from this investment is then shared between the depositor and the bank after a set time. In many cases this “profit rate” is competitive with the conventional banking system’s interest rate for savers.

    Lease agreements

    Alternatively, an Islamic banker might enter into a lease agreement for a car or a house with an individual.
    If he doesn’t give it to us, we phone up another scholar, offer him a sum of money for his services and ask him for a Fatwa. We do this until we get Sharia compliance Investment banker in Dubai. The bank would buy a vehicle outright and then lease it back to the person who wanted it, over a time period that would ensure that the capital was repaid and the bank made a profit.

    Alternatively the bank would enter into a partnership with a person wanting to buy a house. The bank would buy 70% of the house, the individual 30%. The bank then rents its share of the house back to the individual until the house is fully paid for.

    The bank makes a profit on the rent, which would be higher than equivalent rents in the area, but on an annualised percentage basis, would look very much like a conventional mortgage interest rate. To the casual observer, a spade is a spade. Whether the product is dressed up in Arabic terminology, such as Mudarabah, or Ijarah, if it looks and feels like a mortgage, it is a mortgage and to say anything else is semantics.

    Sophisticated finance

    The potential wealth locked up in oil-rich Gulf states encouraged the conventional banks to enter Islamic finance. HSBC established the Amanah Islamic Finance brand in 1998 and Deutsche Bank, Citi, UBS and Barclays quickly joined the fray, all offering interest-free products for wealthy Arabs.

    However, this new generation of Islamic bankers had cut their teeth in the City and Wall Street, and were used to creating sophisticated financial products. They often bumped heads with the Sharia scholars who authorised their products as Sharia compliant. However, these bankers had a way of dealing with this, as one investment banker based in Dubai, working for a major Western financial organisation explains:

    “We create the same type of products that we do for the conventional markets. We then phone up a Sharia scholar for a Fatwa [seal of approval, confirming the product is Shari’ah compliant]. “If he doesn’t give it to us, we phone up another scholar, offer him a sum of money for his services and ask him for a Fatwa. We do this until we get Sharia compliance. Then we are free to distribute the product as Islamic.”

    No consensus

    This “Fatwa shopping”, which was carried out by some institutions, brings us back to the Sharia scholars. Even these scholars do not agree all the time, which means that in some cases a product is deemed Sharia compliant in one market and not in another. This is especially the case with Malaysian products, which are often deemed not Sharia complaint in the more austere Gulf.

    “Often no rulings exist for modern day problems, such as use of narcotics,” Alamad explains. “In Islam intoxication by wine is forbidden, but at the time of the Prophet Mohammed there was no crack cocaine.”

    Modern scholars had to interpret the rules on intoxication, and the consensus was that crack should also be forbidden to Muslims, as it is a dangerous intoxicant. “This is how we make rulings, whether in finance or societal,” Alamad says. “The consensus rules, which usually will become mandatory for all Muslims to follow, but there are some opinions and sometimes scholars are not in the consensus.”

    Banking is banking

    This makes it more important to be in the consensus, and so getting a favourable ruling from a leading Sharia scholar is important for a product manager. That is why the top scholars can earn so much money – often six-figure sums for each ruling. The most creative scholars are the ones in the most demand, says Tarek El Diwany, analyst at London-based Islamic financial consultancy Zest Advisory.

    “To date, most Islamic financiers have been looking at examples of financing in Islamic history and figuring out how to apply them to today’s financial products.” But banking is banking. It is the taking of a deposit and then using it to finance a purchase or business.

    The lender pays the depositor compensation for the opportunity cost of his money, and the person borrowing the money “rents” it off the bank. The same symbiotic relationship occurs whether it is conventional banking, ethical banking, Islamic banking or Presbyterian banking. As Majid Dawood, chief executive of Yasaar, a UK-based Islamic finance consultancy says: “Everything that is not forbidden in the Holy Qur’an is OK. “Yes, the industry has to evolve, but it is only 40 years old and its competing with a conventional finance system that is over 800 years old.”

    “If any religion had the chance of ruling over England, nay Europe within the next hundred years, it could be Islam” George Bernard Shaw

    Warm Regards
    ZULKIFLI HASAN
    DURHAM, UK

  • Atlantis the Palm, Dubai, UAE.

    South Korea Parliament holds bills on sukuk

    Islamic bond plan suffers setback Available at: http://www.koreaherald.co.kr/NEWKHSITE/data/html_dir/2009/12/25/200912250013.asp

    Korea’s plan to tap into the Islamic finance market faces a setback as a parliamentary committee failed to approve a bill aimed at relieving tax burdens that have virtually blocked local companies from selling Islamic bonds. A subpanel of the National Assembly’s Strategy and Finance Committee on Tuesday decided to put on hold a vote on the government proposal to exempt tax on profit distributions from Islamic bonds, or sukuk.

    “The panel decided to handle it in a February session,” said Kim Kwon-hoon, a secretary for Rep. Lee Hae-hoon, who heads the parliamentary panel. The lawmakers were preoccupied with a string of controversial issues regarding income and corporate tax plans, he explained. “The bill is a prerequisite to the launch of Islamic finance in Korea,” said Lee Do-heon, head of global business department at Korea Investment & Securities Co.

    As Islamic law forbids interest payments, sukuk securities take a rather different form from conventional bonds, which raises taxation issues. For instance, sukuk securities pay investors profit distributions based on tangible assets, instead of interest, which could be subject to value-added and capital gains taxes under the current Korean law.

    The bill in question is aimed at treating sukuk just like conventional bonds. “(The delay) is unfortunate for the country, given a global race among major financial centers around the world to promote Islamic finance,” Lee said. Korea Investment, just like other securities companies, has been making preparations since last year to get an upper hand in the sukuk issuance market, once it takes off, he added.

    GS Caltex, Korean Air and several other companies have been preparing for sukuk issuances in the first half of next year. The delay of the bill’s passage may affect their schedule, he said. The Finance Ministry previously said in its plan for next year that it hoped domestic companies would diversify their funding sources by entering into the Islamic finance markets from as early as the beginning of 2010.

    Asia’s financial centers are in a race to promote Islamic finance, with Singapore and Malaysia in the forefront. Hong Kong Chief Executive Donald Tsang has pledged to overhaul legislation in order to develop Islamic finance in the city. In May, a delegation of Korea’s financial authorities and industry representatives, led by Kim Jong-chan, chairman of the Financial Supervisory Service, held the Korea Country Showcase during the 6th Islamic Financial Services Board Summit in Singapore in a bid to promote Seoul as an Islamic financing hub of Asia. (milaya@heraldm.com). By Lee Sun-young

    “How can I be expected to believe that this same racial discrimination which has been the cause of so much injustice and suffering right through the years, should now operate here to give me a fair and open trial?….consider myself neither morally nor legally obliged to obey laws made by a Parliament in which I am not represented. That the will of the people is the basis of the authority of government, is a principle universally acknowledged as sacred throughout the civilized world.” Nelson Mandela

    Best Regards
    ZULKIFLI HASAN
    DURHAM, UK

  • University of Glasgow (Est. 1451), Scotland

    Gulf needs better bankruptcy rules to serve sukuk

    The near-default of Dubai developer Nakheel’s Islamic bond will trigger calls for better bankruptcy rules in the Gulf as investors wake up to legal and financial risks now that the boom years are over. Sukuk are fixed income products that behave like conventional bonds but don’t pay interest which is banned by sharia law — and roughly offer the same protection as an ordinary unsecured corporate bond in case of a default. A large number of Islamic bonds are construed under English law, but investors will often need to go before a local court even if a UK judge rules in their favour, because few Gulf countries have enforcement treaties with the West that can greatly complicate matters.

    “Each (Gulf) country has a bankruptcy code and in many cases that bankruptcy code is antiquated compared to countries like the UK or the U.S. that had 200 years to develop,” said a source at a large law firm in the Gulf region, asking not to be named because of client sensitivities.

    Problems may arise from rules that cap payable interest, through the lack of binding precedent and through a lack of knowledge of the local system and how it works. Dubai narrowly averted becoming the stage for the highest-profile sukuk collapse to date when its neighbour Abu Dhabi threw it a USD 10 billion lifeline, enabling the $3.5 billion sukuk to be repaid. Dubai, seeking a wider standstill on its USD 26 billion debt pile, hastened to say it would implement insolvency law modelled on international practices, and set up a tribunal to deal with Dubai World’s debt restructuring. “Anything that brings in first-world legislation, and I mean Western concepts, is going to be a step forward because this is a complex area and you need modern legislation,” said the source at the law firm.

    Fee Bonanza

    Originally set up to give devout Muslims access to state-of-the-art financial engineering, Islamic finance in its heyday quickly became a means for Western investors to earn high yields and for banks to rake in fat fees. It was at the height of the credit boom in end-2006 that Nakheel issued its sukuk, following hot on the heels of a similar $3.5-billion deal for Dubai’s Ports, Customs and Free Zone Corporation (PCFC).

    Barclays Capital and Dubai Islamic Bank were the banks selling these sukuks, which were both convertible into equity ahead of a mooted flotation. They were very large compared to other Islamic or equity-linked products. “In 2006/7, a lot of so-called Islamic money was only there for the yield,” said an emerging markets debt official at a bank not involved with either of these two bonds.

    Western banks, whose business overwhelmingly relies on precisely the interest income that sharia forbids, were the main issuers of sharia-compliant products. Investors often seem to have glossed over the legal and financial risks in such products, bankers and lawyers working in the sector say, despite the fact that the documentation is clear and lists all of them.

    “There are all sorts of things you have to think about when you buy these products and when you look in the offer documents you’ll see there are significant risk events,” said Roger Wedderburn-Day, a partner at Allen and Overy. “But it never seems to have stopped anyone, and people have been happy to invest in these things notwithstanding the reasonable enforcement risk,” he said.

    Pay the rent

    Part of the confusion may have stemmed from the way sukuk is engineered to provide fixed payments that aren’t interest. Typically, this involves paying rent for an underlying asset, such as land or real estate. But investors have no security over the asset if the issuer gets into trouble, unlike in structured finance products such as mortgage-based securities. Sukuk may be asset-based, that does not mean they are asset-backed.

    “A sukuk is a fixed-income instrument which mimics the characteristics and the risk profile of an unsecured corporate bond and that is it. There’s nothing more,” the first source who works a large law firm said. “People have different views but they’re wrong.” The Nakheel deal was of the Ijara variety, the most common type, where a special purpose vehicle sells the sukuk to investors. The SPV bought assets from Nakheel, which then leased them back, providing the SPV with periodic payments.
    Reuters available at: http://www.moneycontrol.com/news/world-news/gulf-needs-better-bankruptcy-rules-to-serve-sukuk_432055.html

    Had Nakheel defaulted, the SPV would have merely become an unsecured creditor. The upshot is that sukuk are roughly as risky as any emerging market unsecured bond, Islamic or not. The legal risk is bigger than a cross-border deal in the West, but not because they are Islamic finance products. And even the legal risk may not be so insurmountable as it looks. Paying rent is a common thing anywhere in the world, so local courts might well enforce Ijara.

    Moreover, most sukuk contracts offer a way out of court through arbitration. That again, is no different from any other restructuring of a default: Islamic or non-Islamic, emerging market or developed market.”Most rational creditors will realise that you get more back on a restructuring than on a winding up, which is the logical outcome of successful litigation,” said Allen and Overy partner Wedderburn-Day.

    “Bankruptcy is a legal proceeding in which you put your money in your pants pocket and give your coat to your creditors” Joey Adams

    Best Regards
    ZULKIFLI HASAN
    DURHAM, UK

  • Voice of the Cape, Cape Town Radio Station.