Does Size Matter?

Islamic finance to jump to USD 3 trillion by 2016: study

Available at: http://www.kuna.net.kw/NewsAgencyPublicSite/ArticleDetails.aspx?id=2148501&Language=en

GENEVA, Feb 27 (KUNA) – – The demand for Shariah-compliant financial products is growing very rapidly which is expected to take the total assets of this sector up to USD 3 trillion by 2016, said a study conducted by the Swiss Bank group (Credit Suisse) and the University of Zurich.

Scientists working with the University of Zurich professor of economics, Ernst Fehr recently made a striking discovery; based on psychological experiments, they found religiosity to have a significant influence on economic action. “The more religious a person is, the harder the person punishes unfair economic behavior of other market participants. This result may be surprising to conventional economists, but it is not to those who participate in Islamic finance,” the study said. For almost four decades, the faith-based business branch has sought to combine the premises of Islam with those of the financial markets, aiming to establish fair ways of trading and investing, the study added.

Surprisingly, the unusual consolidation of financial and faith-based purposes has been richly rewarded. Islamic finance is today one of the fastest-growing business segments in the world, attracting investors worldwide. Its compound growth rate was 26 percent between 2004 and 2009, totaling a market value of USD 822 billion dollars by end of 2009. “Islamic Finance performed comparatively well during the financial crisis, and its future growth rate seems unabated. Shariah-compliant assets are likely to triple within the next six years, expected to reach 3 trillion dollars by 2016,” explained the study.

Islamic Finance is the reconciliation of economic action with the Islamic legal practice of the Shariah (Islamic law). Based on a permanent exchange between banking experts and renowned Islamic scholars, a few basic concepts of prohibition have been defined throughout the past decades such as no interest, no speculation and gambling-like transactions and no “immoral” business branches.

The Dow Jones Islamic Market Index has outperformed MSCI World Index in recent years. There are a number of equity indexes that screen companies with regard to their compatibility to Islam. Even though these indexes have to cope with a limited investment universe, the Dow Jones Islamic Market Index, currently the best-known Shariah-compliant equity index, has managed to outperform the MSCI World Index lately.

In the case of Sukuk (Islamic bonds), structured products and funds, most financial institutions cooperate with so-called Shariah boards, normally consisting of three Islamic scholars that evaluate and categorize every financial product as either Halal (pure) or Haram (impure). Islamic Finance started off as a grass roots movement. In the beginning, many governments, even those of traditional Islamic countries, tried to avoid any entanglement with Islamic Finance. The reason was that they were scared to harm the country’s economic development by following a different way than developed markets. As a consequence, most governments refused to accept Shariah-compliant investment opportunities. However, due to the strong demand from Muslim clients, Islamic Finance emerged and the fear of an Islamic way of doing business proved to be unfounded.

Today, many countries are starting to rethink their attitudes toward Islamic Finance: Islamic Finance-friendlier policies are established, Islamic banking licenses are provided. Various global players have announced plans to enter the Islamic financial market during the course of 2011. As a matter of fact, Shariah-compliance has become a unique selling point to many companies and countries in the Islamic, as well as in the non-Islamic world. What used to be perceived as a restriction to economic action has thus become a beneficial resource to modern finance.

Regards
ZULKIFLI HASAN

Top 100 Companies of the Muslim World: 2010 DS100 Ranking

2010 DS100 Summary: Companies Absorb Financial Crisis Shock

Available at: http://dinarstandard.com/rankings/2010-ds100-summary-companies-absorb-financial-crisis-shock/

The 7th Annual DS100 continues to benchmark the corporate environment of the 57 OIC (Organization of Islamic Conference) member countries.

The 2010 DS100 ranking, which is based on end-of-year (EOY) 2009 revenue data of the top 100 Companies of the OIC member countries, fully shows the impact of the 2008/09 financial crisis. As expected, EOY 2009 revenues were down for all sectors represented on the DS100 compared to EOY 2008. The silver lining has been that sectors such as finance, consumer goods, and utilities absorbed the shocks, still showing single digit growth, although down from double digits growth experienced in the previous year.

With USD 1.12 trillion in total revenues, the 2010 DS100 list of companies recorded a 26.47% overall decline in annual revenue over the previous reporting period. Conversely, 44 companies on the list grew in revenue, with 19 showing double digit growth.

The fastest revenue growing companies on the 2010 DS100 were YTL Corp. (+85.48%, Malaysia,) PT Adaro Energy (+48.89%, Indonesia,) Savola Group (+29.64%, Saudi Arabia,) Etihad Airways (+29.15%, UAE,) Proton (+26.20%, Malaysia,) Bank Rakyat Indonesia (+26.02%, Indonesia,) BIM Birlesik (+25.48%, Turkey,) Public Bank (+24.30%, Malaysia,) Selçuk Ecza Deposu (+24.28%, Turkey,) and Pakistan State Oil (21.48%, Pakistan.)

The 19 Integrated Oil & Gas Companies on the list continue exerting their revenue dominance, representing 64% of the total DS100 company revenues. However these 19 companies showed a 38% drop in yearly revenue from the previous term. This was mostly due to the significant drop in oil prices from their dramatic peaks in 2008 ($94.4/barrel ’08 OPEC reference basket price) back down to norms of previous years ($61/b in ’09.) As we publish this analysis however, 2011 oil prices are back up in the $90/b range.

The important and sizeable Finance sector recorded a 6% increase in EOY 209 revenues while Utilities, Consumer Cyclical, Telecom and Retail sectors all recorded a 7% increase during the same term. All these sectors had recorded double digit growths in the previous term.

Companies from 20 out of the 57 OIC member countries are on the DS100. The minimum threshold to be on the 2010 DS100 list was USD 2.67 billion in annual revenues.

Global Comparison

Globally, the DS100 companies in 2010 represent 10.4% of the USD 10.8 trillion in revenues attributed to the top 100 global companies from Fortune magazine’s 2010 Global 500 list.

SABIC (Saudi Arabia) and KOC Holding (Turkey) are the only two DS100 companies on the Fortune 500 Global list. Meanwhile, no brands from OIC member countries made it to the BW/Interbrand Top 100 Global Brand list.

Industry Breakdown

Saudi Aramco, the world’s top oil producer, continues to lead the DS100 list as the largest business enterprise of the Muslim world. However, during the term of this ranking (EOY 2009) Saudi Aramco recorded an estimated 42% decrease in its revenues from the year before. This drop, however, is almost a complete reversal of the estimated 47% increase in revenue experienced in the previous term (EOY2008).

Overall, the Energy sector continues to confirm its dominance by number of companies on the list (19) and, more significantly, by revenue size (US$ 642 billion.) Indeed 9 out of the top 10 companies on the list are all state-owned Integrated Oil & Gas companies. From these top 10 companies, Petronas (#3 rank) recorded the smallest decrease in annual revenue growth, of -18% as compared to the previous term.

After the Energy sector, the diversified companies represent the second largest sector on this year’s DS100 list (18 of 100 companies); with the Turkish family-owned conglomerates Koc Holding, and Sabanci Holding representing the largest and second largest diversified companies, respectively, followed by Astra International (Indonesia), and Sime Darby (Malaysia). The diversified sector also registered a contraction in annual revenue growth of -7.43% over the previous year.

The third largest sector represented in the 2010 DS100 ranking is Financial Services (17 of 100 companies) with Turkish banks IsBank (#19), Ziraat Bank (#24), Akbank (#31), leading the list, followed by Malaysia’s Maybank Group (#37).

Bank Melli Iran (#57), Al Rajhi Bank from Saudi Arabia (#85), and Kuwait Finance House (#100) are the leading full Islamic banks within the financial services sector.

The other major sectors represented are Basic Materials Manufacturing, Services (Telecom and Retail), and Transportation. A fast maturing sector, the Telecom space has become increasingly competitive regionally, and is led by Saudi Telecom (#31), Etisalat (#27), and Zain (#28.) Telecom continues to be the most exciting sector with a flurry of acquisitions, market expansion and technology innovation. Although not the fastest growing sector, Basic Material Manufacturing is emerging as a major area of opportunity and investment. SABIC (#11 – chemicals), IMIDRO (#23, metals/mining), are the leading players in this sector.

Publicly Listed vs. Government and Private Companies

The 2010 DS100 list had 56 publicly traded firms from 11 countries compared to the previous year’s (2009) 58 firms from 13 countries.

Turkey-based Koc Holding–a diversified electronics, automotive, energy, finance, and retail giant, is the largest publicly traded company on the list. It is followed by SABIC (#8, chemical), and Saudi Telecom Company (#13, services).

While a majority of the companies on the DS100 are publicly traded, the bulk of the total revenue (64%) is attributed to the 31 government-owned companies on the list, signifying their powerful roles in the respective economies. This trend remained mostly the same from the year before. Additionally, it should be noted that some of the ‘Listed’ companies still have majority government ownership and are at different stages of privatization drives.

In regards to privately held companies, the ranking this year has 13 private enterprises. Data for these companies was available through public sources. Sabanci Group (#16, Turkey) leads this list, followed by Saudi Oger (#29, Saudi Arabia), and ETA – Ascon Group (#39, UAE). Even though there is a small representation of private companies on the list, there are many firms for whom data was not available and therefore were not included in this report.

Turkish, Malaysian, Saudi and Indonesian Companies lead the List

Turkish companies continue to set the benchmark for OIC economies, evidenced by the fact that Turkey has more companies on the 2010 list (20 companies) than any other country. Subsequently, the Turkish companies also present the widest and most diverse sector representation of any other country in this year’s ranking. This should come as no surprise, given the fact that Turkey has the largest OIC economy, as measured by GDP output.

Malaysia has the second highest number of companies (16 companies) on the DS100. This is quite impressive, as Malaysia is only the 5th largest OIC economy (by 2009 GDP est.) Indonesia, the second largest OIC economy, had 11 companies represented. Reflective of their growing potential, this number has increased from 9 Companies represented on the previous DS100 ranking.

13 Saudi Arabia based companies are on the list. Other major representations include 8 from both UAE and Iran, and 6 from Kuwait. Other countries represented included Algeria Brunei, Egypt, Jordan, Kazakhstan, Morocco, Nigeria, Oman, Pakistan, Qatar, and Syria
Ranking Purpose & Challenges

The purpose of the DS100 (in its seventh year) is to portray as close a picture as possible of the leading domestic business activities in the OIC (Organization of Islamic Conference) member countries while providing its corporate managers and strategists with a tool to benchmark trends and identify opportunities.

The DS100 aims to recognize companies that are leading the charge in the global competitive landscape and are making a significant impact on the well-being of their communities. The ranking is based purely on the 2009 end-of-year annual revenue figures (as EOY 2010 data has not been released by most as yet).

More than half of the list is comprised of publicly listed companies (56 of 100) from the growing public markets of the Muslim World. At the same time, the ranking continues to include government and private enterprises to reflect their disproportionately significant role in the Muslim world economies. Only those private and government enterprises are included for whom data could be estimated or verified through various media sources. Acquiring this verification continues to be a challenge, given limited financial disclosure practices. However, a visible positive trend towards better corporate governance, transparency practices, and privatization is facilitating a clearer view of the corporate environment in the Muslim World.

Top 10 Companies of the Muslim World
1. Saudi Arabian Oil Co. (Saudi Aramco)- Saudi Arabia
2. National Iranian Oil Company- Iran
3. Petroliam Nasional Bhd. (Petronas)- Malaysia
4. Kuwait Petroleum Corp.- Kuwait
5. Sonatrach- Algeria
6. PT Pertamina (Persero)- Indonesia
7. Qatar Petroleum- Qatar
8. Nigerian National Petroleum Corp.- Nigeria
9. Abu Dhabi National Oil Co.- UAE
10. Koc Holding A.S.- Turkey

Regards
ZULKIFLI HASAN

Central Bank of Iraq: open Islamic banking windows of banks, government will raise by 40% of its activity

Central Bank: open Islamic banking windows of banks, government will raise by 40% of its activity

By Just Hopin Available at: http://theiraqidinar.com/2011/02/20/cbi-open-islamic-banking-windows-of-banks-government-will-raise-by-40-of-its-activity/

Advisor to the Governor signs the Iraqi Central Bank the appearance of Mohammed Saleh, Sunday, to lead the Ministry of Finance to open windows for Islamic banking in the State-owned banks to increase their activity by more than 40%, confirming the central bank sought to pass a law for Islamic banks.

Saleh said in an interview with “the Sumerian News”, “State-owned banks dominate 85% of the activity of banking in Iraq, and therefore, the Ministry of Finance to open windows of an Islamic bank Mesopotamia and the good will raise the activity of banks in Iraq to more than 40%”. “

“The Iraqi government allocated 50 billion dinars to support the Rafidain and good equally to open the windows for Islamic banks which,” noting that “Islamic banks which are based on partnership between the bank and the depositor of his money is a tool that modern banking does not exceed the size and activity of banking in Iraq at the present time more than 20%. “

He said: “There are seven Islamic banks in Iraq among the 40 banks were private sector.”

Saleh pointed out that the “law of Iraqi banks did not distinguish between investment banking and commercial banking where there is no legal basis or a paragraph in the Banking Act regulating the operation of Islamic banks or sets of work, and therefore, the Islamic banks in Iraq exercised pursuant to the usury and the Muslim.”

He revealed that “the Central Bank of Iraq at the present time trying to pass a law for Islamic banks.”

The Ministry of Finance has announced at the end of the month of January of this year from its quest for the opening of an Islamic bank under the Ministry of Finance based bank dropped interest in Mesopotamia and the good ..

Intended to Islamic banks, the banking activity is compatible with Islamic law, where the intervention of interest paid by banks on deposits, or take on loans, in the rule of usury which was forbidden by the Islamic religion, was to establish the first Islamic bank in the Emirate of Dubai in the early seventies of last century, then established many Islamic banks thereafter until it reached about 100 banks in all parts of the world’s most famous and the Faisal Islamic Bank and Dubai Islamic Bank.

The number of Arab and foreign banks made after the issuance of the Banking Act No. 94 of 2004 to get licenses for the establishment of private banks in Iraq, whether by 100%, or in partnership with banks, a local Iraqi, or to open branches to work in Iraq, but security conditions have prevented it , with the exception of some few posts that have been made with a number of national banks.

The CBI, with headquarters in Baghdad, has four branches in Basra and Sulaymaniyah, Irbil and Mosul, and founded the bank independent Iraqi under the law of the Central Bank of Iraq issued on the sixth of March 2004, and is responsible for the maintenance of price stability and the implementation of monetary policy, including policies, prices exchange and management of foreign reserves and the issuance of currency management, as well as to regulate the banking sector.

Regards
ZULKIFLI HASAN

Mahathir Backs Islamic Finance In Korea

Mahathir Backs Islamic Finance In Korea

By Alastair Gale Available at: http://blogs.wsj.com/korearealtime/2011/02/24/mahathir-backs-islamic-finance-in-korea/?mod=google_news_blog

Former Malaysian Prime Minister Mahathir bin Mohamad voiced support Thursday for an attempt by South Korea’s finance ministry to kickstart the growth of Islamic finance in Korea, saying “it’s not about religion.”

Back in 2009, Seoul aimed to launch a local Islamic bond, or sukuk, market in order to diversify funding sources for companies by tapping into capital from Middle Eastern investors and others with an interest in Shariah-compliant financial products. Key to getting the project off the ground was legislation that would provide the same tax breaks for sukuk as for traditional bond issuance.

That legislation ground to a halt in committee late last year under objections from lawmakers and South Korea’s powerful Christian lobby, both of whom cited cultural and religious conflicts, and said tax benefits for sukuk would be unfair. Christian groups also raised objections to the standard practice of payment of some of the proceeds of sukuk deals to the poor, saying it could funnel money to terrorist groups.

The finance ministry says the objections are down to misunderstandings about Islamic finance. It is making another bid to pass tax legislation during the current National Assembly session. The prospects for success are unclear, but Mr. Mahathir backed the growth of Islamic finance in Korea, saying it would be good for the development of the nation’s banks.

“There’s no reason why countries should reject Islamic banking. It’s not about religion, it’s about using banks,” he said on the sidelines of a conference in Seoul.

“It should be a privilege for all banks,” he said.

Malaysia is the world’s biggest issuer of sukuk, followed by Saudi Arabia.

Regards
ZULKIFLI HASAN

Qatar banks agree to move accounts to Islamic banks

Qatar banks agree to move accounts to Islamic banks, Sharq says

By Bloomberg Available at: http://www.arabianbusiness.com/qatar-banks-agree-move-accounts-islamic-banks-sharq-says–382560.html

ISLAMIC BANKS: The central bank’s circular to banks on February 1 said that non-Shariah compliant banks must close Islamic branches by year end

A number of commercial banks in Qatar have agreed to transfer governance of assets and accounts to Islamic banks after the central bank ordered them to shut their Islamic branches by year end, Al Sharq reported, citing an unidentified bank official.

The central bank’s circular to banks on February 1 said that non-Shariah compliant banks must close Islamic branches by year end and stop taking deposits in those units immediately.

Qatari banks including Qatar National Bank, Commercial Bank of Qatar, Doha Bank and International Bank of Qatar have Islamic banking divisions.

HSBC Amanah, the Islamic banking unit of Europe’s largest bank, is in discussions with the central bank “to find a workable solution,” the company said in an e- mailed statement on February 6.

Best Regards
ZULKIFLI HASAN

Cross-border sukuk on the rise

Cross-border sukuk on the rise

By MUSHTAK PARKER | ARAB NEWS Available at: http://arabnews.com/economy/islamicfinance/article275734.ece

Cross-border sukuk originations into and out of Malaysia are set to increase as the global sukuk market continues its rebound. Investors are looking for better and more diversified returns, as the Malaysian government’s policy of encouraging government-linked companies (GLCs) and local financial institutions and corporates to increase their cross-border exposure to Islamic capital market instruments start to take effect.

Foreign issuers that have originated sukuk in Malaysia include the World Bank and its private sector funding arm, the International Finance Corporation (IFC), The Islamic Development Bank, Nomura and the National Bank of Abu Dhabi.

The Japan Bank for International Cooperation (JBIC) was on the verge of using a sukuk, only to be foiled by the onset of the global financial crisis and the credit crunch in 2008.

In the other direction, last year Khazanah Nasional Berhad, Malaysia’s sovereign wealth fund, issued its first cross-border sukuk in Singapore.

Indeed, Kuwait-based Gulf Investment Corporation (GIC), whose shareholders include the governments of the six Gulf Cooperation Council (GCC) states (Kuwait, Saudi Arabia, the United Arab Emirates, Qatar, Bahrain and Oman), is the latest Middle East institution to raise funds from the Malaysian market through a 600 million Malaysian ringgit ($196 million) local currency five-year Sukuk Wakala bi Istithmar issuance, which will be officially launched on March 1.

The issuance is the first tranche of a 3.5 billion Malaysian ringgit (RM) Sukuk Wakalah bi Istithmar Program planned by GIC.

Leading Malaysian rating agency, RAM Ratings, has assigned a long-term rating of AAA to the corporation’s RM3.5 billion sukuk program. Concurrently, RAM Ratings has also reaffirmed GIC’s respective AAA and P1 long-and short-term financial institution ratings, and its AAA long-term ratings of the corporation’s RM600 million conventional Senior Unsecured Bonds (2008/2013) and RM400 million Senior Unsecured Bonds (2008/2023). All the long-term ratings have a stable outlook.

In its ratings rationale, RAM Ratings stressed “GIC’s ratings remain supported by its unique position within the GCC region, and the strong support from its shareholders. GIC’s mandate is to support the development of private enterprises and economic growth within the GIC region. Given its strategic role, the corporation enjoys immunity and exceptions in terms of regional regulatory norms, including exemptions from asset nationalization, currency controls and taxes.”

The corporation reported a net profit of $129 million for the first nine months of 2010, surpassing the $91 million for the entire fiscal year 2009. RAM Ratings stressed that the performance of GIC’s key principal investments, particularly those in metal-and petrochemical-related industries, driven by the more encouraging economic outlook on the GCC, have improved.

While the corporation recorded a larger share of profits from its subsidiaries and associates in the same nine-month period, its dividend receipts for the year are expected to remain unchanged from historical levels given the nascent stage of its major principal investments.

The GIC sukuk issue was oversubscribed and the issuer decided to increase the size from RM500 million to RM600 million. It was jointly managed by Royal Bank of Scotland (RBS), who was also the adviser and book runner, and Maybank Investment Bank, and was priced at a yield of 5.25 percent.

The GIC sukuk follows the recent RM500 million 10-year sukuk issued by the National Bank of Abu Dhabi.

Malaysia originates more than 60 percent of global sukuk outstanding. This has generated significant cross-border flows as funds are raised from beyond domestic financial markets and as investors diversify their portfolios into assets from other jurisdictions. According to the Securities Commission, between January and September 2010, over 55 percent of all bonds approved by the commission were sukuk.

GIC, stressed RAM Ratings, is perceived to have a healthy liquidity position. At end-September 2010, its cash balances and available-for-sale securities amounted to $633 million and $2.5 billion respectively.

Contrasting against the corporation’s $565 million of debt repayments due in December 2011, these are adequate. At the same time, GIC’s overall risk-weighted capital-adequacy ratio (RWCAR) had increased to 30.23 percent at end September 2010 compared with 27.7 percent at end December 2009, backed by profit accumulation and revaluation gains on its equity investments.

At the same time, the de-leveraging of its balance sheet eased its leverage ratio (total assets/equity) from 3.5 times to 2.8 times.

While the expansion of the corporation’s equity investment portfolio will elevate both its RWCAR and leverage ratios, the management, according to the Malaysian rating agency, will maintain a prudent near-term minimum RWCAR of 20 percent and a maximum leverage ratio of four times.

In his budget 2011 speech to the Malaysian Parliament late October, Prime Minister Mohd Najib Tun Abdul Razak emphasizes the transformation of Malaysia into a developed and high-income economy with inclusive and sustainable development, spearheaded by the private sector. A number of strategic high-impact projects are expected to involve both conventional and Islamic financing and investment.

To this end, government-linked investment companies (GLICs) will be allowed to increase investment in overseas markets to explore opportunities for better returns. For example, the Employees Provident Fund (EPF) will increase its investment overseas from the current 7 percent to 20 percent of the total assets managed, including in Islamic instruments such as sukuk.

“Efforts will be taken to strengthen Malaysia’s position as a premier Islamic capital market,” said Najib. “Bursa Malaysia will develop an international board to enable foreign securities to be listed, including Shariah-compliant products. To further promote innovation in Islamic securities products, the government proposes that expenses for the issuance of Islamic securities which adopt the principles of Murabaha and Bai Bithaman Ajil based on Tawarru’ be given tax deduction. This will strengthen Malaysia’s position as the leading sukuk market and promote transactions in Bursa Suq al-Sila, the world’s first Shariah-compliant commodity trading platform. The government proposes that Takaful contributions for export credit be given double tax deduction.”

Bursa Malaysia, the national stock exchange, stresses that the global sukuk market saw a rebound in 2010 with total issuance outstanding reaching $30 billion, an increase of 20 percent on 2009 and double the volume of 2008, when the market hit an all-time low. Bursa Malaysia in fact attracted some $8.6 billion of sukuk listings in 2010, accounting for almost one-third of total global issuances.

The listings include Sime Darby Berhad’s RM4.5 billion Musyarakah Sukuk; the government of Malaysia’s $1.25 billion Global Sukuk Al-Ijarah and the Islamic Development Bank’s $3.5 billion sukuk. The total value of sukuk listed on Bursa Malaysia at Dec. 31, 2010 stood at $27.7 billion, thus retaining the exchange’s position as the leading sukuk listing destination in the world.

“[The] general consensus amongst industry players is that global sukuk issuances for 2011 will surpass the record high of $34.2 billion in 2007,” says Raja Teh Maimunah, global head of Islamic markets at Bursa Malaysia.

“As Malaysia has a well-established legal and regulatory framework to support sukuk issues, we are hopeful that 2011 holds greater promise in this space for us. We are seeing issuers more willing to list their issues and be subjected to reporting and disclosure requirements in order to attract investors, as the credit crisis have caused investors to be more aware of the importance of transparency and are thus demanding greater governance. We see this as a positive development as the industry steps to the next level in embracing higher governance standards.”

Best Regards
ZULKIFLI HASAN

Profit for delayed period of project is not Shariah-compliant: Dubai Grand Mufti

Profit for delayed period of project is not Shariah-compliant: Grand Mufti

By Muna Ahmed Available at: http://www.zawya.com/Story.cfm/sidZAWYA20110220032814/Profit%20for%20delayed%20period%20of%20project%20is%20not%20Shariah-compliant%3A%20Grand%20Mufti

Property project delay is risk which bank should take alone and not pass to customers. Charging of profit for the delayed period in Islamic finance property projects has been described as non-Islamic or ‘haram’ by the Dubai Grand Mufti, Dr Ali Mashael.

Some Islamic banks and mortgage companies have asked investors to pay advance installments (the rental profit or Ijara) even though an already delayed project is not yet completed or handed over.

Many Islamic finance projects are nearing completion, and investors have received notices from the Islamic banks and mortgage companies that they will have to pay profit for the period the property has been delayed.

During the economic boom, many investors got in to agreement with Islamic banks and mortgage firms and the developers where the investor pays a down payment of about 5 per cent of the property price to the developer at the time of signing the contract.

After that, the bank — as owner — pays the developers, and at the time of property handover, the investor pays the value of the property as rent-to-own installments to the banks over a period of time.

However, many property projects have been delayed. And now, the Islamic banks and financie firms are asking the investors to pay the rent on these properties, even for the delayed period.

However, Dr Ali Mashael said that this is not compliant with Islamic finance rules.

“As per the Islamic finance principles, the two parties must stick to the original agreement. Also, the bank should not charge the customers the rent amount or profit during the property delay period. This is the risk which the bank should take alone and not pass it to the customers.”

He added that even if the building materials costs has increased from the initial time when they signed the agreement, still the bank does not have the right to increase the amount they charge the customers.

“This is the basics of Islamic finance. If the banks do not follow this, they are being like conventional banks, not Islamic.”

He pointed out that the bank must take all the things and issues into consideration before getting into any project.

“If they incur losses from these projects, it is not the investors fault. Then why they [investors] are being charged for it. The bank must take the full responsibility of the delay period, not the customers.”

Several investors has complained to Emirate 24|7 claiming that banks and mortgage firms were not in compliance with Shariah finance.

AA, a Syrian investor said: “I purchased a flat in 2007 from a property project which was financed by a leading Islamic finance provider. The initial agreement was that I pay the developer 5 per cent of the apartment value and then lease the flat from the bank on a 20-years lease period after which I will own the flat.

“The agreement said that the flat will be delivered in 2009. However, due to the delay, the flat till today has not been handed over to me. I received an email from the finance company asking me to pay Dh180,000 which it says is the profit they are charging me for the mortgage during the delay period from 2009 to-date. It also said this amount will increase on daily basis as this depends on the interest rate.”

AA added: “This is not Islamic finance at all. I purchased this apartment from an Islamic finance company because it is safe and it protects the rights of investors and guarantees that we will not suffer due to unexpected reasons. Then how come they are doing this to us?”
The Islamic financial institution was approached for comment by Emirates 24|7, but so far has not issued any statement.

Another investor who is facing similar situation said that it is wrong what the banks and finance firms are doing to investors.

“Why do we have to pay rent for the delay period? It is supposed to be Islamic financing, and thus we should not pay the rent on a flat which is not yet occupied by us.”

Best Regards
ZULKIFLI HASAN