Stagnation in Islamic Finance

In 2015, sharia-compliant funds suffered their worst sales in four years. Some blame a lack of innovation for the poor growth of the sector.

Sharmila Devi reports.

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The Middle East is traditionally seen as a core market for Islamic FINANCE, so the recent poor performance in the region’s stock markets has been a constraint on the sector’s growth.

Despite some bright spots, such as the increasingly accessible Saudi Arabian market, many challenges remain, including a shortage of Islamic investment instruments and concerns over standardisation and interpretation of scholarly rulings in different jurisdictions.

In light of the difficult year faced by the IslamicFINANCE sector in 2015, what can investors and fund companies expect in the coming 12 months?


The Dow Jones IslamicMARKET WORLD index ended last year down 2.2% and the S&P Global BMI Shariah was down 1.7%. Compared to conventional indices, this performance was not bad. Both indices outperformed their conventional counterparts by around two percentage points.

Yet sharia-compliant funds nevertheless suffered their worst sales in four years. Just $584MILLION was invested in sharia-compliant funds globally last year, compared with almost $2.4 billion in 2014, according to research firm Morningstar. Such figures are sobering for the $60 billion Islamic fund industry, which, as recently as 2013, was growing at a rate of 10% a year.

According to Harris Irfan, author of the book Heaven’s Bankers: Inside the Hidden World of IslamicFINANCE, banks are partly to blame for the lack of appetite for IslamicFINANCE.

“Innovation is not happening the way it was a few years ago because the big multinational banks have retrenched their R&D departments and their IslamicFINANCE experts, so there is relative stagnation,” says Irfan, who is managing director and head of investment banking at investment firm Rasmala.

Irfan says more commitment is needed to raise the assets held in Islamic funds, which represent a tiny fraction of overall assets managed by the funds industry. Asset managers may also need to broaden their Islamic product ranges, which are often “narrow and parochial, lacking choice, diversification and quality”, according to a Rasmala report that Irfan co-wrote.

No one would dispute that there is a lot of room for growth. The Islamic pension industry makes up just one-thousandth of one percent of the $27 trillion ofPENSION FUND assets globally, according to the report, called ‘Dubai: Global Hub for Islamic Finance’.

“By diverting 20% of instruments in existing regional pension funds into sharia-compliant funds, $36 billion would be added to the global Islamic asset management industry, spurring rapid innovation and enabling Dubai to capture the market and transform its Islamic finance industry,” said the report.

One reason often given for the slow growth of the Islamic finance industry is the lack of standardisation of Islamic instruments. Malaysia leads the market for sharia-compliant bonds, known as sukuk, with $164 billion worth issued in 2014, representing more than 60% of the overall market. But analysts say investors in the Gulf are cautious ofINVESTING in Malaysian sukuk because they believe issuers have followed interpretations of Islamic law that are too liberal.

Would global standards be a benefit to the IslamicINVESTMENT industry? Not necessarily, says Franklin Templeton, which recently issued a paper on developments in IslamicFINANCE and regulation.

According to the paper, the investment firm does not believe in “uniformity of interpretation, regulation and standardisation, which can be stifling to the innovation needed to see continued growth and development”.

Mohieddine Kronfol, the firm’s chief investment officer for global sukuk and MENA fixed income, says the firm takes a contrarian view on common standards because it believes the objective may be unattainable.

“You should be careful what you wish for,” he says.

The firm does believe guidelines should be used to help the industry expand, however. It is working on a sukuk rulebook with the aim of allowing the sharia boards of potential customers or the customers themselves to make an informed choice about whether to invest.

Kronfol adds that there are some reasons for optimism for the industry, despite the obstacles it faces.

“In the GCC, the regulatory environment remains somewhat challenging and IslamicFINANCE remains concentrated in the hands of Islamic banks.

“There’s just not enough non-bank players and that is a handicap,” says Kronfol.

“But in the long term, there is real demand at the retail level and the whole ecosystem continues to grow, so we see the positive momentum persisting.”

A potential spur to demand for Islamic investment is the need to support social infrastructure in the Middle East. Hatim El Tahir, director of the Deloitte Middle East IslamicFINANCE Knowledge Centre in Bahrain, says Islamic banks have an opportunity to make productive investments. “Social unrest is increasing the pressure to focus on these areas,” he says.

El Tahir says education, healthcare and agriculture are three sectors where long-term regional investment is needed. “Investors here can be over-conservative and over-cautious and there is a real need for new asset classes and strategies,” he adds.

As an example of progress, he refers to Kuwait Finance House, which is studying how to expand financing to small and medium-sized companies to help reduce unemployment.

The crossover between the principles of IslamicFINANCE and the principles of environmental, social and governance (ESG) investment is another promising area for the industry, says Gerald Ambrose, chief executive of Aberdeen Islamic Asset Management, the group’s Islamic fund management unit in Malaysia.

However, Ambrose fears it will be difficult to maintain the growth seen in IslamicFINANCE over the past ten years, given the many challenges, including the low oil price and a lack of liquidity.

“One of the impediments we have is that stocks go in and out of our fund on a quarterly basis depending on if their gearing goes above a certain level [thereby breaching Islamic principles],” he says.

“But there is one other positive factor for IslamicFINANCE in 2016 and that is the emergence of Iran as a market for sharia investment and, perhaps more importantly, a source of funds now that international trade sanctions are being lifted.”

Russia’s first Islamic bank to open in March 2016

Russia’s first Islamic bank to open in March

February 12, 2016 ALEX SNEGOV, RBTH

The new lender will operate in the city of Kazan and deal with foreign investments.

The city of Kazan, which is sometimes referred to as the Muslim capital of Russia, is to host the country’s first bank working in accordance with the principles of Sharia.

The bank, called The Partnership Banking Center, will start operations in March 2016 in the city, located 500 miles east of Moscow in Russia’s Tatarstan republic.

According to a representative of Tatfondbank, a Tatarstan-based institution that is one of the founders of the new project, the bank is being established using common practices prevalent in Southeast Asia and in the Middle East.

Why some Russian women embraced Islam
The bank will focus on working both with individuals and companies, and will aim to channel Islamic investment into Russia.

The Partnership Banking Center will also sign an agreement with the Islamic Development Bank.

The creation of the first Islamic bank became possible thanks to a new law submitted to the State Duma in late January, under which banks would be allowed to set up accounts whose funds could be invested only in line with an investment declaration, thus adapting the Russian banking system to the requirements of religious financial institutions.


Dilema Segelintir Agamawan

Agamawan sering menyeru ke arah perpaduan tetapi merekalah antara selalu menjadi punca perpecahan,
Agamawan selalu menyeru kepada perubahan tetapi mereka lah antara yang paling anti-pembaharuan,
Agamawan sering mengingatkan agar menjaga amanah tetapi merekalah antara yang sering khianah,
Agamawan sering mengingatkan supaya mengingati akhirat tetapi merekalah antara yang paling mengasihi dunia,
Agamawan sering mengingatkan membaca surah al Asr tetapi merekalah antara yang paling tidak menepati masa,
Agamawan sering menyeru agar berbicara perkara besar tetapi merekalah antara yang paling suka berbicara soal furu’,
Agamawan sering menyeru agar berjiwa besar tetapi merekalah antara yang sering tidak berlapang dada,
Agamawan sering menyeru ke arah perdamaian tetapi merekalah antara yang suka mencetuskan perbalahan,
Agamawan sering menasihatkan supaya berakhlak terpuji tetapi mereka lah antara yang buruk akhlaknya,
Agamawan sering menasihatkan supaya sentiasa berkata benar tetapi merekalah antara yang paling suka berdusta.
Kita benar-benar dambakan agamawan umat bukan agamawan buat-buat.

Agamawan Umat,
Kezuhudanmu sebahagian kehidupan
Akhlakmu mencerminkan ajaran al Quran
Kata-katamu benar-benar menginsafkan
Pemikiranmu sentiasa menyegarkan
Keikhlasanmu dapat dirasakan
Tuturkatamu menjadi pedoman
Janjimu sentiasa dikotakan
Tingkahlakumu menjadi tauladan
Keilmuanmu bukan untuk kemasyhuran
Ibadahmu bukan untuk pertunjukan
Perdebatanmu membawa perdamaian
Hujahmu menyelesaikan permasalahan
Bacaanmu menjadi ikutan
Nasihatmu memberikan ketenangan
Pandanganmu sentiasa mengutamakan kebenaran,
Masamu hanya diperuntukkan untuk kebaikan,
Kehidupanmu sangat dekat dengan Tuhan,
Hanya Tuhan yang kau takutkan….

Memahami Mafsadah dan Maslahah TPPA

Memahami Maslahah dan Mafsadah TPPA

Zulkifli Hasan

Ada golongan Pro-TPPA beranggapan pihak Anti-TPPA sebagai cenderung kepada ideologi yang anti ‘free trade’. Pihak anti-TPPA juga ada yang beranggapan golongan Pro-TPPA sebagai beriman dengan ideologi perdagangan Bebas. Umumnya TPPA bukanlah benar-benar ‘free trade’ tetapi ‘managed trade’. Sememangnya TPPA ada maslahah Dan ada mafsadahnya. Oleh kerana TPPA adalah free trade yang bersifat ‘managed trade’ maka perasaan bimbang dengan mafsadah berbanding maslahah begitu ketara.

Dengan begitu banyak kajian dan laporan termasuk ‘impact assessment’ menambahkan lagi kebimbangan. Laporan dan kajian yang pro-TPPA pula hanya bersifat ekslusif cenderung kepada satu dimensi iaitu dari aspek ‘trade’ sedangkan impak TPPA adalah ‘beyond trade’. TPPA perlu dilihat dari sudut yang lebih luas termasuk hak asasi, budaya, sosial, politik, agama dan lain-lain. Menghadiri diskusi dan dialog dengan pelbagai ngo, kerajaan, dan pakar termasuk meneliti pandangan sarjana ekonomi dunia seperti Joseph Stiglitz, Paul Krugman dan Jomo Sundram mengiyakan bahawa mafsadah TPPA bukan spekulasi tetapi ‘real’.
Kes-kes ISDS sebelum ini majoritinya membuktikan bahawa negara akan terdedah dengan ‘liabilities’ yang bakal memberi mafsadah yang lebih besar. Dengan kelemahan dan kecelaruan pentadbiran negara ditambah dengan pelbagai isu integriti menimbulkan persoalan kemampuan untuk mendepani cabaran TPPA.

Peristiwa gelap tergadainya Pulau Batu Putih menambahkan lagi kebimbangan ini apabila negara bukan lagi berdepan dengan Singapura tetapi Amerika Syarikat dan gergasi korporat yang saiz ‘market capitalization’nya adalah lebih besar daripada kemampuan sebuah negara. Dengan kemampuan dan kualiti segelintir menteri-menteri yang kadangkala melucukan dalam masa yang sama memualkan meningkatkan lagi kerisauan ini. Apa yang lebih merisaukan ialah gejala rasuah dan bodek tahap dewa yang semakin membarah boleh sahaja menambahkan ancaman kepada negara.

Kesemua ini seharusnya diambil kira oleh rakyat Malaysia khususnya kepada ahli parlimen yang bakal menentukan nasib dan masa depan negara. Fikirkanlah secara berhikmah masa depan generasi akan datang. Telitilah setiap aspek kesan maslahah dan mafsadah TPPA kepada semua. Mungkin kali ini sahaja rakyat masih menaruh harapan pada pemimpinnya walaupun sering kali diperdaya dan dicapati segala janji-janjinya.

Menjaga Imej Islam Sebahagian Daripada Maqasid Shariah

Menjaga Imej Islam Sebahagian Daripada Maqasid Shariah

Zulkifli Hasan

Merenung situasi politik di Malaysia di mana Pemimpin bermasalah kini sentiasa cuba dilihat lebih Islamik selalu kelihatan bersama ulama di majlis-majlis maulid dan sebagainya menimbulkan beberapa persoalan. Sehinggakan menimbulkan gambaran kepada umum bahawa ada agamawan yang redha akan keadaan ini. Lebih merumitkan keadaan apabila Islam itu seakan digambarkan sebagai agama yang berkompromi dengan kebatilan atau dilihat sebagai alat untuk pemimpin bermasalah berlindung dan mendapat ‘legitimacy’ sokongan Umum.

Ini mengingatkan kepada ungkapan Sheikh Abdullah Ben Bayyah
من مقاصد الشريعة تحسين صورة الإسلام
“Sebahagian maqasid syariah adalah menjaga kecantikan imej Islam”.

Prinsip menjaga imej Islam ini adalah sebahagian daripada tuntutan maqasid Syariah. Oleh itu, adalah menjadi satu persoalan yang sangat signifikan untuk kita renungi apabila membenarkan pemimpin bermasalah untuk berselindung disebalik simbol agama. Ini bukan sahaja menimbulkan persepsi buruk pada agamawan disekelilingnya malahan memburukkan imej Islam itu sendiri. Kebatilan yang jelas juga seakan didiamkan sehinggakan ada juga cuba untuk menjustifikasikannya atas nama ketuanan Melayu atau memelihara status agama persekutuan. Ini semua sama sekali tidak menepati maqasid menjaga dan memelihara imej Islam kerana ia akan memburukkan lagi persepsi umum kepada Islam.

Jika kita begitu marah dengan ISIS yang tidak mewakili Islam dan memburukkan imej Islam, kita juga perlu bangkit untuk menegur dan mencegah mana-mana pemimpin bermasalah yang mencemarkan imej Islam itu sendiri. Kebatilan yang jelas seperti rasuah dan guna kuasa termasuk penipuan dan mungkir janji sama sekali tidak boleh dikompromi. Sebarang usaha untuk menjustifikasikannya atas nama Islam dan bangsa bukan satu perkara yang boleh diterima bahkan dianggap sebagai satu pengkhianatan kepada amanah ilmu.

Islam itu agama yang membawa rahmat ke sekalian alam. Namun, hari ini kita boleh lihat Islam itu tidak digambarkan sebagai sesuatu yang rahmat. Fenomena bisu dengan kebatilan yang jelas di depan mata memburukkan lagi imej Islam itu sendiri. Mengembalikan semula imej Islam itu sebagai agama yang menjunjung kebenaran menegakkan keadilan dan mencegah kemungkaran adalah amanah untuk kita semua. Amanah dan taklif untuk menegur dan menasihat pemimpin adalah satu tuntutan akidah dan jihad. Sesungguhnya antara jihad yang paling utama adalah berkata benar di hadapan pemerintah yang zalim.

Jury Out on Jokowi Committee as Indonesia Islamic Finance Stalls

Jury Out on Jokowi Committee as Indonesia Islamic Finance Stalls

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The jury is out on whether a group helmed by President Joko Widodo can revive stalled growth in Indonesia’s Islamic finance industry.

The head of the world’s biggest Muslim population is chairing a new committee tasked with bringing fragmented regulations under one roof and taking action to spur the market, according to the Cabinet Secretariat. Shariah-compliant banking assets increased less than 1 percent in the first 10 months of 2015, compared with 6.8 percent overall.
“The fact that it’s being led by Jokowi demonstrates the seriousness,” said Raj Mohamad, managing director at Singapore-based consultancy Five Pillars Pte. “But as they say, the devil is in the details, as we have yet to see the blueprint.”
Indonesia’s ambition to rival Malaysia as a regional hub for finance catering to Muslims is being hindered by a lack of progress in scrapping double taxation on sukuk and a delay in creating an Islamic megabank. The success of the new oversight body may test Jokowi’s credentials after he faced opposition in parliament over reforms since taking office in 2014.

Financial products governed by religious tenets currently have to comply with the regulations of Bank Indonesia, the Financial Services Authority and the National Ulema Council of Shariah scholars. The heads of those institutions will also be part of the new committee, which will be charged with encouraging development, improving endowment mechanisms and raising public awareness, National Planning Minister Sofyan Djalil told reporters in Jakarta on Jan. 5.

Indonesia’s Islamic finance industry is slowing even after a five-year blueprint was unveiled in 2014 to strengthen the capital base of banks, improve the management of funds used for the annual pilgrimage to Mecca and increase the number of experts.
Assets rose 0.4 percent through October to 273 trillion rupiah ($19.7 billion), after increasing 12 percent in 2014, 24 percent in 2013 and 34 percent in 2012, data from the Financial Services Regulator show. That’s a far cry from Malaysia’s 672.6 billion ringgit ($152 billion).
“Islamic finance in Indonesia is still far short of the potential,” minister Djalil said. “What we need is synergy among the participants.”

The Southeast Asian nation is also susceptible to a global slowdown just like any other regional economy, making it more imperative that Indonesia boosts its Shariah-compliant industry. More than five years after the central bank asked the tax department to look into the issue of double taxation on sukuk, companies interested in selling such debt are still in limbo and offerings have to be considered on a case-by-case basis.
A plan to create an Islamic megabank by merging the Shariah units of PT Bank Mandiri, PT Bank Negara Indonesia, PT Bank Rakyat Indonesia and PT Bank Tabungan Negara has also been pushed back, with various officials touting different target dates to achieve it.

Financial Services Authority Director Dhani Gunawan Idat said last month that such an entity will be established in 2017.
“There are many areas that the committee will need to consider and attempt to address,” said Suhaimi Zainul-Abidin, a founding member of the Gulf Asia Shari’ah Compliant Investments Association in Singapore. “With President Jokowi chairing the committee and given the membership composition, it should be much easier for the different stakeholders to reach a consensus of what needs to be done, and to thereafter activate the appropriate levers to make things happen.”

RBI panel recommendations hint at reviving Islamic Banking in India?

RBI panel recommendations hint at reviving Islamic Banking?

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Mumbai: The Reserve Bank of India (RBI) panel, that banks open a “separate window offering interest-free deposits and advances to address financial exclusion based on faith”, a Times of India report has said.

RBI’s recommendations brings up the concept of Islamic banking, the TOI report has further said.

The “Report of the Committee on Medium-term Path on Financial Inclusion” headed by Deepak Mohanty was placed on Monday.

It said, commercial banks may be enabled to open specialised interest-free windows with simple products like demand deposits, agency and participation certificates on the liability side and cost-plus financing and deferred payment, deferred delivery contracts on the asset side.

Here are the salient recommendations of the RBI panel.

Banks have to make special efforts to step up account opening for females, and the Government may consider a deposit scheme for the girl child – Sukanya Shiksha – as a welfare measure.
Given the predominance of individual account holdings (94 per cent of total credit accounts), a unique biometric identifier such as Aadhaar should be linked to each individual credit account and the information shared with credit information companies to enhance the stability of the credit system and improve access.
To improve ‘last mile’ service delivery and to translate financial access into enhanced convenience and usage, a low-cost solution should be developed by utilisation of the mobile banking facility for maximum possible G2P payments.
In order to increase formal credit supply to all agrarian segments, digitisation of land records is the way forward. This should be backed by an Aadhaar-linked mechanism for Credit Eligibility Certificates to facilitate credit flow to actual cultivators.
To phase out the agricultural interest subvention scheme which has distorted the agricultural credit system and ploughing the subsidy amount into an affordable technology aided universal crop insurance scheme for marginal and small farmers for all crops with a monetary ceiling of Rs.200,000 at a nominal premium to end agrarian distress.
A scheme of ‘Gold KCC’ (kisan credit card) with higher flexibility for borrowers with prompt repayment records, which could be dovetailed with a government-sponsored personal insurance, and digitisation of KCC to track expenditure pattern.
Encourage multiple guarantee agencies to provide credit guarantees in niche areas for micro and small enterprises (MSEs), and explore possibilities for counter guarantee and re-insurance.
Introduction of a system of unique identification for all MSME borrowers and sharing of such information with credit bureaus.
Establishing a system of professional credit intermediaries/advisors for MSMEs to help both the sector banks in credit assessment.
To further step up financing of the MSE Sector a framework for movable collateral registry may be introduced.
Commercial banks may be enabled to open specialised interest-free windows with simple products like demand deposits, agency and participation certificates on the liability side and cost-plus financing and deferred payment, deferred delivery contracts on the asset side.
An eco-system comprising multiple models should be encouraged with will foster partnerships amongst national full-service banks, regional banks of various types, NBFCs, semi-formal financial institutions, as well as the newly-licensed payments banks and small finance banks.
Banks’ business model to integrate Business Correspondents (BCs) with appropriate monitoring by designated link branches and greater mix of fixed location BC outlets to win the confidence of the common person.
Introduction of a system of online registration of BCs, their training and monitoring their activity including delinquency, and entrusting more complex financial products such as credit to trained BCs with good track record.
A geographical information system (GIS) to map all banking access points.
To step up the self help group (SHG)-bank linkage programme (SBLP) initiated by NABARD with the help of concerned stakeholders including government agencies as a livelihood model.
Corporates should be encouraged to nurture SHGs as part of their Corporate Social Responsibility (CSR) initiatives.
Provision of credit history of all SHG members by linking with individual Aadhaar numbers to check over-indebtedness
To restore tax-exempt status for securitisation vehicles for efficient risk transfer.
More ATMs in rural and semi-urban centres, interoperability of micro ATMs and use of application-based mobiles as point- of- sale (PoS) for creating more touch points for customers.
National Payments Corporation of India (NPCI) to develop a multi-lingual mobile application for customers who use non-smart phones, especially for users of national unified USSD platform (NUUP).
Permit a small-value cash-out with adequate KYC along for non-bank prepaid payment instruments (PPIs) to incentivise usage.
To allow PPI interoperability for non-banks.
Levying a surcharge on credit card transactions by merchant establishments should not be allowed.
Banks to complete the task of linking of deposit accounts with Aadhaar in a time bound manner so as to create the necessary eco-system for social cash transfer.
Financial Literacy Centre (FLC) network to be strengthened to deliver basic financial literacy at the ground level. Banks to identify lead literacy officers to be trained by the Reserve Bank in its College of Agricultural Banking (CAB) who in turn could train the people manning the FLCs.
The Reserve Bank to commission periodic dipstick surveys across states to ascertain the extent of financial literacy.
All regulated entities should be required to put in place a technology-based platform for SMS acknowledgement and disposal of customer complaints.
To strengthen the Information Monitoring System for District Consultative Committees (DCC) and State Level Bankers Committee (SLBC) deliberations.
The responsibility of the SLBC/lead bank scheme to be rotated among to instil a spirit of competition.
SLBCs to focus more on inter-institutional issues, livelihood models, social cash transfer, gender inclusion, Aadhaar seeding, universal account opening, and less on credit deposit ratio which is a by-product.
As a part of second generation reforms, the government can replace the current agricultural input subsidies on fertilisers, power and irrigation by a direct income transfer scheme.