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Thursday, 5 March 2015

Islamic finance & management events in Kuala Lumpur Malaysia

Date: 17-18 March 2015
Event: KL International Conference on Islamic Finance
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Date: 21-22 April 2015
Event: KL International Conference on Islamic Wealth Management
Event site:

Date: 9-10 June 2015
Event: KL International Conference on Shariah & Legal Aspects of Islamic Finance 2015
Event site:

To register or reserve a seat online, please go to:

Organizer: Alfalah Consulting

Thumbs up for Pak Islamic banking

ISLAMABAD: An IMF working paper has supported the Islamic banking system, found it a better performer during financial panics and suggested that greater financial inclusion of faith-based groups may enhance the stability of the banking sector.

In its latest study “Are Islamic Banks More Resilient during Financial Panics?”, an IMF working paper focused on the Islamic banking data of instance through Islamic banking, may enhance the banking system’s stability.

Impressed by the Islamic banking system, the IMF study even recommended that some features of Islamic banking may be considered for adaptation and adoption in the conventional banking.

“One such feature is equity like profit and loss sharing savings accounts. Such savings accounts not only provide an additional cushion to banks capital but also to some extent do away with the ‘private gains – public pains phenomenon, by sharing both the profits and losses with depositors,” the study said.

The study says that rapid growth of Islamic banking in developing countries is accompanied with claims about its relative resilience to financial crises as compared to conventional banking. However, little empirical evidence is available to support such claims.

“Using data from Pakistan, where Islamic and conventional banks co-exist, we compare these banks during a financial panic. Our results show that Islamic bank branches are less prone to deposit withdrawals during financial panics, both unconditionally and after controlling for bank characteristics,” it said.

The IMF study shows that the Islamic branches of banks that have both Islamic and conventional operations tend to attract (rather than lose) deposits during panics, which suggests a role for religious branding.

The study also reveals that Islamic bank branches grant more loans during financial panics and that their lending decisions are less sensitive to changes in deposits. It adds, “Our results indicate that Islamic banking branches appear far better than their conventional parent, which is inconsistent with the literature that suggests a negative role of parent bank fragility on the lending of subsidiary.

“We show that Islamic banks were more likely to grant new loans during the financial panic and that their lending decisions were less sensitive to changes in deposits in comparison with their conventional counterparts. Thus the transmission of financial shocks to the real economy may also be partially dampened if faith-based financial institutions are in operation (in a Muslim majority country in this case). Resultantly, financial stability may be improved by the religion inspired or otherwise altruistic objectives pursued by a set of bank managers and/or their clients,” the IMF study says.

(The International News / 04 March 2015)
Alfalah Consulting - Kuala Lumpur:
Islamic Investment Malaysia:

Luxembourg Sees Islamic Finance a Tonic After LuxLeaks

 Islamic finance offers a path toward greater transparency for Luxembourg after confidence in the country’s tax regime was undermined last year, according to Finance Minister Pierre Gramegna.

The reliance on asset-backed deals in Shariah-compliant finance fits the approach now being considered by the Grand Duchy, he said in an interview in Dubai on Tuesday. As part of this, Luxembourg has vowed to rein in sweetheart tax deals.
“The safety that collateral gives is one way of having a financial system that’s built on confidence and transparency,” Gramegna said. “It really fits that strategy.”
Thousands of leaked documents at the end of last year, the so-called LuxLeaks revelations, showed some international companies effectively lowered their tax burden to less than 1 percent of profit in Luxembourg through so-called tax rulings. The country, one of the smallest economies in the 28-member European Union, also introduced new tax measures this year.
“LuxLeaks has shown that there is a need to adjust tax systems worldwide,” Gramegna said.

Second Sukuk

The country also plans to sell its second sukuk, which adheres to Islam’s ban on interest, in the first half of next year, he said. The nation of about half a million people raised 200 million euros ($223 million) of five-year Islamic bonds in September.
The yield on its debt due 2019 has fallen 17 basis points since it began trading in October to 0.27 percent at 4:13 p.m. in Dubai. That compares with a eight basis point decline in the average yield on global sukuk to 2.87 percent, according to a Deutsche Bank AG index.
Luxembourg’s second Shariah-compliant bond offering will probably be structured through property-related investment vehicles, Gramegna said.
“It’s part of the strategy of our international financial center,” he said. “It’s not only diversifying our way of financing, our budget, but it’s also a way to diversify the products that you offer in the financial center. Obviously I think sukuk has put us on the map.”

Not Immune

Luxembourg is rated AAA at Moody’s Investors Service and Standard & Poor’s, the highest investment-grade ranking. Landlocked between Germany and France, the country has reinvented itself as a business and finance hub, softening the blow as traditional industries, such as steel, decline.
Still, not all Islamic finance products are immune to risks, according to Rizwan Kanji, a Dubai-based partner at law firm King & Spalding LLP, which helps structure Shariah-compliant deals.
“Not every Islamic finance structure has a collateral,” Kanji said by telephone. “Ninety percent of the world’s sukuk issuances are asset-based, and there’s no recourse to the collateral or the underlying asset.”
Asset-backed sukuk typically transfer ownership of underlying assets if the borrower is unable to repay, while holders of asset-based sukuk have no claim to the assets used to structure the debt.
For Gramegna, Islamic finance is part of the approach to strengthen the system and address wider concerns about the risks of conventional finance.
Increasing interest in Islamic finance “comes when the markets are demanding more security,” Gramegna said. “Complicated products proved to be quite dangerous in the past. Islamic products are very much down to earth.”
(Bloomberg Business / 04 March 2015)
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Wednesday, 4 March 2015

Islamic Banking demands measures for its practicality

President Mamnoon Hussain Tuesday said that growing popularity of Islamic Banking in the country demanded urgent measures to make it practical, beneficial and nearer to Islamic ideals of economic justice.
Addressing the second round table conference on “Potentials of Islamic Banking” organised by daily Pakistan Observer in collaboration with National Bank of Pakistan, he said the Islamic Banking being the first step towards interest free banking needed to be equally focused on social equity.
“This is because equitable distribution of wealth is the gist of Islamic socio-economic system,” said President Mamnoon.
He said it was up to the State Bank of Pakistan to ensure proper training of the bankers and also develop a research-oriented mechanism to improve wide range understanding about Islamic Banking system.
“This will ultimately pave way for its actual and successful implementation in the country,” he added.
President Mamnoon Hussain opined that growing numbers of Islamic banks and branches of conventional banks offering Islamic banking to the people needed to be complimented with a legal framework that may facilitate the system in its truest sense.
The president urged the banking community as well as economists and sharia scholars to make optimum of the present government’s commitment towards “Sharia based Islamic Banking.”
State Bank of Pakistan Acting Governor Saeed Ahmed in his presentation said that since the re-launch of Islamic banking in the country, the SBP had accepted the dual responsibility of regulator and facilitator.
He said the SBP had only recently introduced a comprehensive Shariah governance framework in this context to ensure Shariah compliance in institutions engaged in Islamic banking.
Mentioning that the SBP is working with all passion for the cause of Islamic banking, he said, from April 1, all concerned banks would be required to ensure Shariah governance with members conversant in Shariah to keep vigil on banking.
“Training of management as well as of board members in Islamic banking will be ensured,” he said.
(Pakistan Today / 04 March 2015)
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Scholar Ethics Rule Pushed Globally by Malaysia

 Malaysia is pushing for its one-year old rules overseeing Islamic scholars to be implemented globally in a push for more rigid governance.

The Southeast Asian country, the world’s largest market for Islamic debt, established the industry’s first code of conduct in December 2013 for experts who vet financial products for conformity with Shariah law and is targeting their adoption overseas, Aznan Hasan, president of the Association of Shariah Advisors in Islamic Finance, said by e-mail Monday. The rules cover accountability and salaries, said Aznan.
Islamic finance institutions require rulings from scholars, known as fatwa, before they can sell securities or funds in an industry that Ernst & Young LLP projects will double to $3.4 trillion in assets by 2018. Ensuring that consistent standards are adopted would require coordination between the key markets of Asia and the Middle East along with effective sanctions to ensure compliance.
“It’s admirable that ASAS has sought to formalize a professional code of conduct and ethics,” Gregory Man, a lawyer who advises on sukuk transactions with Norton Rose Fulbright, said in a Feb. 19 e-mail from Dubai. “Having said that, the code should really be a case of simply formalizing what I would generally view as the expectation of Shariah advisers by Islamic finance market participants.”

Multiple Boards

Islamic law forbids the payment of interest and involvement in businesses deemed as unethical such as those associated with gambling, alcohol or prostitution. It promotes risk-sharing and discourages speculation. Funds raised from Shariah-compliant bonds have to be used in an ethical manner and the underlying assets backing the debt also have to conform to religious principles.
Scholars overseeing investment products have come under scrutiny because they tend to sit on multiple Shariah boards, leading to concerns about conflicts of interest and excessive salaries. One industry expert was advising 101 institutions, Islamic standards-setting bodies and other entities, according to a 2011 report by Funds@Work AG, a research firm based near Frankfurt.
In Malaysia, a global Islamic finance hub, the central bank restricts Shariah advisers to only one board for each type of financial institution they represent. In a move to further tighten oversight, regulators prescribed jail terms and fines for errant scholars in 2013.

Ethical Principles

The Malaysian association’s code prohibits scholars from advertising their services, imposes curbs on disclosure of information and regulates their remuneration. These rules aim to ensure advisers maintain “a high level of professionalism and proper work ethics in discharging their duties and responsibilities,” according to the code.
“To have these ethical principles written up as a rule book for Shariah scholars is a positive development,” Mohamed Ali Elgari, a Jeddah-based Shariah board member at National Commercial Bank and Credit Agricole CIB, said by e-mail Feb. 19. “It will go a long way in assuring quality and integrity.”
The move to improve governance of the $1.7 trillion Islamic finance industry comes as a growing number of new markets embrace Shariah-compliant finance. The U.K. became the first non-Muslim country to sell sukuk in June 2014, followed by debuts by Luxembourg, Hong Kong and South Africa. Worldwide issuance of sukuk climbed to $46.3 billion in 2014, shy of 2012’s record $46.8 billion, data compiled by Bloomberg show. Sales so far this year total $1.8 billion.

Standardization Needed

The role of scholars came under the spotlight after a proposed sukuk sale by Goldman Sachs Group Inc. in 2011 drew criticism for not complying with a requirement under Islamic law that it be traded at par. The plan triggered calls for stricter supervision by religious experts. It can take up to 12 weeks to arrange a sukuk sale, compared with eight for a non-Islamic debt offering, according to law firm Clifford Chance LLP.
Differences of opinion on what’s Shariah-compliant can arise due to the varying interpretations of Islam’s teachings. Standard-setting institutions from Indonesia to Bahrain are trying to agree on common principles to aid industry growth.
While the Malaysian association’s code of conduct would ensure greater accountability for scholars, the industry needs to address long-standing issues such as a lack of common standards to ensure global application, according to Norton Rose’s Man.
“The effectiveness of any code of conduct will ultimately depend on whether the compliance can be effectively policed,” Suhaimi Zainul-Abidin, treasurer of the Gulf Asia Shari’ah Compliant Investments Association, said in a Feb. 27 e-mail from Singapore. “This can be challenging for any profession, but possibly more so for the Shariah scholar profession where there is little by way of licensing or accreditation.
(Bloomberg Business / 03 March 2015)
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