Entries in English and Malay (Bahasa Melayu)

Sunday, 30 September 2012

Seven Misconceptions About Insurance and Takaful

Seven Misconceptions About Insurance and Takaful

What you should know...

Misconception no 1:
Risk Protection (insurance) is against Tawakkul - total dependence upon Allah (swt). 
No human actions change the Will of Allah (swt) for our destiny. Whether a person has insurance/Takaful or not has no effect on future events. However, we are instructed to take precautions and then fully trust and depend upon Almighty Allah (swt): in Hadith narrated by Anas bin Malik when an Arab Bedouin asked Prophet Muhmmad (PBUH), "Shall I leave my camel untied and seek Allah's protection on it, or should I tie it?" The Holy Prophet replied, "Tie your camel and then depend upon Allah (swt)." {as quoted by Sunan Al Tarmizi, 1981,}.

Misconception No. 2:
All Risk Protection (insurance) is Haram-prohibited
Fiqh Council of World Muslim League (1398/1978) resolution and Fiqh Council of Organization of Islamic Conference (1405/1985) in Jeddah resolved that, "..conventional insurance as presently practiced is Haram." And that, "..cooperative insurance (Takaful) is permissible and fully consistent with Shariah principles." Hence, conventional insurance is prohibited for Muslims because it contains elements of Riba, Al Maisir, and Al Gharar. By contrast, Takaful provides risk protection in accordance with Sharia using principles of Ta'awun (mutual assistance), brotherhood, piety and ethical operations.

Misconception No. 3:

All Insurance is a form of Gambling of Wagering, which is forbidden in Islam
Risk or uncertainty can be divided into: Pure Risk and Speculative Risk. Pure Risk involves the possibility of Loss or No Loss. For example, damage to property due to fire. Pure Risks are the subject of insurance risk protection and Takaful. On the other hand, Speculative Risks involves the possibility of Loss, No Loss or Gain. For example, venturing into a new business, or gambling on horse race. Speculative Risks that include a potential gain or profit cannot be insured.

Takaful schemes use the principle of indemnification to compensate for the loss that occurs to a Takaful Participant. Takaful insures only Pure Risks and claims pay in the event of Loss to cover repairs, damage, replacement of property, or an agreed fixed sum. In Takaful Taawuni (assurance), the compensation equals each participant's accumulated savings plus investment profit added to a sum covered taken from the Takaful general pool.

Misconception No. 4:
All Insurance seeks to maximize profits which takes benefits away from policyholders
Most conventional insurance companies are stock companies that seek to maximize profits. Since the interests of shareholders conflicts with policyholders, by raising prices, denying claims, etc. these insurers can boost profits for shareholders. Takaful operators, by contrast, are mutual or cooperative entities. The goal of Takaful is community well-being and self-sustaining operations - not high profits. Under the Takaful Mudarabah Model, surplus (or "profits") is shared fairly between shareholders and policyholders. Under the Takaful Wakalah Model, surplus is owned by the policyholders and may be reduced by a performance fee incentive for the operator before distribution to the policyholders.

Misconception No. 5:
All Takaful operators are the Same
Alhumdilallah , in Islam there is unity in diversity. Over the centuries, several Takaful Models have evolved which are approved by Islamic scholars. While they all share the fundamental goals of cooperative risk sharing, these models differ slightly in legal structure and organizational operations. Takaful Models usually are described by the Islamic contracts used; namely Hebbah or 100% Tabarru (Sudan), or al Mudarabah {Bahrain/Malaysia}, or Al Wakalah {Saudi Arabia}.

Misconception No. 6:
Insurance shemes are a modern day invention
Actually, social arrangements for pooling of risks existed may centuries ago. The Takaful system evolved from ancient methods of risk protection in Arabia 14 centuries ago called : (a) daman Khtr-altariq-surety for traders; (b) a'qila - payment to family of murdered victim by accused relatives (c) hilf - confederation for mutual assistance. The year 1706 marked the emergence in United Kingdom of the first "perpetual assurance scheme". The first insurance company in America (1740s) founded by Ben Franklin was a merchant's cooperative. However, in modern times many of these old cooperatives have "demutualized" and converted into stock companies to pursue higher profits.

Misconception No. 7:
"I don't need Insurance/Takaful."
A Takaful scheme gives us an opportunity to practice the virtues of Islam, including self-purification. Surah Al Maidah (V.2) says: "Help one another in furthering virtue and Taqwa (God-consciousness), and do not help one another in evil and transgression." In Hadith by Ahmad and Abu Daud: "Whosoever fulfils the intention of his brother, Allah will fulfil his intentions." And "Always help those who helps his brother."

The first Constitution in Medinah (622 CE) arranged by Prophet Muhammad (PBUH) contained three aspects directly related to risk protection: social insurance for the Jews, Ansar and Christians; Article 3 concerning 'wergild' or 'blood money' and provision for Fidyah (ransom) and Aqila. We should follow his example to meet our needs and social obligations.

A Takaful scheme provides us the self-discipline for savings and the habits of sound financial planning to take care of ourselves and the needs of our children and families. Hadith by Sahih Al-Bukhari, as narrated by Amir bin Saad bin Abi Waqqas, describes Prophet Muhammad (PBUH) as saying: "verily, it is better for you to leave your offspring (heirs) wealthy than to leave them poor asking others for help" and "..The one who looks after and works for a widow and for a poor person is like a warrior fighting for Allah's cause.." Also, from Sahih Muslim Hadith No. 59, as narrated by Abu Huraira, has the Holy Prophet (PBUH) saying: "Whosoever removes a wordly hardship from a believer, Allah (swt) will remove from him one of the hardships of the day of Judgment."

Takaful operations can provide an effective method to accumulate the savings of individuals for the collective good of the community. In many Muslim communities lacking capital resources, a Takaful can become an engine for economic growth and development by channeling its funds into Sharia approved investments sponsored by the local business community.

written by Dr. Omar Clark Fisher
Alfalah Consulting - Kuala Lumpur:
Islamic Investment Malaysia:

Malaysia: Should you get an Islamic mortgage?

CHOICES- Dr Sr Rosli Said, Senior Lecturer, Department of Estate Management, Faculty of Built Environment, University of Malaya, reveals the workings of Islamic mortgage financing in Malaysia.
RED: Please define briefly Islamic banking and explain how it differs from conventional banking.
Islamic banking which follows Shariah law has been in operation since the enactment of the Islamic Banking Act in 1983. In these 30 years, Malaysia has been practising the dual-banking system - Islamic and conventional. Islamic principles dictate that money lending (dealing with interest) as well as investing in businesses that are considered haram (unlawful) are prohibited. Islamic finance is all about accumulating all the available resources (from savings) and providing financing based on pre-determined profits [or profit-sharing] rather than dealing with interest.
All the available resources will be utilised by Islamic banks to provide financing through either buying, selling or leasing. Islamic banks are required to buy an asset (including real estate) and lease it to the customer through a co-ownership agreement where the customer pays 10 per cent downpayment (customer’s equity) and the bank will finance the balance of 90 per cent (bank’s equity).
On the assumption that the customer occupies the house, the bank will rent its 90 per cent equity (share) to the customer who pays rent for occupying the bank’s equity.
The title of the property is still in the customer’s name although the asset is co-owned within the contractual agreement. The customer holds 90 per cent of beneficial ownership with the bank acting as trustee.
During the amortising period, the bank will transfer its equity to the customer over time. Therefore, as compared to conventional banking, the transaction is not considered as a property loan but more as property financing based on co-ownership principles.
The differences are based on the principles attached to each system – halal vs haram, interest vs profit, loan vs financing and ownership vs co-ownership.
Uncertainty of the numbers – although the Islamic financing concept sounds acceptable, the basis of calculation between one bank to another differs significantly. In my experience with one of the Islamic banks, they still have to work within the conventional system i.e. by reversing the amortisation of principal plus interest as implemented for conventional loans. This may not be considered as one of the weaknesses but it makes both the bank and customer feel uncertain. 
• Alteration of terms of financing – should a customer choose to alter the terms of financing, a new Sale and Buy-back agreement needs to be created and signed. A conventional loan would only require the amendment to be stamped which incurs cheaper cost.
• RED: In Islamic banking, there is no interest, so how does the financing work in terms of property purchases?
The profit is normally calculated upfront prior to approval of home financing. The calculation of the profit is similar to conventional loan which is based either on monthly or daily rest. The calculation of monthly instalment is also based on similar mathematical model used for conventional home loan for the whole length of the amortisation period. The only difference is the rate used for conventional home loan is Base Lending Rate (BLR) whereas Islamic financing is based on Base Financing Rate (BFR).
Once the profit is determined, the sale price will be established to include the principal. As in most conventional fixed rate loans, the monthly instalment in fixed-rate Islamic financing does not change throughout the amortisation period. Therefore, a decrease in the profit rate will result in surplus (rebate) to customer which directly shortens the length of the financing. In a variable rate Islamic finance, any decrease in the profit rate will either shorten the tenure of the loan or change the instalment amount.
Any individual Islamic bank will produce different figures due to certain requirements imposed such as zero entry cost as well as the prepayment penalty. The basis of calculation between the banks will also produce different results and it is entirely up to the customer to shop around before they make up their final decision.
RED: Are there statistics to show more homebuyers opting for Islamic over conventional housing loan?
Statistics show that Islamic home financing has grown over 30 per cent in the last five years as compared to conventional of around 11 per cent. The majority of demand would come from the Muslim population which is estimated at 60 per cent of Malaysia’s population.
• RED: When a borrower defaults in his Islamic housing loan, is there any difference with conventional banking in terms of recovery of the outstanding loan?
Islamic banks are more considerate as they would give more time to the customers according to the Islamic way of life. During this difficult time, the banks are not supposed to impose further burdens on the customer. The late payment charges are normally about 1 per cent, which is lower than conventional banks. In a worst case scenario, there is no difference in the final recovery process where both banks have the right to foreclose the transaction through auction.
• RED: Are there any issues that you are aware of in regards to Islamic mortgages that are still pending resolution?
Lock-in period is one of the issues that should be carefully looked into. The banks are supposed to return the rebate to the customer on all unexpired profit from the remaining tenure. However, if the customer prepaid earlier than the lock-in period, the non-refundable rebate is imposed on the original loan amount with certain percentage (e.g. 3 per cent).
It seems like the unexpired profit is like the bank’s future profit which has been priced into the full amount of financing. The lock-in period is sometimes not mentioned in the letter of offer but replaced with some terms such as ‘if the cost of fund is less than the cost of borrowing’, the bank will charge the customer an administration fee if the borrower sells the property during this period.
In my experience, some mortgage officers are not sure of the effect of such terms. This will create another issue in cases of refinancing, for example.
(Malaysia Hronicle / 29 Sep 2012)
Alfalah Consulting - Kuala Lumpur:
Islamic Investment Malaysia:

Tunisia plans to issue sukuk early 2013 - Central Bank

Tunisia plans to issue Islamic bonds early next year as the North African country seeks to reform its banking sector and diversify sources of funding, the central bank governor said on Saturday.
"Tunisia will begin issuing sukuk (Islamic bonds) early next year ... This is part of the draft budget for 2013," Tunisian central bank governor Chadli Ayari told Reuters on the sidelines of a banking seminar.
"There are studies under way for Islamic finance in the country, including issuing Islamic bonds."
Committees set up by the finance ministry, religious affairs ministry and the central bank are currently working on an Islamic finance law in order to establish Islamic banking in Tunisia, where there are only two Islamic banks.
Ayari said the total assets of those two banks was 1.4 billion Tunisian dinars ($893 million), or 2.5 percent of the total assets of Tunisian banks.
Nadia Kamha, Director-General of the Tunisia central bank told Reuters the law would be ready "within weeks" and that it will be presented to the government for approval.
The moderate Islamist Ennahda movement is leading Tunisia's government after winning elections last year that followed the ousting of former President Zine al-Abidine Ben Ali. 
Tunisia's budget deficit should narrow to 6 percent next year from 6.6 percent of GDP expected in 2012, Ayari said on Friday, indicating economic recovery in the cradle of Arab Spring revolts may take longer than anticipated.
The Tunisian economy is gradually recovering from last year's political turmoil but faces problems as a result of the crisis in the euro zone, the main market for its exports and the source of a majority of tourist visitors.
Morocco, also led by a moderate Islamist party, is in a race with Tunisia to become a regional hub for Islamic finance.
General Affairs and Governance minister, Najib Boulif, told Reuters in March the government would submit to parliament a draft bill with a set of regulations for the introduction of Islamic finance products in the country.
"We are keen to capitalise on the stability we enjoy here to turn Morocco into a regional Islamic finance platform," Boulif said in March.
(Reuters Africa / 29 Sep 2012)

Alfalah Consulting - Kuala Lumpur:
Islamic Investment Malaysia:

Saturday, 29 September 2012

Jeddah-based group lobbies for interest-free banking in India

JEDDAH -- The Jeddah-based Indian Forum for Interest-Free Banking has urged Prime Minister Manmohan Singh to clear huddles for granting license for Shariah-compliant banks and financial institutions to operate in India.

In a petition submitted to the prime minister at the Emerging Kerala Global Connect, a biennial summit of investors and policymakers, held in the southern port city of Kochi last week, they said it would open floodgates infrastructural funding for India.

Islamic banking assets are estimated at more than $ 1.5 trillion worldwide and it is operational in 52 countries, including the US, UK, Australia, France, Singapore, Japan and China.

According to the latest report of the State-Level Banking Committee, the overseas remittances in Kerala banks alone jumped 30.7 percent in the first quarter of the current fiscal year when total deposits were 556.6 billion rupees against 385.56 billion rupees during the same period in 2011.

According to the officials of the group, many expatriates prefer not to claim interest on their bank deposits for reasons of faith and these funds lie idle in banks due to lack of attractive investment opportunities. In fact, it offers a major option for infrastructure funding, a strong catalyst for accelerating India's economic growth.

"The major hurdle before such investments is the Reserve Bank of India's regulations in which interest-free investment has no role. In order to boost the Kerala economy, the government should explore possibilities of such participatory finance ventures from overseas," said V.K. Abdul Aziz, the group's secretary-general.

Aziz, along with K.T. Muneer, a member of its executive committee and the general secretary of Overseas Indian Congress Committee, Saudi Arabia, submitted copies of the representation to Kerala Chief Minister Oommen Chandy and Cabinet ministers P.K. Kunhalikutty and K.C. Joseph.

Aziz said Indian Contract Act allows citizens to enter a contract in accordance with interest-free economics and it is possible to cover all Shariah-compliant contractual obligations under the act. The parties are at complete liberty to structure it accordingly.

"If Kerala decides to open its doors to an interest-free economy, it would go a long way in creating a suitable environment for investment and facilitate Shariah-compliant investment in various sectors including infrastructure that has potential to change the state's economic scene," Muneer said.

The lobbyists for Islamic banking operations in India are upbeat after former World Bank economist Raghuram Rajan, a strong votary of Islamic finance who's known for his views in favor of competitiveness instead of protectionism to tide over economic slowdown, took over as India's chief economic adviser recently.

(Daily News / 27 Sep 2012)

Alfalah Consulting - Kuala Lumpur:
Islamic Investment Malaysia:

Indonesian Sukuk Set for Longest Rally in Year

Indonesia’s global sukuk rallied for a fourth month, the longest winning streak in more than a year, on speculation a cut in government fuel subsidies will boost demand at auctions in the coming quarter.     

Yields on the 8.8 percent dollar-denominated Islamic bonds due in 2014 dropped 29 basis points in September to a record low of 1.86 percent, data compiled by Bloomberg show. The premium over similar-maturity Treasuries narrowed 34 basis points to 140 basis points, the least since the Asian nation sold the notes in 2009. Indonesia is looking to offer international sukuk in the fourth quarter, Robert Pakpahan, acting director general of the debt management office, said last month.     

The plan to raise fuel prices may help reduce borrowing as a proportion of gross domestic product from last year’s 24 percent, which was half the level of 2005 and the lowest among Southeast Asia’s biggest economies. The Organization for Economic Cooperation and Development forecast in a report this week that energy subsidies will climb to 24 percent of total spending next year, compared with an estimated 19 percent in 2012, because of increasing fuel usage.     

“The yield has room to decline as much as 30 basis points before year-end, as investors increase exposure to Indonesia,” Akbar Syarief, a fund manager overseeing about Rp 3.3 trillion ($344 million) at MNC Asset Management, said in an interview from Jakarta yesterday. “Reduced fuel subsides would ease the budget deficit and give room for infrastructure spending, which would contribute to growth.

Fuel Price Approval     

The government is seeking parliament approval to raise fuel prices in 2013, Rudi Rubiandini, the deputy energy & mineral resources minister, said in a Sept. 19 interview, adding that permission has already been granted to increase electricity costs by 15 percent next year.     

Indonesia last sold global sukuk in November, with investors submitting bids for 6.5 times the $1 billion on offer. The yield on the 4 percent notes maturing in 2018 declined 47 basis points, or 0.47 percentage point, to a record low of 3.03 percent this month, according to data compiled by Bloomberg.     

The nation has sold 90 percent of its Rp 159.6 trillion bond-sale target this year, with 45.5 trillion rupiah made up of Shariah-compliant notes, according to the debt management office’s website.     

Southeast Asia’s biggest economy won investment-grade status from Fitch Ratings in December last year, followed by Moody’s Investors Service in January. The two companies rate the nation’s debt BBB- and Baa3, respectively, four levels below Malaysia.                        

‘Stimulus Winds’     

The extra yield investors demand to hold Indonesia’s 2014 sukuk over Malaysia’s 3.928 percent securities due June 2015 held at an all-time low of 21 basis points yesterday, data compiled by Bloomberg show.     

Central banks in Japan, the US and Europe are pumping funds into their economies, boosting the global supply of dollars. Overseas investors increased holdings of Indonesian government debt by 3.6 percent over the past year to 242.7 trillion rupiah as of Sept. 19, the highest level of 2012, finance ministry data show.     

“We have seen flows into Indonesia driven by positive stimulus winds, with most cash going into dollar securities,” Teddy Satriadi, head of the fixed-income desk at Bank Negara Indonesia, said in a Sept. 24 interview from Jakarta. “Yields will decline further to reflect our improved risk.”                         

Budget Deficit     

Worldwide sales of sukuk, which pay returns on assets to comply with Islam’s ban on interest, are nearing a record this year as yields slumped to all-time lows. Issuance increased 91 percent to $36.3 billion, shy of 2011’s high of $36.7 billion.     

Average yields reached a low of 2.88 percent on Sept. 14, and have since climbed six basis points to 2.94 percent, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. The difference between the average and the London interbank offered rate, or Libor, widened three basis points in September to 208 basis points, the highest level since Sept. 4.     

Islamic notes returned 7.3 percent in 2012, the HSBC/Nasdaq index shows, while developing-market debt climbed 14.2 percent, according to JPMorgan Chase & Co.’s EMBI Global Composite Index.

Indonesia’s government projects the budget deficit will rise to 2.2 percent of GDP this year, the biggest shortfall since 2009, before dropping to 1.6 percent in 2013, Finance Minister Agus Martowardojo told reporters in Jakarta on Aug. 14.                      

OECD Growth Forecasts     

The cost of crude oil dropped 6.3 percent this month to $90.36 a barrel in New York and is down 8.6 percent in 2012. The nation was a net exporter of the commodity until 2008, when it left the Organization of Petroleum Exporting Countries. It now imports around 25-30 percent of its fuel, according to an estimate by state-owned oil company Pertamina.     

Lawmakers rejected a proposal for an immediate 33 percent increase in subsidized fuel prices in March. We are “in no rush” to increase costs now, Martowardojo said yesterday.     

Indonesia needs to rethink its spending allocation to achieve its “ambitious” development objectives and eliminate the budget deficit in three years, according to the OECD report on Sept. 17. The agency raised its economic growth forecast for 2013 to 6.2 percent from a predicted 6 percent this year.     

A reduction in energy subsidies may prompt Standard & Poor’s to consider joining Fitch and Moody’s in upgrading the country’s credit rating, Syarief at MNC Asset said. S&P kept its rating at one level below investment grade in April, saying the nation’s bid to attract investment is at risk from “policy slippages” such as the failure to cut fuel subsidies.     

“The planned move to cut subsidies is positive as it shows that the Indonesian government is proactively managing their budget and expenses,” Chan Cheh Shin, who manages 850 million ringgit ($276 million) as head of sukuk at OSK-UOB Islamic Fund Management Bhd., said in an interview in Kuala Lumpur yesterday. “That’s positive for Indonesian global bonds.

(Jakarta Globe / 28 Sep 2012)

Alfalah Consulting - Kuala Lumpur:
Islamic Investment Malaysia:

Malaysia: Strong legal framework needed for Islamic financing

Despite the recent global economic crisis, the Islamic finance industry has continued pushing forward strongly. Entering 2012, the industry increased its total assets by 23.8 per cent by the end of 2011— comprising a hefty 22.4 per cent of the total assets of the banking system.
Global recognition has not been in short supply either as evidenced by The Banker Magazine’s 2011 rankings of top Islamic financial institutions which saw 21 Malaysian institutions listed.
By all appearances, Malaysia’s Islamic finance industry is well on its way to fulfilling its aspirations to becoming an international Islamic financial centre.
Is it all hunky dory?
Missing element: “The government should look into establishing a special court for Islamic banking,” says Datuk Ahmad Zaini Othman, Chief Executive Officer of the Malaysian Building Society Berhad (MBSB). “This is something I think is still missing in this country.”
“If they want Islamic financing in Malaysia to be recognised internationally, they need to do this,” the CEO stresses.
Zaini points out that at present the legal aspects such as legal settlements still go through conventional courts. While the conventional judiciary may be familiar with Islamic financing law, Zaini stresses that we need judges who not only know the Islamic financing law but who also possess deep understanding of the religious aspects that go beyond laymen comprehension.
“It is all there in the Quran and Sunnah, but we need people who can correctly interpret them,” says Zaini, emphasising that “interpretation is important.”
“For example, riba is not right and forbidden; however excessive profit, such as selling a property for 150 per cent profit, is wrong too.”

Mismatched avenue: Zaini believes that continuing to rely on conventional courts for Islamic financing’s legal matters would be detrimental in the long run.
“Conventional court in itself is a mismatch,” says Zaini, clarifying that the word ‘conventional’ does not match with ‘Islamic’.
“Because it is religion-based, at the end of the day we need to return to that essence and adhere to it,” says Zaini. “That means having the necessary infrastructure to uphold it in a dedicated manner.”
What might happen if conventional courts continue to be used to deal with legal matters pertaining to Islamic financing?
“For one, you will continue looking at it through a secular way of thinking,” replies Zaini, adding that it may lead to oversight of some aspects based on Islamic principles. According to Zaini, another effect would be the stagnation of Islamic financing expertise in the country.
“One example is the musharakah mutanaqisah product — this product is not feasible for properties under construction as some aspects of the law do not recognise certain parts of the transaction,” highlights Zaini. “So if a developer goes ahead with the product, there is no protection for the developer under any law.”
The CEO further points out how the lack of protection in certain scenarios is limiting the industry. “If you want to attract foreign Islamic investment in a big way, you need to have a strong Islamic legislative framework in place.”
“Foreigners would not come here and invest hundreds of millions if they are not protected,” Zaini emphasises. “With a proper legal framework, we can do much bigger business.”
In addition, Zaini also points out that such a framework would also mean that the country would be more attractive to top talents in the industry.

If you do not have a very strong framework, you may not have a strong image of the Islamic platform,” says Zaini, asking rhetorically, “why would an Islamic financing talent from the GCC (Gulf Co-operation Council) come to work in Malaysia if we don’t even have a court for Islamic banking?”
“He would probably much rather go to GCC countries where the legislation is more developed in this respect.”
Challenging: However, Zaini admits that putting in place a legal framework for Islamic financing would be challenging. Differing opinions and interpretations worldwide pose a daunting obstacle — Zaini cites the introduction of Profit Equalisation Reserve (PER) by Bank Negara as an example.
“The Islamic deposit programme is based on profit and loss whereby banks pay dividends based on the allocated profits,” says Zaini, explaining that this means the dividends are higher if the Islamic banks make good profit and vice versa. “In comparison, conventional banks pay based on a fixed amount of interest.”
“So when Islamic banks report good profits and subsequently pay more dividends than conventional banks, there would be a flow of customers from the conventional banking market to the Islamic financing market.”
Zaini explains further that PER was introduced to avoid the mass movement between markets by fixing the percentage of profit shared as dividends by the Islamic banks.
“Say they make profit and are able to pay 9 per cent, PER means they can only pay for example 4 per cent while 5 per cent would be kept in reserve.”
“There might come a time when the profit margin is smaller, in such an event, the reserve would be used to top up the dividends to be paid out,” says Zaini. “The GCC is against this and do not recognise the practice because it is not in line with shariah.”

(However, Zaini feels the way forward would be to ignore the differences and focus on what can actually be done.

“Malaysia is heading towards a two-system financial system and for the Islamic part of it, we need a strong legal platform,” says Zaini. “I think we have a sufficient pool of shariah legal expertise, and our universities are also producing enough experts in the area of Islamic financing.”
“But I think we also need to bring in scholars from abroad with a different perspective of the international market so that when we formulate the legal framework, it will be more comprehensive,” adds Zaini, explaining that doing so would enable Islamic financing in the country to reach greater heights.
“Like the English law, this will not happen overnight but instead through years of practice and experience.”

(Real Estate And Decor / 28 Sep 2012

Alfalah Consulting - Kuala Lumpur:
Islamic Investment Malaysia:

Malaysia still global runaway sukuk leader

KUALA LUMPUR: Malaysia is still the global runaway leader in the sukuk market,accounting for 68 per cent of the total global sukuk outstanding and 71 per cent market Share of the sukuk issued as at end-July. 

Bursa Malaysia remained the top sukuk listing destination, with 19 listed totalling RM99.6 billion (US$31.7 billion) as at end-July, according to the 2012/2013 Economic Report released by the Finance Ministry. 

Malaysia also remained among the global leaders in the Islamic finance management industry with the number of full-fledged Islamic fund management companies at 18 at end-July, it said.

The net asset value of Islamic unit trust funds at end-July stood at RM33 billion (RM28 billion at end 2011) and the Islamic wholesale funds at RM14 billion (RM7 billion at end-2011).

It said at end-July, 825 Syariah-compliant securities were listed on Bursa Malaysia, representing 89 per cent of the total listed securities with a market capitalisation of RM931 billion.

The report also said the Islamic banking business in the country will continue to expand, with total assets growing 20.6 per cent to RM469.5 billion as at end-July, representing 24.2 per cent of the total banking system assets (end-2011: 24.1 per cent).

The Takaful industry assets have increased to RM18.3 billion at end-July against RM16.9 billion last year.
It accounted for nine per cent of the total insurance and takaful assets as compared with 8.6 per cent in the January to July period.

(Berneo Post Online / 28 Sep 2012)

Alfalah Consulting - Kuala Lumpur:
Islamic Investment Malaysia:

Islamic banks' market share grows in Malaysia

Malaysia's Islamic banks gained a slightly larger share of total assets in the banking system in the first seven months of 2012, said the government in an annual economic report published on Friday.
Islamic banks accounted for 24.2 percent or 69.5 billion ringgit of the country's total banking assets as at end-July, up from 23.7 percent at the end of last year.
Total assets grew at a faster rate of 20.6 percent between January to July, compared to 15.4 percent in the same period last year.
The Islamic banks' deposits amounted to 362.7 billion ringgit at the end of July, increasing the share of total deposits to 26.1 percent from 25.8 percent at the end of last year.
Islamic financing accounted for 26.6 percent of total loans at the end of July, compared with 25.9 percent at the end of last year.
The household sector accounted for over two-thirds of loans made through Islamic financing.
Islamic financing is expected to account for 40 percent of total financing by 2020 due to greater participation and more diverse offerings, under the financial sector blueprint prepared by the central bank.
The Islamic capital market, consisting of equities compliant to sharia or Islamic law, improved its share of total trade volume to 66.8 percent from 59.1 percent last year.
"This market has contributed significantly to the development of the overall capital market, it remains an important alternative source for the raising of capital," said the report.
The share of sharia-compliant equities was unchanged at end-July, accounting for 65 percent, or 931 billion ringgit, of the total market capitalization.
Malaysia retained its pole position in the issuance of Islamic bonds, or sukuk, with a 71 percent share of global issuances, and it accounted for 68 percent of sukuk outstanding globally as at end-July.
The takaful industry increased its assets to 18.3 billion ringgit, or 9 percent of total insurance assets in the seven months, with nearly 80 percent concentrated in fixed income and government securities.

(Reuters / 28 Sep 2012)

Alfalah Consulting - Kuala Lumpur:
Islamic Investment Malaysia:

Thursday, 27 September 2012

Turkey Hopes New Sukuk will Become Benchmark

Turkey’s Sept 18 sovereign sukuk issue could be a benchmark for future issuances and attract investors from the Middle East, says Deputy Prime Minister Babacan. The Islamic paper was five times oversubscribed

Turkey could see a flurry of Islamic bonds in the coming years, as the country’s landmark $1.5 billion sovereign sukuk on Sept. 18 set a benchmark for future issuances. 

The issue was oversubscribed by more than five times, with a yield of 2.8 percent and maturing in 2019, bringing in more than $8 billion. It was rated BB by Standard & Poor’s. Following the issue, bankers noted that $8 billion in demand was highly impressive for a first-time issue. 

The money received from the issue is expected to enter the Turkish Treasury’s coffers on Sept. 26. Some 58 percent of the issue was sold to Middle Eastern investors, 13 percent to European investors, 12 percent to Asian, 9 percent to Turkish and 8 percent to U.S. investors, according to Deputy Prime Minister Ali Babacan.

“We believe this is going to set a benchmark for the government and private sector. For this issuance, we have prepared the [adequate] legal framework and tax regime,” Babacan said in an address to the Global Islamic Finance Forum (GIFF) yesterday.

This marked the first sukuk issuance by the country and the first issuance outside of the Gulf Cooperation Council (GCC) and Southeast Asia. 

The Treasury issued the sukuk with the mediation of Citigroup, HSBC and Kuwait Finance House. Kuwait Finance House’s subsidiary Kuwait Türk, meanwhile, has two sukuk issues worth $100 million and $350 million, which are trading on the London Stock Exchange. 

“There is good room for growth in this sector, and I definitely believe it is something that will be utilized by the participation of both [Islamic] and conventional banks,” Babacan said.

Islamic banking assets

Babacan said the country’s four Islamic banks now accounted for 5.6 percent of Islamic banking assets, a growth of over five times since Islamic banking laws were introduced in 2005.

Turkey completed road shows for the issuance on Sept. 16, attracting investors from the Middle East, Asia, the United States and Europe. 

The Treasury’s dollar sukuk and the Turkish Lira sukuk within the next few weeks are both expected to trigger the private sector as well as provide Turkey with the opportunity to receive millions of dollars in funds from the Islamic world, a first for the country. Turkey, which has made a late but speedy entry into the $100 billion sukuk market is expected to be a key player in the near-future. 

Garanti Invest Strategist Tufan Cömert said that the Treasury was able to finance its external debt within the first six months of 2012 and would use the sukuk to finance its 2013 needs, translating to a lower Eurobond supply in 2013.

(Turkish Weekly / 24 Sep 2012)

Alfalah Consulting - Kuala Lumpur:
Islamic Investment Malaysia:

Takaful growth prospects diverge as countries choose different models

The business lines that predominate in these two regions are distinctly different, as are the sources of growth and the investment models. S&P anticipates the rapid rate of growth that the global Takaful market has seen so far will slow, given the stuttering global economy and the relative maturity of some of the larger Takaful markets.
Within this global growth pattern, it expects the GCC to continue to significantly grow faster than local and global conventional insurance, while Southeast Asia is likely to see constrained growth due to tightening regulatory requirements in Malaysia, its largest market.
In S&P’s view, the credit profile of Takaful insurers has improved over the past decade. Capitalization could be hampered in future by volatile investment markets and continued growth.
In a report published today (25 September), Standard & Poor's Ratings Services expressed its view that the growing need for insurance that complies with Shari’ah law means that the global Takaful sector is becoming an increasingly significant niche within the wider insurance industry. It expects to see generally strong growth in contributions, which act as premium income, and greater use of insurance in Islamic states.
Takaful has developed most in the Gulf Cooperation Council (GCC) region and southeast Asia, but individual countries in each region have taken different routes to develop the sector. Thus, the business lines that predominate in these two regions are distinctly different, as are the sources of growth and the investment models.
S&P remain concerned by widespread use of high-risk investment strategies by Takaful providers, and by the sector's lack of global standards in areas such as accounting standards and Shari’ah compliance. In its view, it is unclear how many of the companies involved will sustain their profitability over the longer term, particularly in the GCC region.
However, developments in Malaysia--the largest Takaful market in Southeast Asia--appear much more healthy and sustainable. They are supported by more-sophisticated regulatory oversight and the stronger investment profile of the industry, according to S&P.

(C.P.I Financial / 25 Sep 2012)

Alfalah Consulting - Kuala Lumpur:
Islamic Investment Malaysia:

Latest Posts

Upcoming Events on Islamic Finance, Wealth Management, Business, Management, Motivational

Alfalah Consulting's facebook


Alfalah Consulting is NOT providing any kind of loan to finance project etc and asking for a fee. If you've received any email claiming to be from Alfalah Consulting, offering loan to you, please ignore it or inform us for further actions. Our official email is If you've received an email from, that's NOT from us. Be cautious!