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Wednesday, 22 February 2012

Russian-Led Development Bank Plans to Expand Islamic Financing

MOSCOW, 29 Rabi al-Awwal/22 Feb.(IINA)-Eurasian Development Bank, a Russian-led lender backed by six former Soviet republics, wants to expand Sharia-compliant financing, Chief Executive Officer Igor Finogenov said.
“Islamic finance is an opportunity for us to enter new credit markets,” Finogenov told reporters in Moscow recently. “We hope it will allow us to diversify our liability base.”
The bank is looking to boost lending that complies with Islam’s ban on interest after serving as mandated lead arranger for a $60 million syndicated Murabaha facility for Kazan, Russia-based AK Bars Bank in September. The Almaty-based development bank was founded by Russia and Kazakhstan in 2006 and also includes Armenia, Belarus, Kazakhstan, Kyrgyzstan and Tajikistan.
“We’re a Eurasian bank, and many of our member countries are in areas that are traditionally close to Islamic culture,” Finogenov said. That raises “the possibility of finding projects that meet the criteria required for Islamic finance.”
(IINA,  22 Feb2012)

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Islamic Microfinance: A Model for Alleviating Poverty

Islamic microfinance is becoming an increasingly popular mechanism for alleviating poverty, especially in developing countries around the world. The Islamic finance industry as a whole is expected to reach over $2 billion dollars in 2012 and is a continually growing sector due to its ethical principles and prohibition of riba (interest).
The concept of Islamic microfinance adheres to the principles of Islam and is a form of socially responsible investing. Investors who use their wealth for Islamic microfinance projects only involve themselves in halal projects which benefit the community at large. Such projects include zakat, which is charity based, or trade and industry projects to develop a country's economy.
The mechanism of lending in Islamic microfinance differs from conventional microfinance due to the prohibition of riba. Unlike conventional microfinance, Islamic microfinance offers an interest-free way to give small loans to people who are poor and in need. One key method of lending is through the Islamic financial instrument, qard'l-hasan, which is a loan that has been extended by the lender on a goodwill basis and the borrower is only required to pay the exact amount borrowed without additional charges or interest. The Quran clearly encourages Muslims to provide qard'l-hasan, or benevolent loans, to “those who need them”:
“Who is he that will give Allāh qard'l-hasan? For Allāh will increase it manifold to his credit.” (57:11) “If you give Allāh qard al hasan… He will grant you forgiveness.” (64:17)
At a time when poverty is still prevalent around the world, there is no better solution than opting for funding which can provide benefits to a poverty-stricken community and help to rebuild economies.
Islamic microfinance gives the investor a chance to get involved in worthwhile projects which could essentially play a significant role in targeting poverty and alleviating it in many countries around the world. Islamic microfinance primarily relies upon the provision of financial services to the poor or developing regions which are subject to certain conditions laid down by Islamic jurisprudence. It represents the merging of two growing sectors: microfinance and the Islamic finance industry.
It has the potential to not only be the solution for an increased demand to help the poor  but also to combine the Islamic socially responsible principles of caring for the less fortunate with microfinance's ability to provide financial access to the poor.
Unleashing this potential could be the key to providing financial stability to millions of less privileged people who currently reject microfinance products that do not comply with Islamic law.
Many regions around the world have already created tailor-made Islamic microfinance programs, either through Islamic banks or Islamic microfinance institutions to cater for dealing with poverty.
Abdul Latif Jameel Company Community Service Programmes (ALJCSP) in the Middle East has utilized Islamic microfinance applications such as qard'l-hasan in order to provide financial support and empower low income women in the UAE so that they can endeavor to improve their standard of living.
Zubair Mughal, Chief Executive Officer, AlHuda Centre of Islamic Banking, said in a statement that, “In the wake of the current financial crisis all around the globe, Islamic microfinance has gained even more importance due to its transparency and sustainability. Islamic microfinance becomes an effective tool for poverty alleviation.” (Micro Finance Africa).
Utilizing Islamic financial instruments such as Murabahah and Musharaka to help in facilitating Islamic microfinance can not only spur the Islamic microfinancial sector but can also increase the options of Islamic finance and make it more accessible to poverty stricken countries.
While poverty in the Muslim world is widespread, Somalia is shouldering more than its fair share of the crisis. The famine which hit Somalia in July 2011 resulted in the worst food crisis that Africa has faced since 20 years. The United Nations had confirmed that famine does exist in two regions of southern Somalia, Southern Bakool and Lower Shabelle. Across the country, nearly half of the Somali population, which is currently 3.7 million people, is now experiencing a crisis of food, poverty, shelter and malnutrition.
However, if the population of Somalia had more access to financial services then they would be able to develop their economy and get it back on track. Unfortunately, the options of financial services for alleviating poverty in East Africa are either inadequate or exclusive.
Islamic microfinance has been an unprecedented way to combat poverty which may also provide the affected people of Somalia with a form of economic relief and provide a financial solution to developing countries worldwide.
(MuslimMatters, bTasnim Nazeer, 21Feb2012)
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GCC urged to follow unified Islamic finance regulations

The Gulf Co-operation Council (GCC) should have a unified rule under one regulator for Islamic investment products for ensuring lower cost of funds, according to Islamic Wealth Management (IWM) Report 2012.

“The GCC countries could take a leadership role by establishing standards for the registration of Islamic investment products with one regulator,” the Bank Sarasin report said.
The report was launched by Bank Sarasin managing director and head of Islamic Finance Fares Mourad and Monzer Kahf, a leading Islamic finance scholar.

Such unified rule would allow asset managers to market the product to clients across the region, it said.

Currently any offering needs to comply with different regulations in Bahrain, Kuwait, Saudi Arabia, Oman, Qatar and the UAE, resulting in a lengthy and expensive registration process, the report said. “Reducing expenses and increasing the availability would increase competition, benefiting local investors and further the GCC’s development as a centre of excellence for Islamic finance.”

Although unified rules could be done either a state, region or Arab league level, it would be better to have a centralised agency that could interpret the legislations regarding Shariah investments, Mourad said.

Asked whether there was a need for a separate entity for the regulation and supervision of Islamic investments and products, he said “I really would like to have this” but it was for the regulators in the respective jurisdictions to decide.

Kahf said the Islamic Financial Services Board could take the lead in the centralised agency as it consisted of central bankers in the Muslim countries. “Once you have such an agency, there is no need for separate Shariah boards as lawyers specialised in the field could suffix its role,” he added.

The report also took note of the constant criticism of certain Islamic finance structures such as the ‘Tawarruq’, which involves purchasing a commodity with deferred payment and selling it to a third party for cash, hence replicating the effect of a loan.

“Regulations need to be adjusted to allow financial institutions to engineer products that fit the spirit of Islam while meeting legal and regulatory requirement,” it said.

In this regard, the report cited an example of recent co-operation between the halal industry (mostly foodstuffs) and Islamic finance – two sectors with similar goals that have had little contacts.

With issues related to the environment and social practices as well as corporate governance getting more attention, it said there has been more reporting on corporate social responsibility, which is important to Islamic finance.

(GulfTimes , 21 Feb2012)

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Libyan Foreign Bank Rolls Out Islamic Products as Rules Change

Feb. 21 (Bloomberg) -- The Libyan Foreign Bank will offer Shariah-compliant products as the government prepares regulation to make Islamic banking the norm in the North African nation following the ouster of Muammar Qaddafi.
“Islamic products are being introduced and will predominate, but we will not relinquish the use of traditional banking,” General Manager Mohamed Ben Yusef said in an interview today in Tripoli. “A decision will be made by the Central Bank of Libya by the end of March to introduce a new article in the banking law regarding Islamic governance.”
Shariah-compliant finance may reap the benefits of regime changes in North Africa, where protests last year toppled three leaders who persecuted Islamists. While Muslims make up about 95 percent of North Africa’s 220 million people according to the CIA World Factbook, access to Shariah-compliant financial services remains limited as past leaders, including Qaddafi, held back the industry’s growth to curb the influence of Islamic parties.
Mustafa Abdel Jalil, the chairman of the National Transitional Council that lead the rebellion to topple Qaddafi, said Oct. 23 that the country’s banking industry should comply with Islamic law, which bans interest. Central Bank Governor Saddek Omar Elkaber on Nov. 24 said the government will honor bank licenses issued during Qaddafi’s era, including one given to Qatar Islamic Bank to start the only Shariah-compliant lender in the country.
“We are a traditional society so we are looking for products that are ethically and morally comfortable; we think that Islamic banking can re-energize the industry and move our economy forward,” Ben Yusef said.
The Libyan Foreign Bank, a fully owned unit of the central bank, is the biggest bank in Libya in terms of capital and assets, he said. Paid capital was $3 billion and total assets were $18 billion at the end of January.
(BloombergBusinessWeek, 21 Feb2012)

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