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Thursday, 31 May 2012

Can Islamic banking help boost Czech Republic exports?

A good deal of the ongoing economic and financial turmoil on world markets has been blamed on the unscrupulous practices of the international banking and financial sector. Islamic banking, on the other hand, is seen as a fairer and more balanced alternative which has been much less affected by the crisis. Can the Czech Republic benefit from a financial system based on the Islamic law? And can Islamic banking help boost Czech exports into Muslim countries? These are some of the issues debated at an international conference on Islamic banking held in Prague.
Based on the principles of Islamic law, or shariah, Islamic banks are prohibited from charging interests, speculating as well as investing in businesses considered unethical by Islamic scholars. Instead, Islamic or participant banking offers a system of shared risks and profits, and its supports claim it is committed to promoting equity, moderation and social justice.
Islamic banking is today the fastest growing segment of the financial system, and is also considered a more honest and fairer alternative to conventional banking. Cihad Erginay is the Turkish ambassador to Prague, and head of the local group of the Organisation of Islamic Cooperation which organized the event.
“There was great interest on the subject from our Czech colleagues, Czech bankers and journalists who kept asking us about it and expressed their interest because they saw that Islamic banks were not as affected by the economic crisis that we see today. That led us to think that it could be interesting to organize such a conference. And as you can see from the participation, there is great interest in the subject.”
“Banking as it should be” is the slogan of the Abu Dhabi Islamic Bank, the fourth largest Islamic bank in the world, whose head of marketing, Petr Klimeš, was one of the speakers at the conference. I asked him what the attraction of the Islamic finance system for non-Muslims was.
“The slogan ‘Banking as it should be’ in fact came from non-Muslims. When we tested the proposition and the banking model that was based on hospitable, transparent banking that protected the best interests of the customer and banking that was simple, it was non-Muslims who said that.
“So yes, it is very attractive to non-Muslims. As recently as yesterday, when I had dinner with one of my friends, I was telling him about how we conduct our business. He’s Czech, and he said, ‘I wish my bank was like that’.”
Some 200 people from Czech and international financial institutions, the private sector and public administration took part in the conference. One of the panellists was Emad Yousuf Al Monayea is the CEO of Kuwait’s Liquidity Management House. I asked him why Islamic banking was largely sheltered from the global financial crisis.
“If we look at the basic principles of Islamic banking, they require the right structures and practices whereby the evaluation of each potential project would be conducted rather than just jumping into a project without a proper assessment, without finding the right assets to back that kind of project. Otherwise, we will end in difficulties.
“We have to admit that there were, as everywhere, some good examples and, Alhamdolillah, some bad examples, when it comes into practise.”
Through cooperation with Islamic banks, Mr Al Monayea said, Eastern European countries including the Czech Republic could benefit by attracting new investors from the Gulf Region and beyond.
“Liquidity is building up all over the market, there is good liquidity but a lack of good projects that would give you comfort to invest in. In comparison with other international markets, we have seen what’s happened in the US and Western Europe, and Eastern Europe should now open the door for new capital which is searching for new havens of good assets.”
The Czech Republic recently announced it would try to diversify its exports the majority of which now go to Germany and other EU member states. Czech officials and business leaders are now eyeing Turkey, Kazakhstan and other Muslim nations, and closer ties with Muslim financial institutions could help those efforts, according to Jaroslav Hanák, the head of the Confederation of Industry of the Czech Republic which represents around 1,500 industrial firms.
“Our efforts to diversify our exports and our export strategy which includes a number of countries from the area such as Iraq, Kazakhstan and Turkey, all that makes any links, including banking and financial ones, very interesting and valuable. But we have been working with many other countries as well, and we should not underestimate their interest in investing in Central Europe.”
Jaroslav Hanák says that cooperation with Islamic banks for example in Turkey would certainly provide a boost to mutual trade. When it comes to potential private customers of these banks, Mr Hanák is sceptical.
“We already have experience with dealing with those countries. On his recent visit to Turkey, President Klaus was accompanied by dozens of Czech businesspeople, and that’s a typical country where we could develop further ties. But I think it’s only interesting for businesses really. I don’t think it has some kind of immediate potential for regular Czech clients.”
Tuesday’s conference was held at the headquarters of the Czech National Bank in Prague. The bank’s officials refused to share their view on Islamic banking and how it could contribute to Czech export strategy. But Professor Michal Mejstřík, who is a member of the Czech government’s economic board, says the event could prove to be a good start.
“If you look at it from the perspective of Czech exports – and we are a country with one of the highest export quotas – it’s absolutely inevitable for our exporters. They have to understand the principles and get familiar with the banks. I understand that cultural differences are part of business and banking too, so from this perspective, it’s a good kick-off.”

According to the organizers of the conference, shariah-compliant assets represent about half a percent of the world’s total assets but the industry is growing at an annual rate of between 10 and 15 percent. Islamic banks now operate in the UK, Germany, Demark and other countries. So how would the Czech law need to change to allow them into the Czech Republic? Not that much, says Judge Ivana Hrdličková, a legal expert for the Council of Europe.

“There are several issues related to for example book keeping, or tax law generally speaking, and to the rules concerning the protection of creditors. But we could find inspiration in Germany for instance which changed its laws slightly to allow such institutions to operate in the country.
“But I don’t think there are any major obstacles in the Czech Republic either. As far as Islamic banks are concerned, some changes would also have to be made but we could look at other European countries for examples.”
Another issue has to do with the negative connotations of shariah in liberal democracies where people link the Islamic law to Islamism and Islamist extremism. But Petr Klimeš from the Abu Dhabi Islamic bank says their non-Muslim clients care about what they can get rather than the shariah principles.
“We mainly operate in Muslim countries where the word shariah has a very positive connotation. It’s actually the Arabic word for law. So we don’t see an issue with saying we operate in compliance with shariah which is an absolute requirement for our Muslim customers. And what’s important for our non-Muslim costumers is what they will get at the end of the day. They might not necessarily be interested in whether the transaction is compliant with shariah but they don’t mind. They are interested in the value they get and they are very happy with it.”
Petr Klimeš, who worked for the Czech branch of Citibank before he joined ADIB in 2008, says it will take some time before a bank observing the Islamic law opens up a branch in the Czech Republic. But Czech exporters hope that cooperation with Islamic banks will bring more immediate results.
(Radio Praha / 30 May 2012)

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The Islamic Development Bank (IDB) exploring microfinance options in UK

LONDON, 9 Rajab/30 May (IINA)-The Islamic Development Bank (IDB) is exploring social and financial inclusion opportunities in the UK including the provision of community-based microfinance, SMEs (small-and-medium-sized enterprises) financing and technical assistance programs.
An IDB delegation, led by its President Dr. Ahmed Mohammed Ali, participated in a roundtable here Monday with financial institutions, law firms, corporates and community organizations and leaders.
Dr. Ali said that in addition to the direct assistance to microfinance institutions, initial discussions have taken place with the UK’s Department for International Development (DFID), World Bank and CGAP to start some pilot projects in various common member countries and eventually develop a global Islamic microfinance facility.
In the UK, there are several initiatives aimed at helping small business start-ups and young entrepreneurs and to promote financial inclusion. These include Community Development Financing Institutions (CDFI), the Enterprise Capital Fund, and regional ones such as Bolton Business Ventures.
On Monday, Lord Young, the former Conservative cabinet minister, announced the launch of a GBP85 million initiative to help young people in the above respect. The reality is that the UK is facing a multi-billion pound funding gap for small businesses.
One microfinance initiative that is seeking to cooperate with the IDB is GLEOne London, whose CEO Nicholas Nicolaou, revealed that the entity is working on a program to assist Muslim immigrants starting up small businesses and becoming entrepreneurs.
In fact, City law firm Norton Rose; Gatehouse Bank, one of the five UK-authorized Islamic banks; and international auditing firm and consultancy KPMG have been cooperating with GLEOne London to develop an Islamic microfinance product based on the Mudaraba (trust funding) concept.
According to Farmida Bi, Partner at Norton Rose, the product is ready to roll out and addresses the various tax and legal issues especially under the Consumer Credit Act, which protects the rights of customers.
Dr. Ali reiterated IDB’s support for various microfinance initiatives. He stressed that the Islamic banking industry registered a year-on-year growth of 35 percent in 2010 to 2011. Within OIC countries for instance, Islamic financial institutions are becoming major economic players in an increasing number of these countries.
In Indonesia, for instance, a recent Central Bank of Indonesia report has indicated that the industry is growing very fast at a rate of 35 to 40 percent per annum and is expected to capture up to 20 percent market share of the total banking industry in the next few years.
“If this trend continues the Islamic financial industry will become a major industry with an important role to play in global finance. London being the gateway for Islamic banking in Europe, needs to be prepared for this tremendous growth of this industry,” he said.
Dr. Ali also held talks with the Lord Mayor of the City of London, Alderman Ian Luder; the Sheriff of the City of London, Alderman Alan Yarrow; the British Consul General in Jeddah, Mohamed Shokat, and Richard Thomas, CEO, Gatehouse Bank, at Mansion House, the official residence of the Lord Mayor.
The IDB president’s visit was at the invitation of the Lord Mayor who earlier this year visited the bank’s headquarters in Jeddah.
Dr. Ali also met Andrew Mitchell, UK Secretary of State for International Development, to review progress on the implementation of the Memorandum of Understanding (MoU) signed by the two parties in Jeddah in March whereby the UK and the IDB agreed to cooperate in co-financing projects in IDB member countries aimed at generating youth employment and reducing poverty.
Alderman Luder stressed the close and historical relations between the City of London and the IDB and the GCC countries, in particular, Saudi Arabia. The City of London, as a premier international financial center, has much to offer not only in innovation, but also in education and training and also in the growing phenomenon of Islamic finance.
Dr Ali emphasized that the visit was a testament to the IDB’s partnership with the UK and specially with the City of London. “We have worked together to further some areas of our common interest. This visit also provides IDB with the opportunity to support the development of Muslim communities in the UK,” he said.
IDB’s Medium Term Note Program amounting to $6.5 billion for sukuk issuance is registered with the Financial Services Authority in UK and is listed on the London Stock Exchange.Under this program, IDB has made several issuances in US dollars, as well as pound sterling denominated private sukuk issuances have been made.
As far as the money market placements are concerned, the IDB has over the years increased its exposure to the UK’s financial institutions and IDB stands ready to do more in this regard when appropriate opportunities are identified.
The IDB is working with such recognized institutions as the Prince of Wales’ Prince’s Charities and has contributed just under $1 million to help young people in the inner cities to start up projects or small businesses.
The IDB has also been providing assistance for economic and social empowerment to UK citizens as part of IDB’s special assistance program for cooperation with Muslim communities in non-member countries. To date IDB has approved a total of 19 projects for the UK and further projects are being planned. These projects are mainly in the field of education, social welfare and research.
In the wake of the global financial crisis, economic recession and the impact of the eurozone debt crisis, the issue of embedded inclusiveness especially of the financial services industry is increasingly important. Not surprisingly, the IDB President appealed to the financial institutions to help in this respect.
“Achieving sound and sustainable socio-economic development is not simply a financing issue. It is a much broader endeavor,” said Dr. Ali, adding: “It is not within the bandwidth capacity of a single institution or even a single country. It requires strong commitment to reform the socio-economic system and its institutions. All stakeholders, including the government, private sector, civil society and donor community, have to play an active role and align their priorities and activities to achieve this common goal. Due to the strong banking traditions in the UK, it can contribute significantly to this endeavor.”
This, he added, is a once-in-a-lifetime opportunity and called upon all the Institutions to pull together and work towards building “an equitable, just and stable financial system which is capable of providing sustainable growth with employment creation for our own future. IDB would be happy to cooperate with initiatives in this regard.”
A key delivery vehicle for inclusiveness which the IDB has been promoting is through SME financing and microfinance programs aimed at generating employment, especially youth employment, and economic growth.
Due to the recent changes in the MENA region as a result of the Arab Spring, there has been a demand for funding of SMEs. In this context, the Bank has launched the IDB Youth Employment Support (YES) Program for which the IDB’s Board of Executive Directors approved $250 million to help empower Financial Institutions, Employers, Education and Vocational training organizations in the Arab Region to reduce youth unemployment.
Dr. Ali revealed that the targeted countries include Tunisia, Egypt and Morocco and that the first disbursements have started with Tunisia. However, he pointed out that it is up to the receiving countries to come up with project proposals to access the funding.
Furthermore, the Islamic Solidarity Fund for Development has allocated $500 million for Islamic microfinance and a similar amount for vocational literacy programs (VOLIP). The IDB Islamic Microfinance Development Program was established to strengthen the Islamic microfinance institutions and develop the overall enabling environment for them.
According to the IDB, the French Development Agency (AFD) and the Consultative Group to Assist the Poor (CGAP) are also collaborating with the IDB in the development of Islamic microfinance.

(Internatonal Islamic News Agency  / 30 May 2012)

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Central Bank of Malaysia (Bank Negara) introduces new Islamic instrument

KUALA LUMPUR: Bank Negara Malaysia announced introduction of a new Islamic monetary instrument, Collateralised Murabahah.

It said Collateralised Murabahah was essentially a syariah-compliant financing secured by assets in which the financier had the right to sell the asset should the client fail to repay the financing.

“It combines the widely accepted Murabahah financing transaction with sukuk (Islamic bond) that forms the pledged asset to back the transaction,” it said in a statement.

The central bank said Collateralised Murabahah would be a new low credit-risk financial instrument that enables collateralised interbank transactions in the Islamic money market in Malaysia.
“It will add diversity to existing liquidity management tools and further promote greater liquidity in the Islamic financial market,” it said.

Collateralised Murabahah could be used by Islamic financial institutions to obtain liquidity from Bank Negara under the standing facility and it would also be expanded to facilitate daily Islamic money market operations in the interbank market, it added.

(Borneo Post Online / 31 May 2012)

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