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Wednesday, 6 June 2012

Islamic finance looks to be viable alternative amid uncertainty

SINGAPORE: In light of increasing financial regulation and a consumer backlash against 

volatile and complex financial products, Islamic finance looks to be a viable alternative.

But Islamic bankers said there's still some way to go before Islamic banking products go mainstream.

Over 450 Islamic bankers and regulators are in town for the third World Islamic Banking Conference (WIBC) Asia. 

The conference focused on how Islamic banks can boost liquidity through cross border transactions.

Managing Director of Monetary Authority of Singapore, Ravi Menon, said: "Cross-border investment flows are also constrained by differing interpretations of permissible transactions under Shariah principles. The isolated pools of Islamic liquidity in each market restrict opportunities for more efficient allocation of capital across consumers, industries and jurisdictions."

As of last year, the Islamic finance industry is estimated to have reached US$1.3 trillion in total assets. 

That's an annual growth rate of 20 per cent over the last five years.

But it accounts for less than 1 per cent of the global financial system.

That's according to Mr Menon, who delivered the opening address at the two-day conference.

Wasim Saifi, Global Head of Consumer Banking, Standard Chartered Saadiq, said: "(The) challenge really is how does Islamic banking convert most of the people who believe in Islamic banking to start practising Islamic banking. Because if you look at the Muslim world - it is only one in eight of bank-able muslims who currently bank Islamic.

"Seven of eight still bank conventional. The real challenge is to reach that stage where we can convert the balance seven (out of eight). The liquidity pool then becomes far far greater in the hands of these Islamic banks."

Bankers said the lack of regulatory and product standards make it hard for the industry to achieve economies of scale.

But that is changing, thanks to regulatory changes such as Indonesia's move to streamline withholding tax in 2010.

Muzaffar Hisham, CEO, Maybank Islamic Berhad, said: "Last year alone, we saw a spike in the Islamic fundraising to Indonesia. Between US$400 to 500 million out of 4 or 5 transactions. That is from zero a year ago."

Following the Lehman crisis in 2008 and MF Global's bankruptcy last year, many ordinary investors have been burnt by complex structured finance products.

Industry leaders at the conference agree that Islamic finance, with its focus on transparency, price certainty and risk-sharing can offer a viable alternative to both muslims and non-Muslims.

One such example is Singapore-listed Sabana Shari'ah Compliant REIT, which counts three-quarters of its investors as conventional investors.

(Channelnewsasia.Com / 05 June 2012)

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BNP Paribas’ Alwi Says More Non-Islamic Investors Buying Sukuk

Syed Alwi bin Mohamed Sultan, the Kuala Lumpur-based head of Islamic banking for Asia Pacific at BNP Paribas Malaysia Bhd., discusses the trends in Islamic finance at the World Islamic Banking Conference in Singapore.
“There’s greater diversification of the investor base. What we have seen from recent issuance is that there are greater non-Islamic investors coming in to accept sukuk or invest in sukuk instruments. The Khazanah Nasional Dim Sum sukuk witnessed more than 50 percent from Singapore and Hong Kong investors. A deal that BNP Paribas led and brought to market, the Bahrain sukuk, more than 20 percent of European investors participated.”
“We’re seeing the phenomenon of sukuk issuance is being stretched. What seemed to be the sweet spot of sukuk tenors was the five year. But today we can see the tenor being stretched from seven to 10 years. This is a demonstration of the growing maturity of the Islamic finance market.
“This year we will witness potential issuance from countries like South Africa, Kenya, and Senegal. Hong Kong had already issued consultations into the bonds to look into the stamp duty and tax ordinances to level the playing field for sukuk issuance.”
(Bloomberg / 05 June 2012)

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Asia excited about Islamic finance, says Business Bermuda CEO

Cheryl Packwood, Chief Executive Officer of Business Bermuda, revealed to Islamic Business & Finance that during a recent trip to China, she found that Islamic finance was the topic de jour. “In April we were in Shanghai and Beijing, when we mentioned Islamic finance; I was initially concerned knowing that Muslims are a minority, and also being a communist state religion isn’t something you’re necessarily supposed to put forward, but we talked about Islamic finance and there was a great deal of interest when we raised the subject.
“In Singapore when I spoke at the insurance conference I raised the fact that we were developing Bermuda as an Islamic finance centre and there was a great deal of interest – reporters came up afterwards and that’s all they wanted to know about,” she said on the sidelines of the 3rd World Islamic Banking Conference Asia Summit (WIBC: Asia).
“This [WIBC: Asia] is a big conference, the other conferences I’ve been to out here were relatively small compared to what’s going on here so there’s a great deal of interest and I am very impressed.”
“Islamic finance is beginning to be seen as an alternative way of doing finance, rather than an extension of the religion,” she added.
Packwood also commented on the double taxation agreement Bermuda signed with the Government of Qatar in May. “What’s very interesting about that double taxation agreement is a carve out for reinsurance. Qatar really wants to build its reinsurance industry and Bermuda is recognised as the largest reinsurance market in the world with all the expertise and capability so there’s a two-way avenue for reinsurance work. Obviously what comes out of that is the opportunity for ReTakaful and Takaful.”
(C P I Financial / 05 June 2012)

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Europe Debt Crisis Offers Growth Opportunity For Islamic Banks

The European debt crisis and public anger over government aid to banks offered Islamic lenders a “golden opportunity” to capture a bigger share of the world banking market, according to Noor Investment Group LLC.
Islamic banking has the potential to overtake conventional lenders by offering an alternative to both Muslims and non- Muslims, Hussain Al Qemzi, chief executive officer of the United Arab Emirates-based group, said in a statement at the World Islamic Banking Conference in Singapore today.
“The world is crying out for a better, more ethical way of doing business,” he said. “Now is the time to position our industry as a global alternative financial system, one which can safeguard against the excesses.”
Islamic banking assets with commercial banks are expected to reach $1.1 trillion this year from $826 billion in 2010, according to an estimate published by Ernst & Young. Financial- services firms are under pressure from governments to reduce compensation amid public anger about trillions of dollars of taxpayer assistance to banks.
(Bloomberg / 05 June 2012)

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