Oman : What Islamic Banking can facilitate?

Finally, the dream of many Omanis has come true. They have demanded that Islamic Banking should be practiced in Oman. Such a demand will not only fulfill their financial needs, but also will give opportunities to people to understand Islamic Banking and compare it with conventional banking. 

Before getting to know the differences between Islamic Banking and conventional one it is advisable to know banking in general first.

Banking came into being since 1200 approximately and its practices were initially found in Italy. 

Banking is one of the most important pillars of the economy of a society. People use banks to borrow or deposit money to satisfy their needs as individuals or as families. Businesses need banks to conduct their transactions, to invest in or to get funding to grow their businesses. Banks accept deposits from people and businesses and use these deposits to further lend to other people and businesses or to invest in different fields to get good returns.

The banking sector serves a very important role in the development of a country’s economy. In Oman, banking sector has a long history, and so far contributions of the banking sector are evident in all fields and are well appreciated.

You must have heard about the recent changes in the banking sector. The ‘Islamic Banking’ has been brought into the country by the Central Bank of Oman. What will the impact of this be? What new changes will Islamic banking bring in terms of the economy, development, and innovation? The banking industry has become a very exciting place in last few months as there are various seminars, training courses, and conferences being held on Islamic banking in prestigious locations.

There are new banks like Bank Nizwa, and Bank Izz International which will be opening their doors to customers soon. The established conventional banks are also busy in opening Islamic windows. The employees are being chosen and trained for their new roles.

By now, the top management of the banks must have figured out the ‘strategy’ to be used for Islamic banking. They must have thought of internal policies for Islamic products and the computer systems to be used for their accounts.

This has also given an opportunity for training institutions to sell their Islamic banking knowledge to these banks. Islamic Banking experts have seen a gap in the expertise in the Omani market and are looking at Oman for employment opportunities in Islamic banking.

What is the Islamic banking going to provide its customers and in what manner will it be different from what is already available in the market? There are discussion and debates on this issue in the drawing rooms, in coffee shops, and in offices. These discussions and debates are essential for the success of Islamic banking in Oman.

The Islamic banks and the Islamic products like Sukuk, mudharaba, murabaha, etc., are new in the market, hence there are lots of questions in the minds of people such as; Will Islamic banks provide me a personal loan to get married? Will it be able to get an education loan to go for further studies? Will it provide loans for family health treatments? Will they provide loans to rebuild houses?

Though I am not an Islamic banker, in my opinion, Islamic banking crates a distinction between Halal and Haram in the field of banking. It is based on the Sharia law. It follows the “Quran” and “Sunna” to avoid Riba, which is not allowed in Islam. Quran teaches us not to take each other’s properties with injustice. Islamic banking makes an effort to apply justice and fairness in the finance sector.

Most researchers agree that the Islamic finance industry is growing very rapidly worldwide. 

Nevertheless, Islamic banking in Oman is a great challenge for the banking sector, the government, as well as the public. It is very important that deposits are brought in from customers in an Islamic way and the same funds are allocated as best guided by the principles of Islam.

Obviously, this is a great opportunity for the new Islamic banks as well as the conventional banks to come together and create an environment which should make all of us proud. It should be balanced with the Sharia Law, Central Bank of Oman’s guidelines, public demands and expectation, and the rule of the law, as a whole.

(Oman Daily Observer / 11 June 2012)

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Alfalah Consulting - Kuala Lumpur:
www.alfalahconsulting.com
Consultant/Trainer/CEO:
www.ahmad-sanusi-husain.com
Islamic Investment Malaysia:
www.islamic-invest-malaysia.com

Demand for alternative dispute resolution keeps pace with Islamic finance

Increase in demand for alternative dispute resolution mirrors growth of the $1 trillion Islamic finance industry

The Bahrain Chamber for Dispute Resolution (BCDR-AAA) this week participated in the 3rd World Islamic Banking Conference (WIBC) Asia Summit in Singapore.

Speaking at the event, which was attended by 450 leaders in international Islamic banking, the BCDR's Chief Registrar and Assistant CEO for Arbitration, Mr. Ahmed Husain, discussed the benefits for the industry of arbitration in dispute resolution and the alternative solutions offered by the chamber.

Husain said, "The Islamic finance industry is currently valued at $1 trillion and is growing at a significant rate of 10 per cent per year. With this growth comes the demand for alternative solutions to traditional means of settling legal disputes. As such, arbitration and mediation have an increasingly important role to play in the financial and legal sectors.

The Bahrain Chamber for Dispute Resolution (BCDR-AAA) this week participated in the 3rd World Islamic Banking Conference (WIBC) Asia Summit in Singapore.

Speaking at the event, which was attended by 450 leaders in international Islamic banking, the BCDR's Chief Registrar and Assistant CEO for Arbitration, Ahmed Husain, discussed the benefits for the industry of arbitration in dispute resolution and the alternative solutions offered by the chamber.

Husain said, "The Islamic finance industry is currently valued at $1 trillion and is growing at a significant rate of 10 per cent per year. With this growth comes the demand for alternative solutions to traditional means of settling legal disputes. As such, arbitration and mediation have an increasingly important role to play in the financial and legal sectors.

"We have already seen a shift towards using alternative solutions for dispute resolution in the region due to the considerable advantages that these solutions offer. Since opening our doors in 2010, the BCDR has presided over 54 cases with a value in excess of over $1.1 billion.

"The process is simple, flexible and cost effective. Furthermore, parties are able to hand pick an arbitrator or mediator with the credentials and expertise that best suit their needs. This is particularly important when considering the complexities of the Islamic finance industry."

The BCDR-AAA was the official dispute resolution partner for the 3rd WIBC Asia Summit which was held this year under the theme, Islamic Finance in Asia: Strengthening International Connectivity and Capturing Cross-Border Opportunities.

The Bahrain Chamber for Dispute Resolution (BCDR-AAA) delegation to the 3rd World Islamic Banking Conference (WIBC) Asia Summit in Singapore, includes as well as Hussain, Ali Abdulla Al Aradi Chief Registrar and Assistant CEO for Mediation and Mr Ali Dawani Business Development Assistance Director.

(C.P.I Financial / 10 June 2012)

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Alfalah Consulting - Kuala Lumpur:
www.alfalahconsulting.com
Consultant/Trainer/CEO:
www.ahmad-sanusi-husain.com
Islamic Investment Malaysia:
www.islamic-invest-malaysia.com

Islamic private equity investments in Malaysia to quadruple to RM10bil

KUALA LUMPUR: Islamic private-equity investments are poised to quadruple in Malaysia to US$3.1bil (RM9.7bil) in five years on government incentives, according to the industry's biggest fund manager.

CIMB Islamic Bank Bhd, which oversees RM1.7bil of funds that invest in unlisted companies, was handling more cash for state institutions and benefiting from tax exemptions on fees until 2016, Kuala Lumpur-based chief executive officer Badlisyah Abdul Ghani said in an interview.Syariah-compliant regulations and fund-raising options were developed enough to support growth in the market, which had about RM2.5bil in assets, he said.

Private-equity investments worldwide exceeded US$210bil last year, down from a peak of US$395bil before the global credit crisis, according to a report from London-based industry group TheCityUK. Malaysia had the potential to attract Muslim wealth, including some of the US$1 trillion of Middle Eastern money invested outside the region, Tan Sri Nor Mohamed Yakcop, minister in the Prime Minister's Department, said on May 21.

“The prospects for Islamic private equity are there,” Ahmad Lutfi Abdull Mutalip, head of the financial services and Islamic banking practice at Kuala Lumpur-based law firm Azmi & Associates, said in an interview on Tuesday. “Malaysia has companies with good growth potential and the Government has been giving them attention.

Private-equity investors from the Middle East had turned to Malaysia and other South-East Asian nations, John Sandwick, manager and founder of Geneva-based Islamic Wealth & Asset Management SA, said in an e-mail.

The Government accounted for 54% of the US$1.7bil in total assets managed by private equity and venture-capital funds last year, Darawati Hussain, the former chairman of the Malaysian Venture Capital & Private Equity Association representing 28 members, said in an e-mail. That includes both Islamic and non-Islamic. “The industry is still in the nascent stages and has a lot of room to grow.”

In private equity, investors target a company with the aim of improving its financial health for a possible future sale or initial-public offering, while in venture capital, funds are placed in new start-ups or small businesses. Under syariah law, investments in businesses such as those involving, tobacco, alcohol, pork, prostitution and some entertainment establishments are forbidden because they are deemed unethical.

Navis Capital Partners complied with syariah law when it invested in local fiber-packaging company Siangpack Sdn and also when KFH Asset Management Sdn purchased a stake in Singapore's Pacific Healthcare Holdings Ltd, according to an e-mail on Wednesday from the association.

Malaysia pioneered Islamic finance 30 years ago and is a global hub forsyariah-compliant services. The country has the world's biggest market for sukuk, or debt that complies with the religion's ban on interest.

Some private-equity deals might be initiated using borrowed funds, and the growing Islamic debt and loan markets would help facilitate companies' financing needs, CIMB's Badlisyah said.

“The most important factor that will take Islamic private equity to the next level is the availability of syariah-compliant debt financing, including sophisticated structured financing as well as sukuk in the markets the funds invest in,” he said.

Sales of Islamic bonds in Malaysia have increased 8% to RM15bil in 2012 from the same period of last year, when issuance reached a record RM75.6bil, according to data compiled by Bloomberg. The nation accounted for 60%, or US$108bil, of the global sukuk outstanding in 2011, according to Bank Negara's annual report.

Syariah-compliant bonds in Malaysia have rallied this year after inflation slowed in April to the least since November 2010.

Private equity accounted for a fraction of Malaysia's Islamic finance sector, and the growth potential was an opportunity for the country to build a niche, Azam Azman, managing director of Kuala Lumpur-based CMS Opus Private Equity Sdn, said. - Bloomberg

The country's syariah-compliant banking assets grew 24% to US$137bil last year, or 22.4% of the total, the central bank said. - Bloomberg

“Booming Asian economies, Malaysia included, should be natural targets for sophisticated global capital, whether from private-equity firms in New York, London, or Dubai,” said Sandwick of Wealth & Asset Management. 

(The Star Online / 08 June 2012)

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Alfalah Consulting - Kuala Lumpur:
www.alfalahconsulting.com
Consultant/Trainer/CEO:
www.ahmad-sanusi-husain.com
Islamic Investment Malaysia:
www.islamic-invest-malaysia.com

Malaysia: New Islamic funding facility may lure Gulf banks

Bank Negara is introducing an Islamic overnight funding facility which could encourage commercial banks from the Gulf to trade more in the country’s syariah-compliant money market.

The collateralised murabahah facility, announced last week, “will add diversity to the existing liquidity management tools and further promotes greater liquidity in the Islamic financial market,” the central bank said.

The new facility would allow Islamic banks to obtain funds from the central bank by pledging high investment grade sukuk as collateral, a Malaysian-based Islamic banker told Reuters by telephone.

Currently, Islamic banks can obtain funds from Bank Negara through a deferred-payment sale agreement, but this structure is not considered permissible by some syariah scholars outside Malaysia so banks from the Gulf have been reluctant to use it.

Because it involves murabahah, a common cost-plus financing structure in Islamic finance, as well as collateral, the new facility was likely to be more acceptable to banks from the Gulf, the banker said. It might also be more cost-effective, he added.

Last June, the United Arab Emirates central bank introduced a similar facility to provide liquidity to banks in its own money market: a collateralised murabahah facility in which banks can use Islamic certificates of deposit as collateral.

Al Rajhi Bank, Kuwait Finance House, Bank Alkhair and Elaf Bank are among the Middle Eastern institutions already active in the Malaysian market.

Besides stimulating Malaysia’s Islamic money market activity, the new facility could encourage banks’ investment in sukuk by increasing demand for the use of sukuk as collateral.

The facility was in line with increasing allocations of funds into sukuk by Islamic banks, said Srinivasan Gopalakrishnan, assistant vice-president at Bahrain-based Al Salam Bank.

(The Star Online / 07 June 2012)

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Alfalah Consulting - Kuala Lumpur:
www.alfalahconsulting.com
Consultant/Trainer/CEO:
www.ahmad-sanusi-husain.com
Islamic Investment Malaysia:
www.islamic-invest-malaysia.com