LANGUAGES

Entries in English and Malay (Bahasa Melayu)

Tuesday, 17 July 2012

Ramadan wish list for Islamic finance

by Rushdi Siddiqui 

AS THE blessed month of Ramadan arrives, here is my “seeking” list for Islamic finance. It’s not about another voice asking when the International Islamic Liquidity Management Corporation (IILM) will issue its first paper or disagreeing with CIMB Group CEO Datuk Seri Nazir Razak’s comment on “rolling back” government’s involvement in business, but more to do with controlling our own Islamic finance manifest destiny. 

Information 
“The new source of power is not money in the hands of a few, but information in the hands of the many.” John Naisbitt What is the most valuable commodity in the world? Is it gold? Silver? Oil? Wheat? No, on all fronts. It’s information as almost all jurisdictions have laws against inside information to manipulate the markets to take unfair advantage. In Islamic finance, the information is fragmented, stale, difficult to access, etc. Hence, the anchor slowing the potential of growth, expansion and development.
The industry needs to establish an Islamic Information Industry body (IIIB) to: 
  • CONNECT the Islamic finance hubs and international financial institutions (IFIs),
  • WAREHOUSE all Islamic finance regulations and standards and database of Islamic finance jobs and registered financial planners (RFPs),

  • ESTABLISH a global Islamic finance public relations agency (includes undertaking damage control) and with such information and connectivity
  • ESTABLISH a global Islamic finance Arbitration Centre. The IIIB should be housed in Turkey (gateway to Commonwealth of Independent States (CIS), eastern Europe and Gulf Cooperation Council), Egypt, Australia or France.

For example, how should the industry “react” to: 
  • SOUTH AFRICA’S FNB Islamic finance syariah board quitting (“untenable breakdown in trust”)
  • CANADA’S UM FINANCIAL (receivership and bankruptcy and allegations of improprieties)
  • MAJED AL REFAI (founder of Unicorn Investment Bank, now called, Bank Al Khair) found guilty of fraud and embezzlement by Criminal Court of Bahrain
  • INVESTMENT DAR syariah board issued statement advising the company board to drop lawsuit against Blom bank concerning compliant deposit and others.

Once the trust and confidence of Islamic finance is questioned, it starts the erosion of the niche market and prevents it from achieving its ultimate objective: becoming mainstream.

Rebranding 
“The goal here is to build a brand around social relevance…” Jeff Skoll.
Islamic finance has a number of time-consuming challenges: lack of robust regulations in many Muslim countries, ever present conversations on standardisation, lack of enough scholars and qualified people and so on. However, it also has control of some of its own destiny yet seems to be stuck on form over function.
The essence of Islamic finance is “participatory, risk-sharing partnership”. Hence, the description is clean, crisp and clear for the (Muslim) “man on the street” and the non-Muslims. Thus, why not start a movement to “rename” to participation banking (like secular Turkey) as it takes away: 
  • PROMOTING (one religion over another) religion argument;
  • REBUTS BACKDOOR “Islamisation” argument;
  • ERODES its only-for-Muslim argument; and
  • REMOVES it from the political talking points (and fund raising) for those who want to divide.

Interestingly, the “no need to name change”, comes from the Muslims residing/working in Muslim countries, who are not exposed to the pressures of Muslim indians in India, Nigerian Muslims in Nigeria, Muslims in America and so on. 

Comments 
“Stand up for what you believe in, even if it means standing alone…” Unknown. There are few comments on Islamic finance articles and news stories. Why? My son has a blog, blackswanofbaseball, and he recently wrote about alcohol-free zones (family-friendly) zones at baseball parks (stadiums) and I posted it on my Linkedin account, which has many Islamic finance professionals, and he has gotten more reactions (approval) than articles and blogs.
May be the writing is too technical as focus usually on structuring, modalities of contract, special purpose vehicles, regulations, syariah, etc., and not the end result.
However, to shape a movement, one must have the courage to have a constructive input, otherwise be prepared to accept the comments of others as “your own” by an inquiring third party. 

Enfranchisement 
“We will champion inclusiveness not just because it is a foundation for political stability and economic growth, but because it is right,” said Prime Minister Datuk Seri Najib Razak when he was deputy prime minister.
Today’s Islamic finance conferences repeatedly miss the three most important stakeholders in Islamic finance, as they neither bankable nor efficiently accessible. They are students, youth and the “have nots”. And the million dollar question is their financial inclusion for they are tomorrow’s customers. Islamic finance rings “hallow” to them as they are not in any five business plans.
For example, it would be interesting to have an Islamic bank sponsor the equivalent of Dragon’s Den or Shark Tank, where these stakeholders, including the halal industry SMEs, submit their ideas for funding. To some, this may be part of Muslim philanthropy capital market style and to others, a cheap imitation of western programmes, etc. However, let the market decide by ratings. 

iECM 
Commodities tend to zig when the equity markets zag.” Jim Rogers. 
How to build out an Islamic equity capital market (iECM) that becomes on par to the Islamic debt capital market (iDCM)? The industry needs to focus on building out the Islamic wealth management proposition, and one of the ways would entail an Islamic finance hub declaring (seems everyone is always declaring something in IF) to be Organisation of Islamic Cooperation (OIC) wealth management hub. Why OIC and not Islamic wealth management hub? Simple reason there are more conventional funds, equity, bond, money market, etc., than Islamic. However, its Muslim money. Thus, placing all the asset classes, from trade finance funds to SME funds to haj funds to zakat funds to initial public offering funds to real estate toreal estate investment trust to commodity and so on, on a single dashboard (funds supermarket) allows the attention and money to gravitate towards returns, values, etc.

Micro + Mega Takaful 
"Put your future in good hands - your own." Unknown
The conversation in Islamic finance needs to gravitate towards not only micro-takaful (for the "have not" masses), but also establishing a (well-capitalised) mega-takaful operator for the industry to become truly cross-border. The takaful development will also develop: 
  • * ISLAMIC asset management industry and Islamic ECM;
  • * INFRASTRUCTURE projects with larger IF tranches;
  • * COMPLIANT deposit insurance; and
  • * COMPLIANT deposit insurance; and
  • * INSURING mosques in the West and other benefits.

Consolidation

"Consolidation results in convergence of businesses yielding new continuity and expanding connectivity for the betterment of the community that desperately wants to contribute." Rushdi Siddiqui 
Is the need for consolidation a cost or income play in (Islamic) overbanked markets like the UAE or Malaysia? When there is revenue (margin) compression implying growth ceiling approaching, consolidation developments start to take place, like the recent announcement of three-way merger in Bahrain of Capinvest, Elaf bank and Capital Management House. 
However, the need for size and ensuing economies of scale are extremely important in Islamic finance.
Consolidation conversation makes more sense today as Islamic banks are "too small to fail" as the bigger risk is associated with confidence to withstand external and real estate shocks. 

Stewardship 
"Here we are, the most clever species ever to have lived. So how is it we can destroy the only planet we have?" Jane Goodall 
In the GCC, there is an estimate US$2 trillion (RM6.4 trillion) worth of projects, including the FIFA Cup in Qatar in 2022, and some will be financed by Islamic funds. There has been some chatter about a "Green Sukuk". However, that does not go far enough. 
Islamic finance is, at one level, is a movement about stewardship of the earth for successor generations, and GCC, the heartland of Islamic finance, is a major contributor to carbon emissions. Thus, Islamic banks and takaful operators need to be signatory to climate, carbon and equator principles as way to show they are responsible financiers and insurers.

Saudi Arabia & Cagamas 
"And I would argue the second greatest force in the universe is ownership." Chris Chocola 
With recent passing of the long-awaited mortgage law in Saudi Arabia, one of the outcomes may well just be:
  • * INCREASED supply of (mortgage-backed) sukuk (local currency?)
  • * FOR liquidity management (as monetary instrument).

Thus, the good work of Cagamas (mortgage-backed security (MBS)-issued sukuk) may fast track the learning experience (exported) to the kingdom and help out the takaful and pension market (fixed-income exposure) with longer dated maturities with high quality MBS.

The sukuk market may be established sooner with the passage of Saudi mortgage law and Cagamas reap some reputations and monetary benefits. 

Indicator of IF 
Today, it is well accepted, Islamic finance is a subset of conventional finance. So, what is a representative indicator/pulse of Islamic finance? 
Today, a standalone syariah-compliant index, syariah-based index and Islamic Interbank benchmark Rate do not give a meaningful understanding of the IF space, because such indexes still need to be measured by their conventional counterparts, conventional equity index and Libor. 
Thus, two types of delinking needs to take place: 
  • * DELINKING from conventional benchmarks; and
  • * MINDSET of comparison to conventional benchmarks.

 Conclusion

When there is sustained stakeholder chatter for an "Arab spring" moment in Islamic finance on the way forward, only then we will take the ramp for the highway of substance from the present roads of form.

Ramadan Mubarak!
(Rushdi Siddiqui is the global head of Islamic finance at Thomson Reuters)

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

Saudi Arabia: Nod to mortgage law to boost Islamic finance

LONDON – The approval of the Saudi Mortgage Law by the Council of Ministers earlier this month, which has been almost four years overdue, will not only be a game changer for the housing finance and real estate development market but could propel Islamic finance to the next level in the Kingdom. 

Islamic mortgage finance could have the same impact in consumer finance as Sukuk is having on the Saudi corporate sector as a fund-raising instrument. 
But according to Ajmal Bhatty, President and CEO, Tokio Marine Middle East Limited, which is in the process of establishing a Takaful (Islamic insurance) joint venture in Saudi Arabia with Alinma Bank, the Alinma Tokio Marine KSA, the adoption of a mortgage law could boost the mortgage Takaful industry in a big way, which could lead to further developments in mortgage securitization down the line as the market matures. 

“I think the introduction of the Saudi mortgage law is a major development for the housing market. I understand that more than 60 percent of households may need new units because of the young demography of the Kingdom. So there is a huge housing market for mortgage finance. And that opens up opportunities on the mortgage Takaful side as well. But it has to be handled properly with the right products and processes,” explained Bhatty to Saudi Gazette. 

International credit rating agency, Moody’s Investors Service, in a statement also stressed that “the implementation of the mortgage law is credit positive for Saudi banks because we expect it to enhance their asset growth potential, strengthen the profitability of retail franchises and increase loan book diversification.”

The regulation of the mortgage industry in the Kingdom will be the responsibility of the Saudi Arabian Monetary Agency (SAMA), the central bank. However, the introduction of a mortgage law is one thing, implementing such a law could be more difficult, especially also if the mortgage law alludes to Shariah-compliant (as it does) housing finance schemes and products. 

As such, the development of the mortgage finance industry in the Kingdom will be gradual despite pressure from above to expedite things given that the lack of housing is a major social issue in Saudi Arabia as it is in almost all countries of the world. Indeed, in the latest World Bank/International Monetary Fund (IMF) Financial Sector Assessment Report (FSAP) on the Kingdom titled “Saudi Arabia: Financial System Stability Assessment—Update” which was published in April this year, the IMF warned that the Kingdom faces the challenge of generating housing and employment for its young and growing population, a challenge that cannot be met only through specialized public credit institutions. 

“Support to housing finance has been traditionally provided by the Saudi Real Estate Development Fund (REDF). However, such institutions do not have the resources or operational capacity to meet the large demand, even though the government provided the REDF with SR40 billion in additional capital in early 2011. The government and SAMA are aware of these limitations, and they expect the banking system to play a much larger role in the current decade and beyond. A key challenge will be to ensure efficiency and financial soundness in housing finance as it expands," said the Fund. 

The law, according to Saudi banking sources, specifies that only companies authorized by SAMA - banks, mortgage companies, finance companies owned by real estate developers - will be allowed to extend housing finance. In addition, the Saudi Real Estate Development Fund (REDF) will continue to give loans for building housing units, of which there is a huge shortage, given the growing population of the Kingdom and the fact that 60 percent of the population is under 25 years of age. 

The REDF in its latest allocation last week approved another 11,666 loans worth SR5,833 million for the building of 14,000 housing units in various towns and provinces. 

The mortgage law is also Shariah-compliant not only in terms of the mortgage finance contract, but also in terms of the rights of the mortgagee. 

It comprises a package of five laws - mortgage registration law; execution law including foreclosure processes and proceedings; a financial leasing law; real estate finance law, and a finance company law. 

The five draft laws in the mortgage package would improve the housing finance framework in the Kingdom. Besides laying the foundation for an efficient mortgage system, the new laws will create a consumer protection framework, empower SAMA to regulate and supervise non-depository lenders, and establish a framework for the development of funding instruments (mortgage refinance facility, securitization, covered bonds).

But as the World Bank/IMF ASAP Report stressed, "in view of the risks that are inherent to residential real estate lending, additional measures are needed to ensure the sound development of the (Saudi real estate) market. These include (i) new prudential norms (capital, provisioning) to support stronger creditor rights; (ii) setting up of a housing market observatory, including a price index; (iii) consumer protection norms; and (iv) regulatory facilitation of new products, including notably steps to strengthen the developer industry."

Affordable housing - or the lack of it - is the fundamental challenge for all societies whether they are in industrialized, newly industrialized, emerging or least developed countries. 

Countries such as Saudi Arabia are realizing that housing is a national priority. King Abdullah last year even appointed the first Minister for Housing. As such the adoption of the mortgage law should also be seen in this context. 

The World Bank Group, especially its private sector funding arm, the International Finance Corporation (IFC), believes that "providing people with affordable housing helps foster stronger communities, neighborhood safety, and political stability. While housing affords people shelter, owning one’s home also gives people a tangible asset, and a stake in their society. Development of a strong housing sector also contributes to job creation, entrepreneurship, and the growth of strong business and commercial services to support cities, communities and neighborhoods." 

Mortgage finance not surprisingly is one of the fastest growing investment areas and a "high priority’ economic sector for the IFC across the globe. 

The business case for the Saudi mortgage finance market is implicit. Despite recent growth, housing finance portfolios in the Kingdom remain small. The REDF has historically been the main provider of housing finance, with a portfolio of SR78 billion, stable in recent years. 

According to the World Bank/IMF in its ASAP Report, the REDF facilitated access to housing, but is unable to meet a growing demand (with waits up to 18 years) and has adversely affected the development of commercial housing finance (for example, interest free loans for nationals). "In recent years, banks and other lenders such as mortgage finance companies rapidly grew their portfolios (at an annual rate of 22 percent from 2008 to 2010).

Nonetheless, housing demand is not satisfied, with annual needs estimated at around 250,000 units over the medium term, compared to 80,000 permits delivered on a commercial basis. Housing demand will only increase further, reflecting the young and growing population and declining household size," the report noted. 

Housing loans currently constitute 3 percent of banks’ loan portfolio, which is heavily dominated by low yielding corporate and government business. Housing loans account for around 2 percent of Saudi Arabia’s GDP, compared with around 5-10 per cent of GDP in most other Gulf Cooperation Council (GCC) countries, according to the respective central banks and Moody’s estimates.

Saudi mortgage penetration is only 2 percent, albeit the Saudi government target is for 80 percent home ownership by Saudi citizens by the year 2024. 

Some of the challenges for the Saudi mortgage market and for the mortgage law are specific. Although one of the laws in the package talks about financial leasing (Ijara), does this mean that only Ijara-based mortgages will be available in the Saudi market? The other choices are Murabaha (fixed-rate mark-up); Al-Bai Bithaman Ajil (deferred payment), and Diminishing Musharaka (equity participation with a rental element).


(Saudi Gazette.Com / 17 July 2012)

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

UAE: Sharjah Cooperative Society throws weight behind Halal Food Middle East

Leading regional and international retail establishments and industry bodies have joined hands with Expo Centre Sharjah for the upcoming international Halal-certified food products exhibition - Halal Food Middle East.

The latest organization to throw its weight behind the show is local retail major Sharjah Cooperative Society (SCS), after OIC's trade promotion wing Islamic Centre for Development of Trade (ICDT), Halal Development Council, Halal Italia, Halal Research Council, Halal Australia, Co.Re.Is.Italiana, and OIC Today, among others.

The show, which is held under the patronage of His Highness Dr Sheikh Sultan Bin Mohammed Al Qassimi, Ruler of Sharjah and Supreme Council Member, has the support of the Sharjah Chamber of Commerce and Industry and the Federation of UAEChambers of Commerce and Industry, apart from several leading retailers, food producers and dealers. 

Billed as a one-stop platform for facilitating and sourcing the sale and purchase of food and related products that conform to Halal requirements, Halal Food ME will be held at Expo Centre Sharjah from December 10 to 12, 2012, and will aim to tap into the $2.77 trillion international Halal food industry.

"Preparations are under way to make the inaugural Halal Food ME a highly successful trade show. We launched the show globally during the 8th Malaysia International Halal Showcase (MIHAS) in Kuala Lumpur and we will promote it globally. We just finished a promotional tour of China and will now be heading to Thailand. The support and participation of Sharjah Cooperative Society will add more credence and strengthen the value proposition of Halal Food ME," said Mr Saif Mohammed Al Midfa, Director-General of Expo Centre Sharjah.

Sharjah Cooperative Society's decision to participate in the show comes following a meeting between Mr Midfa and Mr Majid Al-Junaid, Director-General of SCS, and will help achieve the larger goal of strengthening ties and partnerships with government departments in the country.

"Sharjah Cooperative Society has a vital role in providing Halal-certified food products to Sharjah and the Northern Emirates. Its success is well-known and we are delighted to have them on board for Halal Food ME," Al Midfa added.

SCS is a leading establishment in providing good quality foodstuff at competitive prices to consumers and supporting social cooperation to create a more secure society. Founded in late seventies, SCS has several outlets in the Emirates and is an industry leader that is a winner of the Sharjah Economic Excellence Award several times.

The first edition of Halal Food ME is positioned as the most comprehensive show of its kind in the region, featuring Shariah-compliant food and beverages, bakery and confectionaries, broth products, food ingredients, frozen food, health products, herbs and spices, legumes & cereals, nuts and seeds, pastas and noodle, processed & seafood, snacks, and fruits & vegetables.

The show will attract exporters & importers, traders & wholesalers, supermarkets, hypermarkets, departmental stores, convenience stores, food manufacturers, food processors, hotels, restaurants, cafes, catering companies, distributors, retailers, suppliers, food service outlets, investors, hospitals, ship chandlers , airlines, agricultural associates, agents, media, business & trade associations, government bodies, food associations, Halal certification bodies and trade promotion offices.

(Ame.Info.Com / 17 July 2012)

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

Malaysia’s halal logistics sector on the uptrend


KUCHING: Malaysia is expected to see its US$1.9 billion (RM6.05 billion) halal logistics sector to grow in tandem with the halal food industry.

The industry was pegged to be a lucrative business thanks to the huge number of Muslims in the world which currently stands at 1.79 billion, said Inside In­vestors country publisher Cory D’Abreo.
“In Malaysia there are approxi­mately 17.5 million Muslims, accounting for 60.4 per cent of the total population,” he stated in his report.

Thus, D’Abreo said the increase of halal food exports could fur­ther boost the logistics growth in Malaysia as there would be a need for freight-forwarding and transportation services.
D’Abreo further pointed out that it required highly sophisticated and strictly controlled logistics operations to prevent the cross-contamination of products dur­ing storage and distributions.
“Dedicated logistics infrastruc­tures and manageable halal logistics operations are crucial for any logistics service provid­ers keen to venture into the halal industry,” he added.



Logistics service providers need to equip themselves with the ability to fulfil the halal require­ments, besides maintaining the high efficiency and effectiveness of their operations to reduce the logistics costs for clients.

Going forward, Malaysia has the potential to become a global halal hub, supported by the MS2400 Halalan-Toyyiban standards that ensured all halal practices were incorporated across difference logistics functions.

Additionally, Frost & Sullivan estimated that halal logistics was worth about US$1.9 billion in the Ma­laysian halal food industry.

“There are a lot of opportunities for local logistics service pro­viders in Malaysia considering the potential of the global halal food market, valued at about US$1.2 trillion in 2010,” added D’Abreo.

“Given Malaysia’s strong halal brand recognition and halal lo­gistics standards, local logistics service providers should tap into the growth opportunities in the halal sector,” he added.

On top of that, Malaysia could also potentially become the regional halal hub in Asia con­sidering that Asian countries contribute about 64 per cent of the global halal food expenditures, valued at about US$770 billion.


Malaysia’s halal food industry alone was valued at about US$15.7 billion in 2010. It exported a total of RM3.94 billion worth of halal-processed food in 2008 to the Or­ganisation of Islamic Conference (OIC) countries.

“International Investor together with our knowledge partner, frost & Sullivan believes that local logistics service providers should create awareness with current manufacturers and re­tailers to use halal compliant lo­gistics services to penetrate into the majority Muslim community in Malaysia,” D’Abreo said.

“On the other hand, Malay­sian logistics service providers should also focus on developing and expanding the range of serv­ices offered to compete with the international logistics provid­ers,” he added.

He further suggested that Malay­sian logistics providers should put more focus on logistics tech­nologies that could increase their competitiveness advantages.

“The logistics industry is also expected to consolidate due to the fragmented nature of the sector. Major logistics service provid­ers are likely to increase their market share by mergers 
and acquisitions,” he concluded.

(Borneo Post Online / 15 July 2012)
---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant/Trainer/CEO: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Latest Posts

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

Alfalah Consulting's facebook

NOTICE

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 info@alfalahconsulting.com. If you've received an email from afalah.consulting@gmail.com, that's NOT from us. Be cautious!