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Monday, 13 August 2012

Nigeria: Islamic Index Underlies Potential for Huge Investment

Lagos — The Stock Exchange officially launches the NSE Lotus Islamic Index (NSE LII) which consists of companies whose business practices are in conformity with the principles of Shari'ah. Sunday Trust looks at the necessity of the index.
In a bid to attract Sharia/ethical investors to Nigeria's budding stock market, Islamic wealth manager Lotus Capital and the Nigerian Stock Exchange (NSE) on Monday launched a debut index of NSE-listed companies that comply with Islamic investment principles.
This is one of the many steps the exchange has taken to bring to fruition its vision of becoming the gateway to African markets.
The Islamic Equity Index known as the "NSE Lotus Islamic Index" (with the code NSE LII) consists of companies in conformity with the principles of Shari'ah. The NSE LII, which is the first index created to track the performance of Shari'ah compliant equities on the floor of the exchange will increase the breadth of the market and create an important benchmark for investments as the alternative non-interest investment space widens.
The Islamic Index can serve as a general benchmark for 'ethical' funds and can be seen as a basis for creating Mirror Funds, Index Funds, Exchange Traded Funds, Index options etc., which will broaden the range of financial instruments traded on the NSE.
The NSE Lotus Islamic index, covered 15 equities with combined market capitalisation of around N2.87 billion, excluding banks, companies with high debt or leverage and other stocks that conflict with Islamic principles.
The index is designed to encourage more investments from the Middle East and weighted towards fast moving consumer goods, cement, oil marketing and manufacturing sectors.
According to Lotus, no sector will be allowed to account for more than 40 percent of the index which will be reviewed bi-annually.
The asset manager also disclosed that it had a buffer of 30 firms to consider for the inclusion at any one point but that stock liquidity, keeping to the Islamic principle is key.
On debt, it said total debt as a percentage of the firm's total value should not be more than 33 percent for it to qualify.
According to analysts, global Islamic banking assets exceed $1 trillion and can reach $4 trillion by 2020. There is also an estimated $50 billion in managed funds invested according to Islamic principles in equities.
About half of Nigeria's population is Muslims. This underlies the potential market Islamic investment has in Africa's second largest economy, and according to an Islamic banking analyst, "Islamic products are new in Nigeria but the uptake is growing in double-digits."
The NSE LII comprises of 15 stocks listed on the floor of the exchange namely: Okomo Oil Plc, PZ Plc, Unilever Nigeria Plc, Nigerian Aviation Handling Company Plc, GlaxoSmithKline Plc, Japaul Oil Plc, Cadbury Nigeria Plc, Dangote Flour Plc, Honeywell Flour Nigeria Plc, National Salt Company of Nigeria Plc, Nestle Nigeria Plc, Ashaka Cement Plc, Cement Company of Northern Nigerian Plc, Dangote Cement Plc and Lafarge WAPCO Plc.
NSE LII is certified by an internationally recognized Shari'ah Advisory Board comprised of renowned Islamic scholars among them are Professor Dr. Monzer Kahf a professor of Islamic finance at the MSC programme in the Qatar Faculty of Islamic Studies and Professor Muhammed Bashar head of the department of economics, Usman Dan Fodio University, Sokoto.
Speaking about the launch, the NSE Project Manager for the NSE LII launch, Mr Osahon Aire explained that investment instruments like Exchange Traded Funds (ETFs) can be built on the Index which investors with a preference for ethical/Shari'ah compliant investments can invest in.
He added that the launch will tactically aid the development of the market.
Osahon noted: "The NSE Lotus Islamic Index will further illuminate the massive investment opportunities available to ethically minded investors, both in Nigeria and overseas. All the companies that will appear on the Index have been thoroughly screened by Lotus Capital Halal Investment in accordance with a methodology approved by an internationally recognized Shari'ah Advisory Board comprising of renowned Islamic scholars."
He explained that the launch of the Index is an exciting development that is in line with the NSE's mandate of broadening and deepening the Nigerian capital market.
The index will provide a reliable benchmark for Islamic and other ethical investments. It can serve as an important diversification tool for ethically minded investors and portfolio managers both locally and from around the world, who seek to profitably invest in emerging African equities market. It will also reduce the research cost and time required by an investor to independently create Shari'ah compliant equity portfolio.
Speaking during the unveiling of the index, the Managing Director of Lotus Capital, Mrs Hajarat Adeola said the index was created to track the performance of Shari'ah compliant equities trading on the floor of the NSE.
Giving details of the index, Adeola explained that each stock in the index had undergone a two-stage screening process, adding that those companies that passed the initial test are evaluated on the basis of Islamic financial screens to eliminate those with unacceptable levels of debt, cash and interest income.
According to her, "Only companies that pass the second stage will be considered for further analysis", pointing out that other criteria such as liquidity and market capitalisation of the equities are also taken into account. "Each sector weight is capped at 40 percent and each component stock is capped at 30 percent and the index is rescreened, rebalanced and reviewed bi-annually on the first business day in January and July of every year," she said.
(Allafrica / 12 August 2012)

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Indonesia to Sell $1.75 Billion in Yen and US Dollar Sukuk

Indonesia plans to raise the equivalent of almost $2 billion in combined yen- and dollar-denominated Islamic bonds later this year as part of its efforts to plug a widening budget deficit. 

Southeast Asia’s largest economy plans sell $750 million of so-called samurai bonds and $1 billion of US-currency bonds, both of them sukuk, in October. 

“The figures and timing are still moving,” Robert Pakpahan, acting chief of the debt management office at the Finance Ministry, told the Jakarta Globe via text message on Friday. 

Indonesian officials will travel overseas to gauge investor demand in the notes, Robert said, without providing further details. 

The government has been selling both conventional and Islamic bonds in recent years to help plug its budget deficit, which is forecast to reach 2.3 percent of gross domestic product this year. 

This year’s US-dollar sukuk will be the country’s third sale of such notes, after the sale of similar notes last year and in 2009. 

Indonesia last sold global Shariah-compliant debt on Nov. 14 last year. The $1 billion of debt due in November 2018 was auctioned at a yield of 4 percent. That compared to an 8.8 percent yield on the debut sale of five-year Islamic dollar bonds in April 2009, which raised $650 million. 

In the 2009 sale, the government received orders valued at $4.7 billion, according to Ministry of Finance data. Buyers from Asia accounted for 40 percent of the sale, while Middle East investors bought 30 percent of the sale, Americans purchased 19 percent and Europeans acquired the remaining 11 percent. 

Sukuk bonds comply with Shariah law by using asset returns to pay investors instead of offering interest. 

This year’s samurai bond sale will be the second for the country. Indonesia sold 35 billion yen ($373 million) of 10-year, 2.73 percent bonds guaranteed by the Japan Bank for International Cooperation in July 2009. The government hired Daiwa Securities Capital Markets and Nomura Securities to help sell the yen-denominated bonds. 

Indonesia has benefited from an upgrade in the assessment of its sovereign debt to investment grade by Fitch Ratings late last year and Moody’s Investors Service early this year. The rating is helping to entice foreign investors to buy the country’s debt paper. 

Increasing foreign investment is expected to strengthen the rupiah, which has fallen in recent months, prompting the central bank to attempt to stabilize the local currency by selling dollars in order to buy rupiah. 

Bank Indonesia’s foreign exchange reserves fell to $106.56 billion in July, down from a high of $124 billion in August last year. 

The Middle East has the world’s biggest US-dollar sukuk market, followed by Malaysia and Indonesia. Muslims make up more than 85 percent of Indonesia’s population of 240 million. 

Finance Minister Agus Martowardojo has said previously that the government plans to raise as much as $1 billion from US-dollar sukuk sales this year. 

Beyond sukuk, the government raised $2.5 billion by selling dollar-denominated bonds in April. Its sale of both dollar- and rupiah-denominated bonds date back to 2002, with the funds used to cover government deficits. 

The government has identified underlying assets valued at Rp 34 trillion ($3.6 billion) that have been approved by the House of Representatives to support the debt sale. Rent on state-owned lands and buildings is one form of payment for such securities. 

The samurai bonds represent just the latest move to increase economic engagement between Indonesia and Japan, a former economic powerhouse grappling with sluggish growth. 

Actual investment from Japan reached $1.5 billion in 2011, more than double the 2010 amount of $713 million. 

Bank Negara Indonesia recently established a “Japan Desk” to deal with the approximately 1,000 Japanese companies operating in Indonesia.

Toyota is one of approximately 1,000 Japanese companies with a presence in Indonesia. Economic ties between the North Asian and Southeast Asian nations are set to grow with ‘samurai’ sukuk bonds. JG Photo/Safir Makki.

(Jakarta Globe / 11 August 2012)

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The Muslim Zakat: a vision of the "big society"?

The holy month of Ramadan - a time of fasting and intense spiritual reflection and worship for Muslims - is now well underway. A central feature of this sacred month is giving to charity, and in particular the concept ofZakat, where millions of Muslims across the UK will be pledging a proportion of their income to support the most vulnerable communities in need.
At the same time, the coalition government’s big society agenda is fast losing momentum. Efforts to make giving a "social norm" in the UK have been met with tepid enthusiasm by the general public and the charity world alike, amidst a failing economy and a charitable sector struggling to cope within an uncertain economic environment. But as ministers scramble for solutions to address the predicament, the overarching concept of Zakat presents a vision of a "big society" in action; a social contract between civilisations’ rich and poor where each individual shares a moral and duty-bound obligation to help one another.
So what lessons can the state’s flagship programme learn from this spiritual act of giving and is there space for Zakat to fill the unfolding funding vacuum?
Zakat is the third pillar of Islam and the compulsory form of charity ordained by God to be paid each year. Every year, each Muslim that meets the minimum wealth criteria (known as the nisab) is compelled to pay 2.5 per cent of their wealth to people in need.
Zakat is not seen solely as a mechanism to redistribute income to the poorer elements of Islamic civilisation. It is also believed to ‘purify’ an individual’s accumulation of wealth and assets over a year, while enshrining the right of help to the community’s needy.
Zakat has been in practice since the foundation of Islam over 1400 years ago. A system for the collection and distribution of Zakat first materialised following the Prophet’s (pbuh) migration to Medina (known as the hijra). Collectors of Zakat were appointed to visit potential Zakat payers, and having helped them to assess their Zakatable assets, would collect the due amounts and distribute it to those in need within the local area and its surroundings.
Anecdotal reports from the first 100 years of Islam indicate that Zakat had a huge impact on poverty alleviation. While no figures on Zakat collection during this period exist, narrations from the time of Caliph Umar bin al-Khattab (634-643AD) and Omar bin Abdul Aziz (718-720AD) suggest poverty was eradicated, with rulers in some regions struggling to disperseZakat proceeds due to the lack of poor and eligible recipients.
Government ministers would be hard-pressed to ignore recent figures onZakat donations, which indicate that such offerings are one of the largest contributors in humanitarian world today. A report from IRIN, the news and analysis service of the UN office for the Coordination of Humanitarian Affairs (UNOCHA), included estimates that each year, somewhere between US$200 bn and US$1 trn (£130 bn and £645 bn respectively) are given as mandatory and voluntary donations across the Muslim world. At the low end of this estimate, this is 15 times more than global humanitarian aid contributions in 2011.
There remains great potential for Zakat donations to play an even more important role towards development, particularly within these shores. In the UK, Zakat tends to be paid to Muslim relief agencies that address international issues and humanitarian crises, such as poverty relief and helping people meet their basic needs. However, an important tenet of Zakatis that collected funds should be dispersed locally first where there is need before being spread further afield.
As ministers struggle to instil a culture of giving within British society, Islam and its concept of Zakat illustrates the potential of philanthropy when effective drivers to give are in place.
It may be idealistic to suggest that Zakat can inspire a new generation of givers in the UK. Yet the brotherly spirit and the love and care between one another that embodies this act of giving can certainly be held up as an example of a working human community in action. With the landmark events of 2012 filling the nation with pride and re-awakening a sense of citizen comradery among the British population, the possibilities of Zakatmaking a larger contribution to eligible causes in the UK should be a major area of consideration; an opportunity for Muslims to use their faith as a benchmark for forging the nation’s "big society".
by Fadi Itani is Chief Executive of Zakat House , UK.
(New Statesman / 11 August 2012)

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