Global takaful to reach $12B by yearend

Manila, Philippines -  Global takaful contributions are forecast to reach $12 billion by the end of 2012, after expanding by an annual average growth rate of 19 percent in the past two years.

Takaful is an Islamic insurance concept, which is grounded in Islamic muamalat (Islamic banking), observing the rules and regulations of Islamic law, otherwise known as Shari’ah.

There are an estimated 230 takaful companies and another takaful re-insurer with an estimated $11 billion in volume.

Saudi Arabia is reportedly the largest market for Islamic insurance, with gross contribution amounting to $500 million.

Other key markets are Malaysia, Qatar, Kuwait, United Arab Emirates (UAE), and Pakistan.

According to the prestigious Ernst & Young, Malaysia and UAE achieved growth rates of over 24 percent.

“The challenge was once again, maintaining growth with profitability in the current economic climate. There were positive developments in the Gulf Cooperation Council (GCC) with more operators showing profitability than previous years,” Ernst & Young said, in its World Takaful Report 2012.

The Saudi Cooperatives continued their growth performance yet still struggled in generating shareholder returns, it added.

The members of the GCC are Saudi Arabia, Kuwait, Bahrain, Qatar, UAE, and the Sultanate of Oman.

It was founded on May 1981, with the aim of collectively promoting coordination between member states in all fields in order to achieve unity.

The report said however that the return on equity for the takaful industry was lower than conventional counterparts, both in the GCC as well as in Malaysia.

A significant contributing factor to the lower ROE was the lower investment returns for the industry relative to returns yielded by conventional insurers.

“The industry has now obtained significant market share versus conventional insurance in most GCC countries as well as Southeast Asian markets. There are a number of drivers behind this growth but one that is becoming increasingly important is regulatory support through appropriate amendments in legislature to provide a level playing field with conventional insurance companies,” the annual report said.

In Southeast Asia, the key players are found in Malaysia, Brunei and Indonesia. The three nations account fro gross written contributions (GWC) worth roughly $2 billion of the total contributions.

In fact, the subregion is expected to expand dramatically as the Saudi regulators disallowed the pure takaful model.

“The primary hub for takaful may well shift from GCC to Southeast Asia,” the report stated.

The key business lines in the major markets are family and medical, marine and aviation, property and accident, and motor.

On the average, family and medical accounted for 48 percent of total, followed by motor, property and accident, and marine and aviation.

The Indian sub-continent registered the largest family and medical market share with 76 percent of total business lines.

In the case of Iran, majority of takaful insurance coverage were motor while family and medical accounted for just a quarter of the total.

Meanwhile, the annual report mentioned Muslim population centers worldwide with huge potentials for both Islamic finance and takaful.

These include Egypt, Pakistan, India, Indonesia, Bangladesh, Nigeria, Algeria, Morocco, Turkey, CIS Region, China, and Russia.

According to Ernst & Young, conventional insurance accepts premiums from the insured at a level, which it anticipates will cover claims and result in a profit.

Takaful is based on the concept of social solidarity, cooperation and mutual indemnification.

It is a pact among a group that agrees to donate contributions to a fund that is used to jointly indemnify covered losses incurred by the members.

While the concept of takaful revolves around mutuality and is founded on non-commercial basis, a takaful operator runs the operations and the fund on a commercial basis.

The five key elements of takaful are mutual guarantee, ownership of the fund, elimination of uncertainty, management of the takaful fund, and investment conditions.

(Philstar.com / 21 August 2012)

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

Islamic banking versus conventional banking

KARACHI: 

Contrary to popular belief, Islamic finance or banking is not just for Muslims. It aims to lay the foundations of an ethical and fair financial system, which consequently affects the socio-economic conditions of the market it is implemented in. Islamic financing, hence, can aptly service everyone irrespective of religious beliefs, wealth, ethnicity, caste or creed.

Yet, this stance is not as clear as it should be in our country; much less in the outside world where centuries old financing methods are firmly embedded within the economic system.

One of the reasons for this lack of awareness is that the concept of Islamic banking has been commercialised fairly recently. Banks and asset management companies in Pakistan are still struggling with how better to portray Islamic products for consumers’ understanding in minimal ad spaces. There is also a communication gap between the Shariah councils issuing the fatwas pursuant to Islamic Finance, and the managers drafting the advertisements.

A recent survey published in a popular monthly magazine stated that most respondents did not know the difference between conventional and Islamic banking; and that most thought that various advertised ‘Islamic Funds’ are only a marketing gimmick.

But a bigger issue – one which I have experienced personally – is that even financial advisors lack awareness of the concepts behind Islamic finance. I recently asked a finance expert – while deliberating the merits of funds in which I wished to make some investments – the difference between conventional funds and Islamic funds. He answered with a disappointing “nothing!”

For someone who does their homework is keen on not consuming any interest-related income enter, there is a difference. This expert will just lose such customers.

So what is the difference?

An instant answer to the question is the oft-repeated phrase – ‘Islamic products do not offer interest (Riba). The statement is without a doubt true, but this is not the sum total of Islamic finance.

Riba is indeed deemed haram in Islam, for the reason that it is ‘unfairly’ exploitive in nature. It is ‘unfair’ because Riba requires the lender to return the borrowed money, plus an extra amount. This requires the borrower to work harder to return not just the principal, but also the interest or mark-up levied on the amount.

Secondly, interest is set arbitrarily. The concept treats money as a tradable entity which fluctuates volatilely in the markets. There is no set ceiling; meaning that loaning money may become cripplingly expensive for the borrower.

Then how does Islamic finance work?

Islamic financing is asset-backed and believes that only assets with an intrinsic value may be sold for a profit, instead of exchanging money – which is considered to have no intrinsic value – for interest. Each unit of money has the same value as the other of the same denomination, which is simply why there cannot be a profit on its exchange. Hence, Islamic finance lays its foundation on real, non-liquid assets; the exchange and sales of which result in ‘fair’ profits.

The Pakistani financial industry today offers various Islamic products; in wealth management, asset management and banking; spread over short-, medium- and long-term funds. All investments in such schemes are made strictly in Shariah-compliant instruments under the supervision of a Shariah Advisory Board, which comprises of renowned Islamic scholars.

Stakeholders in the industry must now step forth and present a clear picture of Islamic finance: one which presents it as a way of rethinking economics and finance, instead of just as a cosmetic solution tailor-made for religious investors finicky about where their money is going.

(The Axpress Tribune / 20 August 2012)

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

Malaysia leaves Singapore trailing in Islamic finance business

Singapore is struggling to make inroads into Islamic finance even as neighbouring Malaysia is on the cusp of another record-busting year.

Bankers say Singapore is hobbled by a lack of a domestic market for Islamic finance products, while Middle East investors are still US dollar-based and conservative.

The situation appeared to be improving when Malaysian sovereign wealth fund Khazanah in 2010 sold S$1.5 billion sukuks or Islamic bonds here, and Sabana, the world's largest Syariah-compliant real estate investment trust (Reit), raised S$664 million through its initial public offer.

Since then, the Islamic finance landscape here has been rather barren. The Republic appears to be missing out on one of the fastest-growing financial markets, with Islamic finance growing at an estimated 15-20 per cent per annum.

Islamic banking assets with commercial banks globally will hit US$1.1 trillion (S$1.38 trillion) in 2012, up a third from US$826 billion in 2010, according to figures from the 2011 Ernst & Young World Islamic Banking Competitiveness Report.

The government has played a role in promoting Islamic finance. In June, the Monetary Authority of Singapore (MAS) hosted the third annual World Islamic Banking Conference, Asia Summit, the third time it has done so.

MAS also set up the Islamic bond programme in 2009 and its wholly owned unit issued S$105 million sukuks and S$80 million sukuks for the financial years ended March 31, 2011 and 2012 respectively.

"MAS's main focus is to create a conducive environment for the sustainable growth of the Islamic financial services industry," said an MAS spokeswoman.

She noted developments in the capital market and fund management space in recent years, such as sukuk issuances to finance wakaf development, a corporate sukuk programme by a property developer, the world's first Syariah-compliant Data Centre Fund and Sabana Reit.

"The good response to these offerings indicates that there is demand for quality Syariah-compliant products," she said.

Bankers say Singapore needs a domestic market for Islamic finance products to kick-start demand.

Singapore may be a vibrant financial centre with over 700 financial institutions, including a growing cluster of Islamic banks from the Middle East and strong trade flows with the six-member Gulf Cooperation Council (GCC) countries, but it loses out to Malaysia's large home-grown market.

The GCC, which is Singapore's sixth-largest trading partner, consists of Saudi Arabia, Kuwait, Bahrain, Qatar, Oman and the United Arab Emirates. Last year, bilateral trade flows between Singapore and the GCC grew over 40 per cent to S$62 billion.

Rafe Haneef, chief executive of HSBC Amanah Malaysia Bhd and managing director of Global Markets Amanah, said Malaysia has a large volume of Islamic investors looking for Syariah-compliant investments like sukuk compared to the Singapore market.

"Along with Islamic investors, Malaysia has a large number of Muslim- owned companies, most of which are looking for Syariah-compliant financing and sukuk issuance. Again, there is not a high demand for such financing in the Singapore corporate environment," said Mr Haneef.

Malaysia accounts for 60 per cent of global sukuk deals.

Mr Haneef said the global sukuk market was expected to expand to US$44 billion this year. For the first half of 2012, the global sukuk market was US$20.5 billion, up from US$15 billion a year earlier.

Another problem for Singapore is that conservative Middle Eastern investors tend to invest only in familiar companies and prefer to make those investments in US dollars.

Mohd Ismail Hussein, Maybank Singapore's head of Islamic banking, said the expected demand from Middle East investors did not materialise because of economic and liquidity issues at home.

Another factor was "their preference for rated, USD debt issuance with good yields, which are scarce here", he said.

Still, this hasn't stopped bankers here from trying to venture into the business.

Sim Buck Khim, OCBC Bank's co-head of capital markets, said the challenges impeding the development of Islamic finance in Singapore are multi-faceted.

"We believe one of the key reasons is that conventional banking is more readily available and easier to tap at the moment. The additional 'cost' - in terms of time and education for Islamic products - may also be seen as another factor that hampers its appeal to issuers as well as borrowers in general," he said.

"With continual efforts by banks and other stakeholders such as central banks, rating agencies and law firms to raise awareness, market receptiveness will grow, and consequently we may see more issuance in the future."

"This year, we've had one or two non-deal roadshows," said Clifford Lee, DBS head of fixed income, on bringing investors and issuers together.

"We continue to engage GCC investors on how we can best make ourselves relevant," he added.

DBS is the market leader in the SGD bond market and handled Khazanah's S$1.5 billion sukuk deal in 2010.

(Asiaonebusiness / 21 August 2012)

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

Islamic Banking-Pros and Pros

Contrary to popular belief, Islamic finance or banking is not just for Muslims but for a ethical & fair financial structure that consequently affects the socio-economic system of a country. Islamic financing hence can aptly service everyone irrespective of religious beliefs, wealth status, ethnicity, caste or creed.

Yet, this stance is not even as clear as it should be in a Muslim country like ours much less to the outside world where century old conventional financing methods are deep rooted within the global economic system.

One of the reasons for this lack of awareness is that the concept of Islamic banking is its fairly recent commercialization. Banks and asset management companies in Pakistan are still struggling on how to portray their Islamic product better for the general population’s understanding in minimal ad spaces & an obvious gap between the Shariah Councils issuing the Fatwas and the managers drafting the communication.

A recent survey published in a popular monthly magazine stated that most of the respondents did not know what difference was there between the two and most thought there wasn’t any & ‘Islamic Funds’ was a marketing gimmick.

But a bigger issue that I experiences personally is the lack of awareness even at the financial advisors level. A question I recently asked a Finance Expert while deciding upon the funds in which I could make some investments was “What’s the difference between conventional funds and Islamic funds?” and disappointingly he said “Nothing”.

For a person who did their background research on the differences and is keen on not having any interest income enter their household, this Expert just lost a customer.

So what’s the difference between Islamic finance and conventional finance?’

An instant answer is “Islamic products don’t give Interest (Riba)” which is without a doubt true, but that is where the knowledge for most ends.

Where Riba/Interest is deemed haram in Islam, the reason behind it is its exploitive nature. Why exploitative? Because where the lender will have the return of his money guaranteed plus the extra, the borrower will have to work harder to return not just the principal amount borrowed but also the interest / mark-up levied.

And where does the rising level of interest ultimately stop? No where; because it’s a man made rule which treats money as a trading entity while money is the most volatile entity in fluctuating markets.

Then how does Islamic Finance work?

“The conventional / capitalist concept of financing is that the banks and financial institutions deal in money and monetary papers only” – Mufti Taqi Usmani.
Islamic Financing is asset-backed & believes that only assets with an intrinsic value maybe sold for a profit instead of exchanging money with no intrinsic value for Interest. Each unit of money has the same value as the other of the same denomination, which is simply why there can not be a profit on its exchange. Hence Islamic finance lays its foundation on real non-liquid assets, the exchange and sales of which results in a justified profit earned.

The Pakistani financial industry today offers various Islamic products, both in wealth management, asset management and banking; spread over short, medium and long term funds. All investments in such schemes are made strictly in Shariah-compliant instruments under the supervision of a Shariah Advisory Board which comprises of renowned Islamic scholars.

(The International News / 23 August 2012)

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

Fitch assigns Development Bank of Kazakhstan's Islamic finance programme

Aug 22 - Fitch Ratings has assigned the Development Bank of Kazakhstan's (DBK) Islamic Medium Term Note Programme, which has a total value of up to 1.5bn Malaysian Ringgits (RM) (about USD479m), a final rating of 'BBB-'. The agency has also assigned a 'BBB-' rating to the debut five-year RM240m issue of sukuk (Islamic bonds) under the programme.

The final ratings follow the receipt of documents conforming to information previously received by Fitch and completion of the first series of sukuk issuance under the programme. The programme's final rating is the same as the expected rating assigned in June (see 'Fitch Rates Development Bank of Kazakhstan's RM1.5bn Islamic Medium Term Note Programme 'BBB-(exp)', dated 22 June 2012 at www.fitchratings.com).

The RM240m sukuk issue's rating reflects the programme's rating. The notes are due on 3 August 2017 and carry a 'profit payment' at a rate of 5.5% payable semi-annually.

DBK is wholly owned by the government of Kazakhstan ('BBB'/Positive) through the National Welfare Fund Samruk Kazyna. The bank's primary role is to foster development of the country's non-extracting sectors.

(Reuters / 22 August 2012)

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