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Wednesday, 29 August 2012

Islamic Finance May Help Develop Indonesia Infrastructure

(The following was released by the rating agency)
SINGAPORE (Standard & Poor's) Aug. 28, 2012--Islamic finance could be a viable option to help Indonesia meet its ambitious infrastructure plans, according to an article that Standard & Poor's Ratings Service released today, titled "Islamic Finance Could Plug The Gap In Indonesia's Infrastructure Funding."
"We believe Indonesia can emulate Malaysia's success thus far in utilizing Islamic finance for infrastructure development. This is due to Indonesia's large infrastructure development needs, the government's willingness to attract private capital to fund these investments, and the rising demand for investable assets of a growing domestic Islamic finance market," said Standard & Poor's credit analyst Allan Redimerio.
The report says that the poor state of Indonesia's infrastructure is hindering the growth potential of South-east Asia's largest economy. Indonesia plans to spend more than US$200 billion to upgrade and expand its infrastructure from 2010-2014, with the private sector likely to meet 30%-40% of the investment. The government is mulling over various financing alternatives to fund the rest.
The report examples the successful contribution of Islamic finance to Malaysia's infrastructure development and the obstacles to similar adoption in Indonesia.
"We believe the lack of recognition for beneficial ownership and tax incentives is impeding the growth potential of this funding source. Ways to generate interest in this sector include offering a range of products to the population with support from the country's political, corporate, and financial institutions," said Mr. Redimerio.
(Reuters / 28 August 2012)

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Islamic funds going cross border with UCITs (Undertakings for Collective Investment in Transferable Securities)

Kuala Lumpur-based CIMB-Principal Islamic Asset Management (CIMB-Principal Islamic), a joint venture between the CIMB Group and Principal Global Investors (PGI), has set the stage for other Islamic fund managers in their bids to penetrate the overseas markets.

Its three UCITS-compliant Islamic equity funds – which it launched early this year and which invest in global emerging markets, the Asia-Pacific ex Japan and the Asean region, respectively – are designed for cross-border distribution within Asia. 

Demonstrating UCITS’ potential

They came after the Central Bank of Ireland, via a memorandum of understanding between itself and the Securities Commission Malaysia on November 4 2011, approved the establishment of the Dublin-based CIMB-Principal Islamic Asset Management (Ireland) Public Limited, a joint venture specifically designed to distribute Islamic UCITS funds globally. 

While the UCITS platform has been used to market Islamic funds to European investors, this is the first time it is being done in Europe. In a way, CIMB-Principal Islamic is paving the way for other fund managers to use this platform to market Islamic funds globally.

“We have opened the door for other Malaysia-based fund managers to establish a UCITS platform in Ireland,” says Datuk Noripah Kamso, chief executive of CIMB-Principal Islamic. “The UCITS funds were established to develop a visible performance track record and make it easier for global investors to place their money with CIMB-Principal Islamic. These funds are recognized beyond Europe and meet the needs of institutional and retail investors from many jurisdictions. This is an important step in the development of Malaysia as a centre for Islamic fund management.”

Targeting private banking clients

CIMB-Principal Islamic has been building their overseas networks for marketing Islamic funds.

It has launched marketing activities to Muslim investors in Germany where, Noripah says, there are 4.1 million Muslims, the bulk of them of Turkish descent.

Noripah shares that CIMB-Principal Islamic is dynamically marketing Shariah funds to private-banking clients based in Geneva as an alternative investment for diversification and risk management.

“The private bankers in Geneva that are serving Middle-Eastern investors have shown a keen interest. Following the Arab spring, they are pushed to understand what is being offered as an underlying in the whole story of Islamic investments, because there has been a flight to safety from GCC countries to Geneva and London,” Noripah says.

With the launch of its UCITS platform, CIMB-Principal Islamic is expected to strongly market its Islamic funds to European markets. Noripah explains that CIMB-Principal Islamic has crafted a business model for each different target market for building its Islamic funds business.

First, the institutional business – direct mandates from pension funds, sovereign wealth funds, takaful and central banks. Second, the high net worth business – targeting individual investors in GCC countries and family offices and, third, a part of the mass market.

“For that third market segment, we have to come out with a global fund platform – which is why we have launched the Islamic UCITS – but we cannot sell the funds all by ourselves, we have appointed other banks and fund distributors to reach farther,” Noripah says.

If the funds are authorized in one European Union (EU) member state, it can be distributed in any other EU member state without the need for any additional authorization. UCITS-compliant funds are distributed in a large number of countries, not just in Europe, but also the Americas, the Asia-Pacific, the Middle East and Africa.

The funds will eventually be registered and distributed in seven jurisdictions: the UK, Switzerland, Germany, Saudi Arabia, the United Arab Emirates, Bahrain, and Singapore.

Having the funds on this platform means that institutional and retail investors globally will be able to see CIMB-Principal Islamic’s asset management track record. If the funds do well, not only will this attract investment into those funds but institutional investors may also appoint CIMB-Principal Islamic to manage their discretionary mandates as well.  

(The Asset / 28 August 2012)

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Ireland: Islamic fund sets up in Dublin

THE FIRST Malaysian funds promoter has set up in the Irish financial services sector with the arrival of the CIMB-Principal Islamic Asset Management in Ireland, according to the Irish Funds Industry Association.
The Malaysian company is setting up a range of investment schemes that can operate throughout the European Union, authorised from Ireland.
Pat Lardner, chief executive of the association, welcomed the establishment of Irish funds or Ucits (Undertakings for Collective Investment in Transferable Securities) by CIMB-Principal Islamic Asset Management.
Citing figures from accountancy firm PricewaterhouseCoopers saying that Ireland accounted for 20 per cent of Islamic finance outside of the Middle East, Mr Lardner said he hoped others would set up similar funds here.
Noripah Kamso, chief executive of the Malaysian company, said: “Ireland is right for us as we believe it will provide global flavour to our products and be the passport for international investors beyond Europe.”
Dublin was more cost-effective due to the company’s existing operations in Ireland, she said, and through the conventional funds operated by its shareholder, Principal Financial Group, in Dublin.
The Government has targeted Islamic finance as one of the key growth areas for the development of the financial services industry under plans to create 10,000 new jobs in the sector by 2016.
The funds association estimates that the value of funds under administration in Ireland reached €2 trillion recently, while Irish domiciled funds have also reached a record high, surpassing the €1 trillion mark for the first time.
Islamic finance applies Sharia, the moral code of the Islamic religion, to financial services. This prohibits charging interest and unethical investments.
(Irishtimes.Com / 28 August 2012)

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South Africa's FNB to appoint new sharia board by year-end

* Sharia board resigned in July after disputes over role
* FNB Islamic division plans expansion in Africa, India
By Xola Potelwa
JOHANNESBURG, Aug 28 (Reuters) - South Africa's First National Bank (FNB) aims to appoint a new sharia board for its Islamic finance division by the end of 2012, after the previous board dealt a blow to the bank's effort in the sector by resigning a month ago.
"It's top priority for us. We are certainly aiming to have our final committee together towards the end of the year," Amman Muhammad, chief executive of FNB Islamic Finance, told Reuters late last week.
Muhammad joined FNB's Islamic finance division on July 1. The previous head, Ebrahim Patel, resigned after the bank conducted an investigation into "internal processes and practices of the businesses aligned to internal governance practice", according to Eric Enslin, head of client management at FNB Wealth, who declined to elaborate on the investigation.
FNB's sharia advisors quit after disagreements over the board's role when the new management took charge of the division, according to former board members.
A bank's sharia board supervises the institution's products and activities and certifies that they comply with Islamic principles.
FNB said its new sharia board would probably be made up of scholars from local and international Muslim communities, as its Islamic finance division would leverage the bank's presence in India and the rest of Africa to grow there.
A new sharia board for FNB, the retail arm of South Africa's second-biggest bank FirstRand, could help its business by increasing consumer confidence in its Islamic products.
"(When) members of the community have no method to get confirmation or comfort from the sharia board, that puts them on guard. They say, 'I'm not getting information from the sharia board, do I continue to deal with the bank?" said South African businessman and FNB client Abdur Moosa.
FNB says Islamic finance is currently not a "material contributor" to its bottom line, but that it intends the business to expand its contribution in future.
Muslims make up only about 2 percent of South Africa's population but the country is looking to establish itself as a centre for Islamic finance in sub-Saharan Africa.
There are no national rules for Islamic finance in South Africa - banks are subject only to conventional banking laws - so the Islamic operations of institutions such as FNB, Al Baraka and Absa are under pressure to demonstrate to the public that their sharia boards are effective.
"Up until we get to a point where we start seeing a concerted regulatory change to the way Islamic banks operate in the country, and defined governance standards specifically around the functioning and the role of sharia boards, we ensure ourselves that through the boards we have, sharia compliance is always adhered to," Muhammad said.
The bank says it has learned a lesson from the recent incident and will draft clear rules and roles for its new sharia board, which will not include approving the appointments of senior personnel - a point of contention with the previous board, according to bank sources.
"In the absence of terms of reference, everybody (wonders) what's the role of the board," said Enslin.
"What is really key is to ensure that there's proper terms of reference and a constitution in place, which will (ensure) roles are quite clear, and their accountabilities."
Businessman Moosa, who has been a client of FNB Islamic Finance for nearly all eight years of the division's existence, said he had not entered new transactions with the bank since the last sharia board resigned.
( Reuters / 28 August 2012)

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Indonesia: Islamic finance could support infrastructure sector - S&P

Aug 28 (Reuters) - Indonesia could utilize the potential of Islamic finance to fulfil its ambitious infrastructure plans, Standard & Poor's said in a report on Tuesday.
The poor state of infrastructure is hindering the growth of Southeast Asia's largest economy, the report said, while noting that the government is planning to spend more than $200 billion through 2014 to upgrade and expand infrastructure.
It also noted that most infrastructure projects are backed by the private sector while the government is considering various financing alternatives to fund the rest.
"We believe Indonesia can emulate Malaysia's success thus far in utilizing Islamic finance for infrastructure development. This is due to Indonesia's large infrastructure development needs, the government's willingness to attract private capital to fund these investments, and the rising demand for investable assets of a growing domestic Islamic finance market," said S&P credit analyst Allan Redimerio.
(Reporting by Andjarsari Paramaditha in Jakarta)
(Reuter / 28 August 2012)

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