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Sunday, 16 September 2012

Malaysia: Islamic finance players call for a regulatory framework that does not impede growth

There should be a balanced regulation for Islamic finance, one that does not impede its growth or allow for abuse, according to leading industry players.
CIMB Islamic Bank Bhd CEO Badlisyah Abdul Ghani says the Islamic finance industry needs a balanced regulation, adding that there is always fear for any industry to be over regulated
“We need regulation and the financial regulator must always strive for a balanced regulation so that it is not too rigid as to choke the industry or too slack, thus allowing for abuse,'' he tells StarBizWeek in an email reply.
The kind of regulation needed for Islamic finance for any jurisdictions will be the kind that is found in Malaysia but tweaked and adapted to the specifications of each jurisdictions, he notes.
Furthermore, he says financial regulators must not see the act of regulating Islamic finance as an act of regulating religion but merely regulating commercial transactions just like any other financial transactions.
Maybank Islamic Bhd CEO Muzaffar Hisham says currently there is the uncertainty surrounding the shift to an over regulation of the industry.
“I believe, where appropriate, there should still be proper adequate regulations based on the needs of the market but do, however, feel an open and free market economy mechanism is able to provide the required market discipline,'' he adds.
He says intervention by the regulators should take into account the overall long term impact of the efficiency of the market, adding that the potential uncertainties in the changes in Islamic finance regulations could impact the risk management of the industry in the long run.
HSBC Amanah Malaysia Bhd CEO Rafe Haneef, while agreeing that there should a balanced regulation in Islamic finance, says Bank Negara has done the right thing in setting up a comprehensive standard for regulating Islamic banking to ensure prudent banking even though some quarters feel that it is over regulated.
“Malaysia's Islamic fiance industry is one of the most comprehensive in the world in terms of regulatory framework and syariah governance framework. This is because the regulatory framework , among others, clearly spells out the responsibilities of the board, management and syariah committee, etc,” he adds
Asked whether Islamic finance can enhance or promote global financial stability in view of the current global economic environment, Badlisyah says it can, if the ethics in Islamic finance (as enshrined under Syariah) are codified within a country's banking and financial regulatory framework. Without codification of these ethics, the financial market including Islamic finance will still be subject to abuse from human greed, he notes.
He feels Islamic finance biggest contribution in the enhancement and promotion of a more stable global financial market and economy, will be the facilitation of optimal financial inclusion in any nation and the encouragement of a broader and wider distribution of wealth between the poor and the rich and between nations as well as within any nation.
Rafe says besides fulfilling religious needs, Islamic finance helps the financial system to mobilise all surplus savings and enhance the country's economy and gross domestic product growth.
On the difference in risk management systems in Islamic finance compared with conventional banking, Rafe says they are parallel in most areas although there are more constraints in Islamic banking. Some of these constraints include disallowing short selling and speculative transactions, he notes.
Muzaffar feels although there may not be any fundamental differences in managing risks between conventional and Islamic, there is still a need to be vigilant in managing Islamic finance risk, adding there is a need to constantly ensure any specific risk areas that needs to be addressed adequately.
Badlisyah, Rafe and Muzaffar will be among the captains of Islamic finance who will give their views at the third Global Islamic Finance Forum (GIFF) from 18 20 September. It will be hosted by Bank Negara and the event will held at Sasana Kijang. The theme of the Forum is “Internationalisation of Islamic Finance: Bridging Economies”.
GIFF 2012 is a high-level multi-track event that brings together regulators, scholars and financial industry players who are key drivers in the global development of Islamic finance.
This event is organised in collaboration with the Securities Commission, Malaysia, Bursa Malaysia, the Association of Islamic Banking Institutions Malaysia (AIBIM), Malaysian Takaful Association (MTA) and the International Shari'ah Research Academy for Islamic Finance (ISRA). The main coordinator for the event is the Islamic Banking and Finance Institute Malaysia (IBFIM).
(The Star Online / 15 Sep 2012)

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Islamic banks sacrifice returns for liquidity – Experts

A recent Islamic Finance Industry Leaders Round Table Discussion has pointed out that as Islamic banks are generally more liquid than their conventional counterparts, Islamic banks end up earning lower returns on short-term investments.
The forum, hosted by KPMG Sri Lanka and addressed by Neil Miller, KPMG’s Global Head of Islamic Financial Services who is an International expert in the field of Islamic Finance however highlighted that this is because there are fewer short term liquidity management options available to them to manage their surplus liquidity.
The round table discussion, while comparing Islamic finance in other countries, interestingly commented on the role of tea as a commodity and the role it could play on Murabaha based treasury placements.

The forum considered the viability of using tea as an alternate commodity that Sri Lankan Islamic Finance institutions could rely on in substitution to the metal used by London or Palm oil used in Malaysia. This was followed by a detailed discussion with regards to Sukuk and different means of structuring different types of sukuk such as Sukuk al Ijara and Sukuk al Mudaraba.
“Another issue highlighted was that while conventional banks can manage their surplus liquidity by transferring funds to interest-yielding accounts with Central Banks (even on an overnight basis), most Central Banks do not offer any Shari-a compliant returns to Islamic Banks on a similar basis. It was also pointed out that an investment other than on a short term basis can create a mismatch in the maturity profile of an Islamic bank’s assets and liabilities thus exposing the bank to a greater risk. The forum also noted that most of the Islamic Finance institutions in Sri Lanka were only engaged in issuing Murabaha, Mudaraba, Ijara and Diminishing Musharaka,” a participant at this conference told The Nation.
The participant, who did not wish to be quoted, said that another key matter discussed was the treasury placement issues for Islamic banks.

KPMG Sri Lanka hosted a CEO and Islamic Finance Industry Leaders Round Table Discussion on Friday t September 7, at the KPMG premises in Colombo. 
The event had commenced with a presentation by Miller covering the areas of money market instruments, financing and capital market product, consumer financing and government notes for Islamic Finance. This was followed by an interactive discussion with the audience on the status of the development of Islamic Financial services in Sri Lanka; where the industry peers pointed out the issues pertaining to the lack of investment opportunities facing Islamic financing institutions in the country.

Miller then spoke on how, many of the banks in Sri Lanka are engaged in issuing conventional credit cards and then went on to enlighten the audience as to the mechanisms of structuring different Shari’a compliant credit card structures such as Bai Al’Inah (Buy back finance based), Tawarruk (Cash finance based), Ijara (Lease based), Ujrah (Fee based) and Kafalah (Guarentee fee based).
KPMG is a recognized global leader in Islamic Finance and has been named ‘Best Islamic Assurance and Advisory Services Provider’ in the Euromoney Islamic finance awards for five consecutive years. 
(The Nation / 16 Sep 2012)

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Al Baraka Turk Participation Bank concludes Islamic finance deal in Turkey

After the two successful deals for $240m in 2010 and $350m in 2011, Albaraka Turk has successfully concluded a Murabaha Syndication Facility in dual currencies with a breakdown of $293.2m and EUR124.5m for a total dollar equivalent of $450m with the participation of 32 banks from 16 countries. This facility will be used for diversifying funding sources and increases its role in the Turkish market. The Facility has been structured as a Shari'ah-compliant Murabaha facility with a one-year tenor and the profit margin is three-month LIBOR/EURIBOR + 200 basis points per annum. 
A total of 32 banks from 16 countries participated in the facility, including Standard Chartered Bank, Noor Islamic Bank PJSC, ABC Islamic Bank (E.C.) and Emirates NBD. Bank Islam Brunei Berhad Darussalam and Al Hilal Bank were Mandated Lead Arrangers. 
Adnan Ahmed Yousif, Chairman of the Board of Directors of Albaraka Turk Participation Bank and President & Chief Executive of Al Baraka Banking Group said, "We are very delighted to great success of the Murabaha Syndication deal of the bank this year, and this provides further evidence of the bank's distinctive reputation and position in the Turkish market, based on the strong financial position and the growing financial performance over the previous years, and it is also a global certificate of the distinctive reputation and prestige, which ABG enjoys regionally and globally."
Fahrettin Yahsi, Member of the Board of Directors and General Manager of Albaraka Turk Participation Bank said, "With the continuing and steady growth of Al Baraka Turk Participation Bank over the past decade, the Bank has now passed the threshold of a small bank and can be said to qualify as a major player in the Turkish market. Therefore, we constantly resort to strengthen and diversify our financial resources that allow us to play this role relying on the strength and integrity of our financial performance, and our ability to adapt to the current difficulties, and thus gaining excellent reputation in the Turkish market, which is our main focus, because of the diversity and abundance of economic activities and huge promising opportunities that it offers."
(C.P.I Financial / 15 Sep 2012)

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