Libya says pushing forward with Islamic finance plans

The country approved an Islamic banking law in May and has been working to amend its legislation to attract foreign investment and stimulate its private sector following last year's war that ousted Muammar Gaddafi.

"The demand is so high in Libya so we set up a higher committee for Islamic finance...Now they are working to set up a road map for Islamic finance in Libya," Elkaber told reporters on the sidelines of an Arab central bankers' conference in Kuwait.

Asked when Libya might be able to start implementing the rules, he said: "Hopefully very soon. Hopefully this year."

He said the authorities envisaged several options for Islamic banking services. One would be to allow conventional banks to open branches or windows for Islamic finance; another would be permitting conventional banks to become Islamic. Libya is also looking at introducing a special licence for Islamic banking, he said.

The licensing option is still under discussion because authorities have yet to agree on capital requirements, he added.

Apparently for ideological reasons, Gaddafi did not support the development of Islamic banking, which follows religious principles such as bans on interest and pure monetary speculation.

Libya's banking system under his regime was dominated by a few state-owned institutions; most ordinary Libyans did not use credit cards and their banking services were largely limited to basic cash deposits and withdrawals, making it easier for Gaddafi to keep control over the economy and society.

The country's new authorities want to develop the financial sector and the central bank has been looking to update a 2005 banking law which first allowed foreign banks into Libya.

Asked whether planned changes to the law might mean that Libya would start awarding new foreign bank licences soon, Elkaber said that topic was under assessment.

"We asked the World Bank to do a financial sector review - they sent the first draft and we need to review it. Then we will decide," he said. "But Libya will be an open market anyway, for everyone.

(Reuters / 01 Oct 2012)

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IDB eyes investment in Kazakhstan, Central Asia energy, farming

The Saudi Arabia-based multilateral bank's private sector arm, the Islamic Corporation for the Development of the Private Sector (ICD), said it was considering financing farming projects in Kazakhstan from its $600 million agribusiness fund.

"There are Gulf countries which have the capital but lack the agricultural resources, while there are countries in Central Asia, Africa, which have the resources but not the capital. This fund will try to bridge the gap," ICD Chief Executive Khaled Al-Aboodi said on the sidelines of a conference.

"We are looking at Kazakhstan," he said.

Kazakhstan's resource-driven economy, at $185 billion the largest in Central Asia, presents opportunities for Islamic banking.

Seventy percent of its 17 million population is Muslim, and investors in Kazakhstan have been looking for alternative sources of finance since the financial crisis laid bare Kazakh banks' exposure to bloated real estate markets and foreign borrowing.

President Nursultan Nazarbayev, a 72-year-old former steelworker who has led Kazakhstan since Soviet times, has given his support to the development of an Islamic finance industry in the country.

Al-Aboodi said the ICD's agribusiness fund was considering grain, meat and dairy projects in Kazakhstan, one of the world's top 10 wheat exporters, for sharia-compliant investment.

Its Central Asia-specific renewable energy fund is lining up potential solar and wind projects, he said, adding that the fund had commitments from government and institutional investors for more than half of the $50 million it plans to raise.

Kazakhstan's open steppe has huge potential for renewable energy, although investment to date has been minimal in a country that also holds around 3 percent of global crude oil reserves and is the world's largest uranium miner.

"This sector (renewable energy) is not receiving enough attention. Everyone is focusing on oil and gas," said Al-Aboodi.

LEASING COMPANY

Oil-rich Kazakhstan has shelved plans for a sovereign Islamic bond issue, but the issuance of a debut sukuk bond this year by the state-run Development Bank of Kazakhstan was a major breakthrough for Islamic finance in the country.

The ICD also said it had agreed with a group of international and local investors to establish the first ijara, or Islamic leasing, company in Kazakhstan, with initial paid-up capital of around $35 million. The company is due to launch in early 2013.

One of the potential investors is Al Hilal Bank, the Abu Dhabi-based lender that became the pioneer for Islamic banking in Kazakhstan when it opened its doors in March 2010. Al Hilal is still the only Islamic bank operating in Kazakhstan so far.

"We hope to be a joint shareholder in the leasing company," Al Hilal Chief Executive Prasad Abraham said. "We have a portfolio in excess of $120 million. Al Hilal has become profitable, proving that the Islamic banking model can work."

Abraham said, however, that the presence of a second or third Islamic bank would be important to the growth of sharia-compliant banking in Kazakhstan.

Al Hilal represents less than 1 percent of Kazakhstan's total banking assets. Entry rules for new players - Islamic or conventional - are strict, with a minimum capital requirement of 10 billion tenge, or around $67 million. Kazakh law does not permit conventional banks to run Islamic sections.

"One is a very lonely number. Contrary to what people often ask me, we wouldn't consider another Islamic bank coming in as a challenge; we would consider it complementary," Abraham said.

(Reuters / 01 Oct 2012)

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Fitch Assigns Bahrain Mumtalakat Holding Company B.S.C. Sukuk Murabahah Programme 'BBB' Rating

Fitch Ratings has assigned Bahrain Mumtalakat Holding Company B.S.C.'s ('BBB'/Stable/'F3') MYR3bn Sukuk Murabahah Programme a ' BBB' rating. The final rating is the same as the expected rating reflecting the completion of the issuance and receipt of final documents conforming to the information previously received by Fitch.

The Sukuk Murabahah Programme's rating is in line with Mumtalakat 's Long-term Issuer Default Rating (IDR) and senior unsecured rating. Mumtalakat is wholly-owned by the Government of Bahrain and was created to act as an independent holding company for the Government of Bahrain's stakes in strategic non-oil and gas assets of the Kingdom of Bahrain.

According to the terms outlining the transaction's structure, Mumtalakat will issue MYR-denominated sukuk (Islamic bonds) of up to MYR3bn (aggregate outstanding) or its equivalent in foreign currency which it will use for its Shariah-compliant general corporate purposes as source of capital and as part of its strategy for refinancing existing debt maturities in the coming years.

Mumtalakat's liabilities under the sukuk issuances will be governed by the laws of Malaysia, and Fitch believes that they would rank pari passu with Mumtalakat 's other senior unsecured obligations. That said, legal enforcement of liabilities under Malaysian law relating to Islamic finance in Bahrain has not been adequately tested yet and court judgments might depart from this view. Fitch's rating for the Programme reflects Fitch's belief that Mumtalakat would stand behind its obligations given its important role in the Government of Bahrain's investment strategies and related implications of any default for the Bahrain sovereign.

In accordance with its criteria, by assigning a rating to the Programme, Fitch is not expressing an opinion as to whether the Programme and/or any sukuk issuance under the Programme are compliant with Shariah principles.

The agency applies its parent and subsidiary rating linkage methodology in rating Mumtalakat, as it believes that a strong relationship exists between the company and the Kingdom of Bahrain ('BBB'/Stable/'F3'). A change in Bahrain's ratings would result in a change in Mumtalakat's ratings. Any change in the implied support of, commitment from, and/or ownership by the Government of Bahrain could have negative rating implications for Mumtalakat. In addition, raising substantial debt on behalf of subsidiaries or the companies in which Mumtalakat has investments or guaranteeing additional debt of subsidiaries or such companies by Mumtalakat would be a negative credit factor.

(Global Arab Network / 01 Oct 2012)

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Takaful growth on the rise in Pakistan

The practice of Islamic insurance known as Takaful is on the rise in Pakistan and the indicators allude that the phenomenon is on the upward swing in terms of performance and efficiency. The five companies working in Pakistan have been making notable progress with the 12 percent growth rate.

This was stated during a seminar on ‘Takaful: Evolution and Current Status in Pakistan’ held at Institute of Policy Studies (IPS), Islamabad by Riphah International University, Islamabad Head of Riphah Centre for Islamic Business Professor Atiq-uz-Zafar while delivering his presentation.

International Islamic University’s Shariah Academy Director General Dr Mohammad Tahir Mansoori chaired the seminar, which was also addressed by IPS DG Khalid Rahman.

The seminar was also attended by a group of insurance professionals and Ministry of Finance apart from a large number of finance professionals, Islamic scholars and students.

Quoting verses from the Quran and referring the verdict of Federal Shariat Court regarding the prohibition of interest, Prof Zafar said that interest (riba) widened the gap between the rich and the poor and created parasites in societies.

“It is ironic that while we all try to avoid trivial social evils, we pay much less attention to this serious issue plaguing our society,” he deplored. 

Prof Zafar deliberated upon the principles and contracts of Islamic system of finance, which provided sound basis to avoid such crisis. 

He said that Islamic financial contracts prohibit riba (interest), Gharar (uncertain, unknown, doubtful and high risk) and qimar (gambling), maysir (game of chance), sale of debt with debt, and combination of two mutually inconsistent contracts. 

He also apprised the participants about the major financial contracts in Islamic banking which included muajjal/murabaha and musawama, salam, istisna’a, musharakah, mudarabah and Islamic insurance system known as Takaful.

Dr Mansoori dispersed the impression that there was some controversy regarding the Shariah legitimacy of the conventional insurance practices. He said that Islamic scholars across the world have settled this issue in the decade of 1990s declaring conventional insurance as against Shariah. Responding to a question he noted that it (Takaful) is basically a question of being Shariah compliant, not necessarily Shariah based.

Dr Mansoori opined that despite the tremendous progress and proliferation of Takaful practice in the country there were some areas that need to be addressed to make it more effective and beneficial. 

IPS DG Khalid Rahman, while concluding the session, drew the attention of the audience towards the emerging trends among people especially in Muslim societies including Pakistan towards adopting Islamic alternatives to the current capitalist economic system.

He said that though in today’s capitalist world it was not possible to provide Islamic alternatives in the ideal sense without establishing the Islamic system, however Islamic financial institutions were providing a window into it. He urged the Islamic finance professionals and scholars to continue striving for the ideal and do not be satisfied with the present Islamic financial solutions, which may be fulfilling the minimum requirements of Shariah and hence may be ‘compliant’ to it but were not ideally Shariah-based.

(Daily Times / 30 Sep 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