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Thursday, 6 December 2012

Waqaf, zakat are areas of growth in Islamic finance

Waqaf and zakat (tithe) management are among areas of growth for Malaysia as the global hub of Islamic finance, according to Fajr Capital Ltd chief executive officer Iqbal Khan.

“There are a lot of areas of growth in the Malaysian Islamic finance as the country is well positioned for this purpose and the regulations are already in place,” he told reporters after giving a public lecture on “Our Markets, Our Values — A principles-based approach to creating value in Muslim majority markets” in Kuala Lumpur yesterday. The lecture focused on the developments and key issues in the Muslim-majority markets including values which had fundamentally driven the history and development of the Islamic finance industry.

Earlier in September, Bank Mualamat Malaysia Bhd had tied up with Perbadanan Wakaf Selangor to enable its customers and the public to contribute cash to waqaf.

Kicking off the fund, Bank Muamalat had made a RM1 million contribution, while the bank employees had chipped in RM75,040 to be mainly chanelled to improve and develop health and education.

In 2010, Maybank Islamic Bank Bhd had launched Waqaf, a structured community-giving initiative that allows its customers and the public to make waqaf contributions through its payment channels.

It had then signed a memorandum of understanding with Yayasan Waqaf Malaysia. It is understood that in the latest Bank Muamalat venture, the bank also plays a role in the management of the funds.

Besides that, Iqbal added another area of growth includes the corporate social responsibility (CSR) sukuk where Malaysia can excel and become the role model economy which can create a good demonstration effect for other countries.

He said the CSR sukuk can be issued by any institution or government which have got long-term commitment budgeted for CSR causes for the next five to 10 years.

“What the CSR sukuk will do in the current climate is to create the funding for priority social sector initiatives like others. I hope Malaysia will be again the first one to issue such a sukuk,” he said.

He said previously, there was such a CSR sukuk done in the conventional format including debt for equity swaps and debt for CSR swaps including bond issuance for the purpose of vaccination on budgeted commitment of the Organisation for Economic Cooperation and Development and Bill & Melinda Gates Foundation.

Meanwhile, the Securities Commission (SC) held a public lecture in Kuala Lumpur yesterday by Iqbal, who is a recipient of the prestigious Royal Award for Islamic Finance 2012.

(The Malaysian Reserve / 04 Dec 2012)

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Islamic finance to surpass trillion-dollar mark in 2012: Tharman

JOHOR BAHRU: Islamic finance is poised to expand over the next 10 to 15 years after surpassing the trillion-dollar mark in 2012, said Minister for Finance Tharman Shanmugaratnam at the World Islamic Economic Forum in Johor Bahru, Malaysia.

Mr Tharman, who is also Singapore's Deputy Prime Minister, said that he was optimistic about the potential for the sector after it chalked up growth of about 19 per cent a year since 2006.

This has lifted total Shariah-compliant assets to nearly US$1.3 trillion in 2012.

However there is considerable scope for development since Islamic finance now forms less than 1 per cent of the global financial industry, said Mr Tharman.

Even in Muslim countries, Islamic finance constitutes less than 5 per cent of the financial sector, he added.

The minister also noted that Islamic financial institutions have mainly escaped significant damage from the global financial crisis.

"They are well-placed to grow at a time when many of the global banks, especially the European banks, are deleveraging or focusing on consolidating their balance sheets," said Mr Tharman.

He adds that Islamic finance has the potential to diversify into new growth areas such as trade and infrastructure financing in Asia and emerging markets. 

This will allow Islamic banks to reduce their exposure to the real estate sector and take advantage of the stronger growth potential of the emerging market economies.

Another factor that can boost the growth potential of Islamic finance is its focus on transparency, price certainty and its risk-sharing framework. 

Mr Tharman says Islamic finance can ride this wave of demand for simpler and more basic investments. 

Yet, he also pointed out several challenges in the industry that need to be overcome to ensure continued growth.

Among them is the need to reduce fragmentation in Islamic finance markets due to differences in accepted standards of Shariah compliance.

"This has hampered the flow of liquidity between jurisdictions and is in part why there are presently no Islamic equivalents to the international monetary and bond markets." 

The minister also touched on the need to manage capital flows in Asia and emerging market economies.

Excessive capital inflows can cause volatility, and it would be "wise to strengthen our policy toolkits in Asia, so that we can deal with unpredictable and often excessive capital flows," said Mr Tharman.

One of the policy responses is to curtail volatility in the exchange rate in the short term, he said.

Mr Tharman also pointed to macro-prudential policies such as property cooling measures to discourage speculative demand for residential properties. 

"These targeted administrative and prudential measures are not conventional macroeconomic tools. But they are likely to remain part of our policy toolkit, at least for the foreseeable future."

The finance minister has also called for greater depth in Asia's capital markets, especially the corporate bond market.

"Broader and deeper capital markets will allow investors to invest for the long term while hedging risks," Mr Tharman said.

Separately, the minister also said that Singapore and Malaysia were happy with the progress of joint ventures on both sides of the Causeway.

The two countries will continue to take steps to improve connectivity, cross-border trade facilitation, and immigration processes, he said.

Mr Tharman also met Malaysian Prime Minister Najib Razak on the sidelines of the forum.

DPM Tharman said that bilateral relations between the two countries were well and that joint developments in Malaysia's Iskandar region, for example, will enhance the complementary space between both economies.

Prime Minister Najib expressed interest in moving ahead with discussions concerning the proposed high-speed rail link between both countries and also hoped for a joint launch of projects on both sides of the Causeway next year under the Points of Agreement with Singapore.

"There will, over time, also be increasing pressures on our smaller and medium-sized businesses because of shortage of labour in Singapore and shortage of land. And increasingly, they will assess where best to base their operations, particularly those that require more labour and more land. And Malaysia is of course, a very logical hop away, very easy in terms of operational flexibility and logistics," said Mr Tharman.

(Channelnesasia.Com / 06 Dec 2012)

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Call for harmonised Islamic financial reporting

KUALA LUMPUR: A new report by the Association of Chartered Certified Accountants (ACCA) and KPMG has called for standard setters and Islamic banks to work together to harmonise financial reporting.
ACCA said the rapid global growth in Islamic finance meant that it must be reported in a way that was harmonised and more consistent.
“The report calls on the International Accounting Standards Board (IASB) and the Islamic finance industry to work together to develop guidance, standards and educate the investor community on key issues,” it said in a statement.
“IASB should consider issuing guidance on the application of International Financial Reporting Standards (IFRS) when accounting for certain Islamic financial products which are offered by Islamic financial institutions and conventional banks.”
ACCA said they should also consider issuing guidance on additional disclosures that could be made for stakeholders who were seeking information on the entity's syariah-compliant operations.
“The industry needs to engage more with local regulators to understand their expectations of financial reporting and the disclosure of Islamic financial instruments,” it said.
ACCA head of international development Aziz Tayyebi said the key challenge faced by Islamic finance and global standards setters was how to resolve the fact that Islamic finance institutes (IFIs) in different countries reported transactions in different ways.
“If they are to remain competitive with conventional counterparts, their financial reports need to be comparable. This will involve a great deal of work and education, but should be beneficial for IFIs and those who rely on their reports,” he added.

(The Star Online / 05 Dec 2012)

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