SHARJAH // Trading halal food under unified global standards is at the top of the agenda for Islamic countries, experts said this week.
With common mistakes made by some certification bodies, experts said a universal system must be set to ensure consumers’ food is 100 per cent halal.
“Halal is a very sensitive issue that Muslims should deal with,” said Haluk Dag, secretary general of the Standards and Metrology Institute for Islamic Countries (SMIIC) in Turkey. “We must have a technical committee to deal with halal food issues, especially with new technologies in place such as mechanical slaughtering and genetically-modified organisms.”
He was speaking during a lecture on halal standards at the Halal Congress Middle East, which took place alongside the Halal Food Middle East exhibition in Sharjah this week.
The global halal industry is estimated at more than Dh10 trillion and it is growing by more than 20 per cent every year. It caters to around 1.6 billion consumers worldwide, according to Asad Sajjad, chief executive of the Halal Development Council.
But with the increase in the demand for halal products comes an increase in common mistakes made by different certification bodies.
“Most halal certification bodies do not have scientific and Sharia committees,” said Dr Hani Mansour Al Mazeedi, a research scientist at the Kuwait Institute for Scientific Research. “The two committees are needed to work hand in hand to understand new technologies, to solve emerging religious issues linked with new technologies, to understand the chemical nature of raw materials and to provide procedures to switch haram production lines to halal ones.”
He said in the west, many halal meat certifying bodies were “ignorant” about halal processed food requirements, such as processed cheese in hamburgers. “They are not sincere in selecting their halal slaughter operator,” he said. “I have personally witnessed a halal slaughterman in France who does not utter the Tasmiyah” a prayer required when slaughtering an animal.
Dr Al Mazeedi said more inspections of halal premises should also be done.
“Some bodies are not trustworthy and certify haram meat,” he added. “There must be an international trustworthy organisation that will harmonise halal services globally such as the Muslim World League of Saudi Arabia.”
Countries are starting to take the necessary steps in order to achieve that.
“For centuries, we needed a common language which defined quality and safety in our daily lives, especially when it comes to trade,” said Dr Mohammed Hussain Shojaee, the director of Faroogh Life Sciences Research in Iran. “And until we resolve this part, we won’t be able to move forward.”
After being chosen by the Organisation of Islamic Cooperation (OIC) to regulate unified halal codes for cosmetics and perfumes in June, the Emirates Authority for Standardisation and Metrology (Esma) was also selected to chair the halal food technical committee. “A single halal standard will ultimately harmonise exports and imports and ease market access to several regions,” said Saif Mohammed Al Midfa, the Expo Centre’s director-general in Sharjah.
Experts said Gulf countries have also discussed making it mandatory for all imported meat to carry a halal stamp.
“Different halal authorities follow different Islamic rulings,” said Mr Dag. “There must be a common platform where all the parties come together and argue on the specific issues to define the minimum requirements of halal standards.”
He said those regulations must be applied regionally, then globally.
“The journey from science to standard is sometimes very complicated,” Dr Shojaee said. “But Muslims are entitled to halal food that is wholesome and safe.”
JEDDAH: Saudi banks are doing a good job in the field of Shariah-compliant financing and are creating more excitement in the world about the industry, says SEDCO Capital CEO Hasan S. AlJabri. SEDCO Capital has worked with some of the leading global managers to develop Shariah-compliant investments that are as sophisticated and at often times more rewarding than conventional investments due to its low leverage, he says.
"The virtue of Islamic finance is the creation of real value in the economy thus creating real growth and jobs," he told Khalil Hanware of Arab News in an exclusive interview.
"You are not taking advantage of a situation where you make money because somebody lost that money. Here you are making money, the employer made money, the employee made money and the economy grows. That is Shariah investment," says AlJabri who has been a major player in investment banking and corporate finance in the Middle East and North African (MENA) region for more than 27 years holding leading positions in two of the region's most influential financial institutions -- NCB Group and Samba.
The sukuk market continues to grow globally due to an increasing interest in Islamic modes of financing. What prospects do you see for sukuk in Saudi Arabia? Sukuk sales in Saudi Arabia have risen to a new record in 2012 as demand outstrips supply, which is expected to continue next year. Sukuk offerings jumped to about $ 8 billion, or 45 percent of the GCC's total this year. Overall sales of sukuk in the region surged to $ 17.7 billion this year from $ 4.8 billion in the year earlier. Demand and supply fundamentals on the Saudi and GCC sukuk markets are not yet balanced, and investors will welcome new issuances.
The IPO market is not doing well in Saudi Arabia and in the region, according to some analysts. Do you expect the market to pick up in the near future? The IPO market is currently picking up quite well, especially in comparison to 2011 with more than a 100 percent increase in the IPO size from SR 1.7 billion in 2011 to SR 4.9 billion in 2012. The appetite for IPOs has become very attractive, proven by over subscriptions and the companies performing well after the offering. The PE ratio for 2012 IPOs is all on the positive side while 2011 witnessed a couple negatives. Companies, which launched IPOs in 2012, are in a much better position in their operations and not start ups.
How will the approval of the mortgage law impact the Kingdom's real estate market? We have to look at it from different angles. One, we will see the developers more encouraged as bank financing for developers will be more available before encouraged by the new mortgage law. In the past, banks were reluctant to finance the developers because they didn't have the legal framework to support that mode of financing. But now they have a legal framework so they know how to finance, where to finance, and how they can get their money back. What is important is that these developers should develop products that the market needs based on proper research. I believe that there is a strong demand for middle-income housing. The government is taking care of lower income brackets.
How do you see the investment environment in the region since the great recession of 2007-2009?
Actually you can divide the region in two to three parts. Of course, GCC states are driven by political stability and economic strength, which is backed by oil revenues. The Gulf states actually performed extremely well and have outperformed most countries in the world in terms of economic growth. Whereas when you look at some other markets that have passed through the Arab Spring they faced some uncertainties and those uncertainties have driven their markets to be weak for the time being. That doesn't mean that they will not have strong economies again in the future. On the contrary, I think Egypt as soon as it gets back its real stability its markets will grow well again driven by its very large population and high demand.
Similarly, you would expect descent growth in Libya and other nations that passed through the Arab Spring once they reach consistent political stability.
The Saudi stock market did not perform well in 2011. The Tadawul All-Share Index (TASI) fell 3.07 percent. The Saudi stock market is up over 6 percent so far this year. What prospects you expect for the market in rest of 2012? Generally speaking, stock markets are assessed based on earnings growth expectations, valuations and risk. When we look at the earnings growth for the first 9 months of this year, we could see an increase in earnings of around 17 percent year-on-year, if we exclude petrochemicals, which are the most exposed sector to global economic turbulences and the second biggest sector in term of weight of the TASI index.
With the petrochemical sector, earnings would be at 1.4 percent. Domestic consumption related sectors like telecom, retail, agrifood and industrial investments are doing very well and we expect this to continue. In addition, the Saudi market's valuation today is attractive compared to its historical levels.
There are a number of companies in the market that pay high dividend yield (above 5 percent net of Zakat). Also, there are a lot of companies growing in terms of earnings and expanding their businesses.
Furthermore, we have seen a number of excellent IPOs this year. And we have seen better liquidity in the market compared to last year. All of these lead to positive views on the market.
The Shariah-compliant financing is spreading globally. What role do you see for Saudi banks?
Saudi banks have done a good job and created more excitement in the world about this industry. Of course, commercial banks are geographically confined to Saudi Arabia or to this part of the world.
Investment companies are more international in their investments. SEDCO Capital , as a Sharia-compliant global investor, has worked with some of the leading global managers to develop Sharia compliant investments that are as sophisticated and at often times more rewarding than conventional investments due to its low leverage.
Saudi Arabia's ability to attract FDI becomes a big success story. Why has the Kingdom become a magnet for FDI? Growing economy and stable political conditions coupled with cheap costs of operation (electrical, fuel, hydrocarbon and raw materials) as well as cheap industrial land, SIDF loans and ease of registration have all contributed to the Kingdom's appeal for FDI.
What impact of the Arab Spring do you see on Gulf investments? The opportunities are still there in GCC countries for investing in hydrocarbon, manufacturing, real estate, etc. Three GCC economies are leading, namely Saudi Arabia, Qatar and Abu Dhabi, and then come rest of the GCC. These are doing well. They were not affected by the economic fallout of the Arab Spring. However, in the GCC, direct investments in the Arab Spring countries were temporarily affected and should be getting on track once these countries get back their stability.
Small and medium enterprises (SMEs) are considered the backbone of an economy. What role do you envisage for SMEs in the Kingdom's economic development? We don't have enough SMEs in Saudi Arabia. It is the private sector's duty to help the government in supporting the development of SMEs. You have to encourage these youngsters to start their businesses.
There are some very capable and serious youngsters -- men and women -- who think out of the box and very hardworking. They want to accomplish and these are winners. But sometimes you will find that some people want it the easy way. I don't think we can afford that. The government should give directives to large companies to welcome these youngsters to give them the chance and opportunity.
This is the best way to create jobs and you need to open the door for these young people. There are some successful initiatives in financing SMEs. However, a lot more needs to happen in both the public and private sectors from the creation of research centers and specialized banks to specialized divisions in existing banking and venture capital arms.
This by default will decrease the economy's dependence on oil. There needs to be smaller businesses that support large businesses like the railway, Saudi Aramco and other; Identify opportunities in emerging trends within the economy. We have also launched Riyali, a financial literacy program to educate university student, at the initial phase, and the rest of the society about money and how to sustain and grow it in order to enable the individual to get his or her idea up and running through their SME. Such an initiative provides SMEs tools to grow and shifts the weight from the government sector into the private sector.
What kind of services SEDCO Capital provides in the Kingdom and globally? Capitalizing on experience, track record and capabilities built by SEDCO as a sophisticated global investor over the past 36 years by investing in private equity, public equity, real estate, commodities and timber. SEDCO Capital is an Assets Management Company that provides investment products for sophisticated investors in Saudi Arabia and abroad that are in line with the Shariah principles.
How is SEDCO Capital responding to the new market challenges? And how SEDCO Capital is coping with aligning investment strategies by matching financial products with promising market segments? We are responding through an adaptive investment approach, a greater diversification, a tactical approach, and innovation (new products). SEDCO Capital has been moving toward a more adaptive investment approach whereby we pursue a more dynamic, flexible and where possible more thematic approach. With this approach, we strive for a balance between shorter-term, dynamic investment decision-taking, as well as longer-term investment opportunities through a combination of top-down and bottom-up selection decisions. We are also seeking greater diversification through portfolio construction and manage diversification across asset classes, geographies, risk factor exposures (risk premia) and investment themes. Another strategy we have implemented that is in direct response to the 'new economic order' is a 'tactical' approach based upon investor and market sentiment. Simply stated, this strategy will initiate tactical trades when markets are measured to be either excessively optimistic or excessively pessimistic. We also strive for innovation and strong investment performance through the products that we offer. One example of such a product is the
SEDCO Capital Global Market Sentiment Fund. We focus on developing a diverse set of new products that can meet a variety of investment needs and risk aversion preferences.
How is SEDCO Capital seeking to innovate through the development and implementation of Islamic funds platform? SEDCO Capital Global Funds is a multi-asset class SICAV SIF intended to hold a number of segregated sub-funds. This represents the largest Shariah-compliant Special Investment Fund (SIF) platform in Luxembourg and one which is domiciled onshore in a major financial jurisdiction. It is also a platform that is both cognizant and compliant with existing and future financial and funds regulation. Luxembourg is considered one of the best regulated and well respected environments that grab the attention of sophisticated asset managers and investors from all over the world. It provides a transparent and well regulated system that has $ 2.99 trillion assets under management making it the first as far as size in Europe and second globally. They have been attracting the Islamic banking industry opening up to local and global clients. From these, $ 2 billion is Shairah-compliant AUM. Besides our strong fund management capabilities, this has given us a strong operating and administration capabilities while at the same time, enabling SEDCO to pool their holdings with third party clients. This has enabled us to generate significant scale economies that can then be shared with or passed on to our clients and investment partners.
What is SEDCO Capital 's asset management and investment philosophy? Our philosophy remains in embracing to our core essence of "partnership" with our clients as well as continually innovating in the latest and newest investment trends and identifying opportunities. We do this by continually analyzing the world from an economic and financial perspective to identify these opportunities and risks. Accordingly, we build our annual investment and asset allocation strategies from an asset class mix themes and geographies thus helping us identify the most attractive opportunities and avoid excessive risks. Our investments span across a wide range of geographic and industry sectors ranging from China, India and Brazil to Australia and New Zealand in industries like agriculture, marketing and logistics. We offer private and public equity, asset and real estate management as well as platform and fund solutions to a wide range of audiences.
The world feels the heat of the euro zone debt crisis. What impact of the crisis do you see on Saudi economy? Of course, one thing is that you have a lot of Saudi nationals investing in Europe, whether it is real estate or in companies. The second factor is the petrochemical industry. Obviously, we are big exporters of our petrochemicals to Europe. The demand on our products will be affected by the European debt crisis and this has actually affected the profitability of these petrochemical companies. Third factor is the issues in Europe are not only confined to the continent but also because the sentiment and their weak purchasing power is affecting the rest of the world. Their imports from the rest of the world are also weaker, again impacting the demand on our exports.
What role does Islamic finance play in the modern global economy?
The virtue of Islamic finance is the creation of real value in the economy thus creating real growth and jobs. One of the biggest issues in the future for the whole world is job creation and you have seen that unemployment in Spain, for example, is over 25 percent now. In the US, it is close to 10 percent. Here in Saudi Arabia, we talk about 10-11 percent. It is a serious issue and we need to invest to help the creation of these jobs and sustainable growth of the economy. You are not taking the advantage of the situation where you make money because somebody lost that money. Here you are making money, the employer made money, the employee made money and the economy grows. That is Shariah investment.
And that exactly is in line with what some companies around the world focus on and call "responsible investing". Now you have the index KLD 400, which measures ethically responsible companies. So you have investors around the world, such as institutions, sovereign funds and individuals invest ethically. We were very happy that now we are hand in hand with ethically responsible investors from around the world having the same beliefs and focus.
During S&P's leaders' forum in Abu Dhabi recently you focused on "shorter business cycle theory." How does this theory work?
If you consider public equities as a good proxy for the performance of the economy, and you look at the cumulative returns of global equities, you will notice that history is almost repeating itself. However, you will notice that business cycles have actually shortened compared to the same period during the last three years. Given the number of uncertainties in the market (US fiscal cliff, Euro Sovereign Debt, and Emerging Markets slowdown), companies all around the world are less able to plan ahead and have a long-term view, and that's why you see that most countries have not yet exceeded their 2007-2008 peak in real economic activity despite the positive effects of policy stimulus.
MARC has affirmed CIMB Islamic Bank Berhad's (CIMB Islamic or the bank) financial institution (FI) ratings at AAA/MARC-1 and concurrently affirmed its rating on CIMB Islamic's Tier 2 Junior Sukuk Programme (Junior Sukuk) at AA+IS. CIMB Islamic's Junior Sukuk is rated one notch lower than its long-term financial institution rating due to the subordination of the Junior Sukuk to the bank's deposits and its other senior unsecured debt. The outlook on the long-term ratings is stable.
The rating actions on CIMB Islamic follow MARC's recent affirmation of parent CIMB Bank Berhad's (CIMB Bank) ratings of AAA. CIMB Islamic's FI ratings are equalised with its parent bank's as MARC continues to view the Islamic bank as a core subsidiary of CIMB Bank in light of its strong strategic fit with the banking operations of the parent bank as well as the ultimate parent, CIMB Group Holdings Berhad (CIMB Group), the high degree of operational integration between the Islamic bank and its parent and common branding with the parent. CIMB Islamic constitutes an important part of CIMB Group's overall franchise as the core Islamic banking and finance entity of the group providing Shariah-compliant consumer and investment banking products and services.
Positive rating drivers include CIMB Bank's and CIMB Islamic's strong domestic competitive position, resilient core earnings generation, sound risk management and strong capital adequacy. The ratings continue to incorporate a degree of systemic support in light of CIMB Bank's systemic importance domestically. Also factored in the ratings is CIMB Group's strong track record of integrating acquisitions which offsets the inherent risks of the group's active acquisition-driven growth strategy. At the same time, MARC notes continued margin pressure, heightened competition in the parent bank and subsidiary's home market and CIMB Group's increased exposure to geographic expansion-related external risks.
CIMB Islamic is the second largest Islamic bank by assets in Malaysia, with a 13% market share of Islamic assets in the domestic market at the end of June 2012. CIMB Islamic operates through the CIMB Bank's nationwide network of 312 branches, which gives the bank good access to retail funding and domestic corporates. CIMB Islamic possesses a strong competitive position in the retail financing and investment banking segments. CIMB Islamic is Malaysia's second largest Islamic mortgage financier with an 18% market share in the Islamic residential mortgage segment and maintains strong positions in domestic and global Sukuk league tables by working in close partnership with CIMB Investment Bank Berhad (CIMB Investment). The continued strengthening of CIMB Group's regional universal banking platform through acquisitions should help CIMB Islamic to enhance its regional presence in the Islamic investment banking segment and shore up potential for additional earnings generation.
CIMB Islamic's gross financing, advances and other financing expanded at slower pace during the first quarter of 2012. However, MARC notes some pick-up in retail and commercial financing in the subsequent two quarters in respect of property and auto financing, and the financing of construction and working capital. The Islamic bank's asset quality remains sound; its gross impaired financing ratio remained low at 1.08% as a percentage of total financing as at end-September 2012 amid a fairly large increase in credit impairments on financing during 2Q 2012, mostly from the non-residential property financing segment of its financing book. Nonetheless, write-offs, and reclassifications to a lesser extent, have helped to lower gross impaired financing in absolute terms (end-September 2012: RM339.3 million; end-December 2011: RM345.8 million) and keep the gross impaired financing ratio around one percentage point. While MARC believes that the bank's asset quality could see deterioration in the event of an economic slowdown, any deterioration is likely to be gradual and manageable. Provisioning coverage of impaired financing remains strong at 143.0% as of end-September 2012.
The bank's pre-tax pre-provision profit for the nine-month period ended September 30, 2012 (9M2012) increased 5.6% year-on-year while after-tax profits were higher by 3.7%. CIMB Islamic saw higher impairment charges, as well as notable increases in shared service costs paid/payable to CIMB Bank and CIMB Investment, as well as higher establishment and marketing costs. MARC sees sustained pressure on profitability on account of continued subdued financing growth, increased competition and cost pressures but expects CIMB Islamic's core earnings to remain steady.
CIMB Islamic continues to maintain a satisfactory funding and liquidity profile, supported mostly by its sustainable deposit taking business, albeit slower current and savings accounts (CASA) deposits growth. However, CIMB Islamic continues to rely on access to money market and remains a net recipient of interbank funds. The bank's gross financing-to-customer deposit ratio edged upwards to 102.7% as at end-September 2012. The dependence on money market funds is mitigated by its access to funds from its parent.
The bank's regulatory capital ratios imply satisfactory loss-absorption capacity. CIMB Islamic's risk-weighted capital and core capital ratios stood at 14.2% and 9.4% respectively as of end-September 2012. The bank recently issued an additional RM300 million of the Junior Sukuk.
The stable outlook on CIMB Islamic is underpinned by the stable rating outlook of its parent. As the FI rating of the Islamic bank is equalised with that of CIMB Bank, the subsidiary's ratings and outlook are sensitive to changes in the parent's willingness and capacity to provide support.
MANAMA: Islamic finance activities continue to venture beyond national boundaries and the industry's international growth is now stronger than ever.
The dynamic pace of innovation in the international Islamic finance industry has widened the range of financial products and services available to the global audience, thereby significantly increasing its appeal, World Islamic Banking Conference (WIBC) organiser David McLean said on the sidelines of the conference.
"In the aftermath of the financial crisis, the global economy is on its quest for a financial system that promotes sustainable growth," he said.
"This highlights tremendous growth potential for Islamic finance, given its inherent strengths of association with real economic activities.
"It is, however, essential that Islamic finance successfully adapts to the new dynamics of global finance in order to realise this vast potential.
"This requires further innovation as well as the global synchronisation of product offerings, business models, risk management practices and the supporting regulatory and legal infrastructure," he added.
Al Hilal Bank chief executive Jamil Berror said due to its substantial growth and reliability, Islamic finance has now become a global phenomenon with a number of non-Muslim countries also showing keen interest in this dynamic industry.
"While conventional banking and finance industry recuperates from the effects of the financial crisis, there is now an excellent opportunity for Islamic finance to prove its competitiveness and enhance its profile in the global financial landscape," he said.
"This calls for a stronger architecture that would allow for the most efficient functioning of the industry not only within national economies but also across borders," he added.
"The global Islamic banking and finance industry has been on a steady and consistent growth path and has made tremendous progress over the past decade, with recent reports indicating that its total asset base has now exceeded $1trillion," Ithmaar bank chief executive Mohammed Bucheerei said. "However, it is still less than one per cent of global banking assets and this highlights the vast potential for growth.
"The recent financial crisis has given Islamic finance the perfect opportunity to play a key part in building a sustainable economic structure and make significant contributions to economic growth - not only in its key markets, but also across the globe.
"For 19 years, WIBC has been at the forefront of supporting the development of global Islamic banking and finance industry," he said.
"As a trusted, leading Islamic financial institution offering a comprehensive range of financial solutions, Ithmaar Bank is delighted to be supporting this important gathering of international industry leaders," he added.
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